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Showing posts with label cashflow. Show all posts
Showing posts with label cashflow. Show all posts

April 15, 2011

The Big List of Do's and Dont's for Real Estate Investing

Happy Friday !
   We have made it through another week.

   Well...it's here ! "The Big List of Do's and Dont's for Real Estate Investing". Shall we proceed?

   The biggest caveat we have heard from almost everyone that we have been speaking with is to not let your emotions get in the way of investing. "I would say the number one don't would be to not let your emotions get involved with a property. It's not like a car, you don't have to drive it on a daily basis, it's an investment.", says Jamie McKeehan, a Professional Mortgage Planner, who provides the following example; "Just because it's a lake front property with a super cool dock that reminds you of your grandfathers lake house when you were a kid...doesn't make it an investment." Ankit Duggal, Founder and Investment Director of RER, LLC, a real estate investment firm that specializes in the acquisition, renovation, and sale of distressed assets agrees, and says that some investors tend to, "get attached to a property" and are therefore, "not able to see past a bad transaction."

   A variation on this, per Duggal, is that others just become, "emotionally fixated on "winning," and become so intent on acquiring the property that they lose focus on the numbers." Oscar Zamudio, a Commercial Executive with Coldwell Banker Commercial NRT, says that some investors are, "willing to add their money to the monthly mortgage simply because they fell in love with the property." Duggal adds the following tip: "Don't personalize an investment home. Keep the rehab neutral so you leave room for the personal taste of all buyers."

   "Don't be attached to investing in your local market.", says Brian Sparr of Sparr Properties, who adds that, "If you feel the need to be able to drive past your investment property at any given time, you are very likely stunting your investment growth.". Sparr advises that you should be, "open to taking advantage of the opportunities other markets are currently providing (even when you factor in the added expense for hiring a property manager to oversee the unit)."

   Obviously, a huge factor in Real Estate Investing is funding. Zamudio speaks about a "basic rule" in investing; "If you can borrow money at a low cost why not maximize it by buying the most amount of money that the investment can cover through its income." Sparr suggests that you have a "long-term plan that you can execute against", and that, "Simply owning a rental property doesn't make you an investor. The purchase or sale of a property needs to clearly fit into your overall plan and help you get closer to realizing your ultimate goals.

   David M. Rice of New Home Star Corp, says that there is, "one overriding piece of advice that I would give to anyone I advised today", which is, "The investment has to make sense.", and continues to say that you need to, "Forget buying it because it is "so much lower priced than it was before" or because "this area is sure to boom"." Rice says that successful real estate investing, "in my opinion, should be based on making investments that make financial sense. One shouldn't count on appreciation, even if it seems "certain". Of course, if the purchase can be appraised a higher number than the purchase price, that's substantiated (relatively) equity. If the property needs work and you do comparisons to find out what the property would be worth when the work is completed, that too is a different story. Look at real estate investments at this point in time. Consider all of the known factors and make a decision that makes sense.

   The Big "Do's" here, are, "Identify what your goals are; Cashflow? Rate of return? Percentage of return overtime? Tax strategy? Appreciation only?", per Glenn Bill of The Glenn Bill Group, and ultimately, per Duggal, "find your buyers needs and fill it. You'll be successful if you can provide what others demand."

   Barb Getty, a Real Estate Investor, Landlord, and an Author, provides some operational tips, for example, to, "Protect yourself by operating under an LLC or other corp., and if you do your own management, tell your tenants you’re the property manager – not the owner. This makes them feel you’re in their corner, a go-between, and when things get rough you can say, “Let me talk to the owner and I’ll get back with you.”. Getty also says that you need to have an, "airtight lease", and "do enforce it", because, "The best lease in the world is worthless if you can’t, or won’t, enforce it's terms. Landlords quit this business because they’re frustrated, overwhelmed and burned out. The reason? Tenant management issues. If you have a great lease and follow it, burnout won’t be an issue."

   "Don't rely solely on the information you find on the Internet.", says Sparr, who adds that, "there is no substitute for the facts obtained by getting your hands dirty in the local market." Bill suggests that you, "hire an agent to help you. An agent who has owned rental property in the past. Preferably an agent who has lost investing money in the past." McKeehan takes this further, and says that, "A must do, is to speak with multiple Realtors about the property, even if you are loyal to one. It never hurts to hear multiple opinions from professionals, this will save loads of cash.

   OK, so once you have your goals, funding, structure, and your team in place, where to invest? "Location, Location, Location", say Dina Goldentayer of the DS Team in Florida, ..."When buying for investment, the future upside of a neighborhood is the most important factor. What makes people want to live there? Good schools, new restaurants, proximity to highways. These are all factors that will attract a renter and a future buyer when it's re-sale time."

   Christine Michaels, an investor of condos in one of the hottest markets in Florida, suggests that you check the crime grid for the neighborhood. Additionally, Michaels says that if you're building condo high-rises, you need to, "Find out if empty lots are zoned for high-rise". If you are investing in a condo, She also suggests that you, "attend a homeowner's meeting", and also, ask if there is upcoming special maintenance", which is, "critical as it will affect your budget."

   Once you find a property that meets your investing criteria, says Bill, "Inspect the property". Michaels suggests that you, "Kick the Tires", some of which she has done, such as, "talked to residents, flushed the toilets, observe the management office". Duggal adds that you need to, "Do your homework: Perform the market research and the neighborhood comparables, and inquire upon multiple contractors, electricians, plumbers, and other people who will be doing work on the house for you. This way you know that you're well informed, well prepared, and that you're getting the best deal possible.

   When it comes to tenants, Bill recommends that you, "Don't purchase unless you have a tenant history, verify taxes and financial viability of the seller. i.e: check the title close(ly) with a title company". Bill advises that you do not, "get involved with a tenant with out a lease and proper disclosures being signed, especially for lead based paint and mold", and also suggests that you should not, "agree to pay for tenant's utilities this can cost you big time". Getty says that you should not be, "overly trusting !", and, "When your tenant is behind in the rent payment and promises it will be there next week, make them put it in writing, signed by both of you, with the threat of an eviction being filed if the rent isn’t paid by then. I learned – the hard way – that “next week” never comes. Choose to think the best, but by all means, have a backup plan!"

   Some additional tips, says Goldentayer, are to, "Read the Fine Print. It is crucial, especially in a condominium, to evaluate the building's rules on leasing, pets, and re-sales. As an investor who is unlikely to occupy the property, it's vital to make sure it can be easily rented to produce steady income." She also says that, "The Numbers Must Work. For an investment property, buyers are much more focused on the balance sheet versus how pretty the kitchen cabinetry is. So, run the numbers carefully and always assume a worst case scenario, such as a period of vacancy and deferred maintenance issues."

   Sparr advises that you should, "have a sizable amount of money set aside as an emergency reserve.", and says that, "The unexpected is going to happen - appliances going out, the roof needing a repair, missed payments from a tenant - but by setting aside enough money to cover many of these types of issues, you will protect your interest in the property and allow yourself to sleep soundly each night".

   For rehabs, Getty suggests that you, "Don’t overdo it on the rehab.", and says, "...That middle income home is only going to bring middle income rent, like the other homes around it. Make the rental attractive in less expensive ways – nice landscaping (good curb appeal), pleasing paint/carpet colors, nice window coverings, faux countertops that imitate the expensive stuff."

   In closing, Bill says that you should not be, "hurried or pushed into making a decision without understanding all the risks.", "Don't think you will get rich quick. The only people getting rich quick are people selling get rich quick schemes!", and finally, "Have the guts to go ahead with the purchase once it all makes sense."

   Hopefully, these Do's and Dont's can be incorporated into your Real Estate Investing endeavors. If you have anything to add, there are a lot of people reading this post, and would love to read your helpful comments.

Have a Great Weekend, and Happy Rent-to-Owning !
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

TAGS: #realestateinvesting #realestateagent #rental

August 6, 2010

UPDATED: Right Time to Buy? Top Real Estate Investing Markets

Good Morning,

Happy Friday! With the dreaded humidity taking a swan dive here in New York, it should make for a nice and dry weekend...finally !

As we discussed on Wednesday, we had a ton of requests for us to discuss the hottest markets for Real Estate investments. Keep in mind that these requests were NOT for the hottest housing markets for the standard property buyer, however, for the top Real Estate investing markets.

We warn you - this is a long post - but there is valuable information here !

We have turned to some experts in their given regions, and we have summarized these markets below. However, keep in kind that they are not in any specific order, and we would need to compare apples to apples in order to put them in top to bottom order, which for our purposes here, is outside of the scope of this Blog post. However, some corroborating reasons are given along with each city/region listed below.

Detroit: We had two experts weigh in on the Motor City. Dennis Fassett, a local investor, tells us that, "Nice brick houses in the suburbs with three bedrooms, basements, appliances, garages, and fenced yards can be bought for $40-50,000 or even less in some cases depending on the area. And the properties I have bought like that rent for $1000 per month and up. The ROI is off the charts.". Fassett says that he currently has, "11 houses and 43 apartment units here, and two more deals in process, and I'm looking to buy as much as I can while the market stays depressed."

Drew Sygit of The Lending Edge at First Michigan Bank , concurs, and states that, "Detroit the city is pretty hot. Meeting today with an Australian CPA who's clients all want to buy $30-50k properties they can rent for $900/month. We've got more foreign demand than domestic!"

Memphis: We spoke with Ryan L. Hinricher, a Senior Housing Analyst with Investor Nation, and he said that, "In Memphis an investor who's looking for income property can purchase pristine investment homes at or near median home prices of $115,000, which offer a positive cash flow, or properties as low as $5000 in areas typically higher in crime and lower in income for section 8 rental purposes". Hinricher also reminds us that, "Memphis was recently named one of the 5 best housing markets for 2010 by MSN, Realty Tracs best places to find a foreclosure in 2010, US News and World Reports #1 place for real estate steals in 2010, and Smart Moneys 5 markets expected to fare best in 2010. This is primarily because the transportation industry is one of the first to lead an economic recovery.".

Orlando: Phil Peachey, a Realtor with Regal Real Estate Professionals in Orlando, Florida, says that, "I have apartments at present at $20,000 and 4 bed 3 bath homes with pools near Disney for $100,000. These were 3 times the price a couple of years back.", and that, "Savvy investors are snapping these up in large numbers as they know the market has to come back at some time". I have to concur, as we got our start in the Orlando/Central Florida market, and that seems like a perpetually favored region.

St. Louis: Adam Kruse, a St. Louis Realtor of The Hermann London Group, advises that a lot of the investors are making their own rules on the purchase criteria in that city. Kruse says that, "There are areas of St. Louis where people just don't really buy as primary residence, but they buy them all the time to hold for rental",and says that he has a client who advises him to, "Take the purchase price, subtract off the last 2 zeros, double that number, and I want to be able to get that for rent.", and that they have helped him buy at least 15 places with that criteria. (example: purchase price $35,000, rent amount $700+ per month.)

California: Griff Straw, President of Solidifi, a technology-based appraisal management company, tell us that in California, "Coastal areas continue to offer good opportunities for investors, especially in California, where San Diego has been among the strongest areas in the country. The more remote coastal areas like Oxnard, north of Los Angeles, are less of a sure thing for shorter term appreciation, but may offer potential.

Some Additional Areas that show promise for the Real Estate investor have been identified by Alfred Miller President of Private Lending Solutions, LLC. Miller has, "identified the discount and cash flow properties as well. These are investor friendly markets". The markets he mentioned are Dallas-Fort Worth-Arlington (Texas), Houston (Texas), Tulsa (Oklahoma), San Antonio (Texas), Salt Lake City (Utah), Phoenix (Arizona), Indianapolis-Carmel (Indiana), Denver-Aurora (Colorado), Oklahoma City (Oklahoma), and Charlotte-Gastonia-Concord (North Carolina/South Carolina)

We hope that this list will be of significant help to you. We welcome your comments on any and all of the cities mentioned above.

Have a Great Weekend, and Happy Rent-to-Owning !

UPDATED: Top 5 Blog post for 2010 (For more information, CLICK HERE)