Posts Tagged ‘Investing’

How many rental properties are too many?

Written by Sarah Block on . Posted in edited, For Landlords, Income Ideas, paid

How many properties are too many?At my high, I had four rental units and, for me, it felt like too many. My husband and I have two full-time jobs, two kids, and too little leisure time. When much of our spare time was focused on our properties and not our kids, we decided it was time to simplify.

But, that’s my personal story. Everyone is different, and where four units felt like too many for our limited time, 22 units might be perfect for you. Real estate investors need to look at three things when deciding how many rental properties to acquire:

1. Personal finance goals

While some may think of real estate investing as a business, you are still using your personal finances to purchase rental properties, keep them in top shape, and cover tenant turnover costs. So, while rental properties are a business, you are funding it. Here are some things to consider when deciding how many rental properties to have in your portfolio.

Debt

How comfortable are you with debt? There are two types of real estate investors. Which investor are you?

Very comfortable: The first type is building a business. Typically, when someone builds a business, they get a business loan and/or find investors. This type of investor feels comfortable with debt and confident that they will pay it off. They will likely feel comfortable taking on more debt to build a bigger portfolio.

Not at all comfortable: The second type of real estate investor is the debt-free journey investor. They build their portfolio as part of a way to meet their financial goals. This investor is less likely to want to take out mortgages and has a goal of paying down the mortgages as fast as possible. They are more likely to pay cash for a property when possible.

Related:  How to Finance a Rental Property

Hefty retirement savings vs. passive income

When buying rental properties, you likely have one of two financial goals in mind: hefty retirement savings or passive income.

Those whose goal is a great retirement income will likely want a larger portfolio. If you accumulate properties in your 30s and pay the minimum mortgage, they will be paid off by the time you retire. You can accumulate more properties because your goal isn’t paying down the mortgage but rather putting money aside for down payments on more properties. This investor sacrifices a larger cash flow month to month to accumulate more properties and have a larger passive income cash flow in their 60s and beyond.

The investor whose goal is passive income now has a smaller portfolio and focuses on clearing the mortgages off their current rental properties. One way these investors handle their profits is to put them straight to the balance of their mortgages. As soon as the properties are paid off all rental income (other than regular expenses) will be passive income that can be used now.

2. Available Time

When deciding how many rental properties to have in your portfolio, consider the time commitment. Real estate investing is called “passive aggressive income” for a reason. It isn’t completely passive. Time is spent working with tenants, making repairs, and finding tenants. It can be quite time-consuming depending on your property and the tenants you have.

Related: Stress-free Property Management with Paula Pant from Afford Anything

Self-managed properties

If you self-manage your properties, consider the time it takes to manage each unit. While Cozy saves massive amounts of time with rent collection, maintenance tickets, and semi-automating the tenant application process, there are still tasks that need to be done. Cleaning, maintaining the property, responding to maintenance tickets, and tenant showings are done by you. Sit down and determine how many hours each unit takes of your time. Do you have that much extra time to dedicate to another property?

Property manager

Do you have a property manager already managing your rental units? Then time isn’t a factor. A property manager can take care of the time commitment needed for your properties. However, the cost of a property manager does need to be considered. Is your property still cash positive when you take into account the cost of the property manager? If yes, it might make sense to add another property to your portfolio.

3. Real Estate Investment Strategy

When deciding whether or not to add more doors to your portfolio, consider your overall investment strategy. The first item to consider is profit. You are in the real estate investing business for one primary reason, and that is to make money. How can you make the most money with the least hassle?

Profit

Your strategy might include more properties that are less expensive or fewer properties that are more expensive with higher rent potential. Neither option is the wrong one. What is wrong is not doing your homework. Calculate the cap rate, do the research, and learn about the communities before investing. Compare what profit you can make with either choice and don’t make assumptions. You might be surprised what heeds the most profits.

Law

Consider any laws that might make life more difficult with more properties. In Illinois for example, if you have 5+ investment properties, you need to hold security deposits in an escrow account, return the deposit within 30 days, or provide detailed receipts within 45 days of move out. Look for landlord-tenant laws in your state, as each state is different.

Conclusion

While four rental units were too many for me, it might be perfect for you. Maybe it is not enough for you. It depends on your financial goals and available time. Look at these factors and decide what makes sense for your situation. There is no such thing as too many rental properties or too little for that matter. There is only what works for you.

When to sell a rental property

Written by Laura Agadoni on . Posted in edited, For Landlords, Income Ideas, paid

I often hear people talk about the day they’ll sell their rental property.

That’s a big assumption. There’s no law that says you must sell a rental property someday. You can hold onto rental property throughout your retirement years if it’s bringing positive cash flow.

But there are legitimate reasons to sell a rental property. So how do you determine the reasons and timing?

You want to cash in

Guessing the market is one strategy—buy low, sell high. This is a favorite strategy of house flippers who traditionally sell after holding the house a year or less. House flippers are typically not buying property to use as rental property. That’s usually Plan B if the house won’t sell. But some flippers have a five-year plan, where they hold a property for five years or so, making improvements gradually while collecting rent. Then when the house is sufficiently upgraded and if prices have risen in the area, they sell.

The property isn’t performing well

The best way to determine whether your rental property is doing well is by cash flow. Are you making or losing money each month? Determine this by taking your rental income and subtracting all your expenses associated with the property, including a mortgage payment. If you’re losing money, you might want to sell.

But first consider whether you can tweak the numbers so that you will have a positive cash flow. Do an analysis of what similar rental properties charge for rent in your area. You can save yourself some research time by getting a Rent Estimate report in Cozy. If you find you can get more for your rental than what you’re currently charging, consider raising the rent as soon as you can and keep the property.

For a more in-depth look at number crunching, check out this blog post. (I’ve interviewed this author many times, and he knows his stuff.)

You’re not cut out for the job/you’re just over it

Some people like the idea of renting property, but they let their emotions get in the way. They may become friends with their tenants, for example. If that happens, they don’t make the best business decisions. They may let tenants make late rent payments, for example, or they may waive their right to make periodic inspections because they feel awkward doing so. Landlords like this, may find—as what happened to me with my first rental—that their tenants have become way behind on rent and have damaged the place beyond repair. If that happens, it could be time to sell—either that or hire a property manager.

Related: The temptation of being friends with your tenants

You’re moving

If you manage your own rental properties, it’s easier to do so when you live nearby so that you can pop over when it’s time to inspect and maintain the property or to make or arrange repairs. If you want or need to move, you can keep your rental property and manage it from afar. You’ll probably need to hire a property manager, though. Another option would be to sell, especially if you’re moving to a favorable spot for rental property investment. You can buy another property in the new location.

Related: Should I invest in local or long-distance rental properties?

You want to trade it for something else

The rental property you own might be due for some major repairs, such as a new roof or HVAC system. You might want to sell rather than shell out a lot of money to replace big-ticket items. Or you might have bought an inexpensive property, but now you want to buy a nicer property and collect higher rents. If you decide to trade up, consider doing a 1031 exchange to postpone paying tax on any income gain your receive through the sale.

Related: The complete guide to 1031 exchanges

It’s time based on your plan

You might have bought rental property knowing that an event would trigger its sale. This could be sending a child to college, buying your dream home, or getting ready to retire. A death in the family or a job layoff are other reasons you might want to sell your rental property. But don’t make rush decisions. You might wish to meet with a financial advisor during emotional times in your life. It might make more sense, for example, to hold the property if it’s a good income stream for you.

The bottom line

If you decide it’s time to sell a rental property, you can feel better about your decision if you have a solid reason. Note that you can sell your rental property at any time, even with tenants in it. Just make sure you are doing so correctly.

Related: Tenant’s rights when selling an occupied rental property

What are your residential mortgage options when buying a rental?

Written by Sarah Block on . Posted in edited, Income Ideas, Mortgages & Loans, paid

Recently, I went down a residential mortgage rabbit hole.

I’ve been considering buying a vacation rental. With dreams of beachfront cottages and wooded cabins, I went online to research financing options. There were so many. True to myself, I obsessively researched it until the idea of a vacation rental gave me chills.

The amount of money we would have needed for a loan was too low for a traditional mortgage. I wasn’t aware that mortgages had minimums. I also wasn’t aware of the myriad of other stipulations with investment mortgages.

Securing financing for an investment property is more difficult than for your primary home. You need to prove that you can not only afford your mortgage but, if the property isn’t rented, you can afford the second mortgage as well. In addition, the down payment needs to be higher than with your home at a minimum of 20%. No small feat.

Here are the seven mortgage options for investment properties.

7 investment property mortgage options

1. Hard money loans

Hard money loans can be approved quickly and without too many hoops to jump, but they come at a risk. They are funded by investors who provide the loan based on the property and collateral. Hard money lenders generally lend with collateral to back up the landlord’s ability to pay. The loans are short-term (less than five years) and have high interest rates.

Pros: These loans can be funded quickly with fewer requirements than traditional loans. They are used mostly for fix-and-flip investors who will have the property for less than a year, sell it, and pay it off.

Cons: Hard money loans are expensive with high interest rates and origination fees. If your flip doesn’t work out as planned, a hard money loan could get very expensive and you risk losing your collateral.

Related: Top 10 reasons real estate investors use hard money loans

2. Conventional loans

Conventional loans are slightly less risky than other options; however, you need to be financially secure to be approved for an investment property. Loan requirements are more strict than with a primary home, and more money is needed up-front.

Pros: A conventional loan will have a better interest rate than a hard money loan. You can have a 30-year loan, so if you plan on keeping the property as a long-term rental, you have time to pay it off. Last, it’s backed by a bank, making the loan more secure.

Cons: The loan requirements are difficult to meet. Mortgage insurance is not available for second homes or investment properties, so a minimum of 20% needs to be put down on the property. In addition, if you need rental income to meet the debt-to-income ratio, you will have needed two years or more of property management experience (with a Freddie Mac backed loan). Last, the interest rate is higher on a second home.

Related: Pros and cons of making extra payments on your mortgage

3. HELOC

A HELOC—home equity line of credit—is when an investor takes equity out of their primary residence as a line of credit to purchase another property. You can use this line of credit for five to 10 years, depending on your lender, and you have 10 to 20 years to pay it off.

Pros: Using a HELOC loan for buying an investment property has a quick approval process, and you have a long period to pay it back.

Cons: The issue with HELOCs is that you are taking equity from your primary residence to buy an investment, and that is always a risk. The interest rate can vary, just like with a credit card, so payments will not be the same every year. If you are a Dave Ramsey fan, you know that he would say using a HELOC to buy an investment property is “dumb.” If you do not pay close attention to your finances, using a HELOC can be risky and your debt can get out of control.

Related:  6 ways to buy your first investment property for $1,000 or less

4. FHA loan

Many first time homebuyers know FHA loans well. They are federally backed loans that require only a 3.5% interest rate and a less restrictive approval process. For example, you can use a gift as a down payment. However, they come with extra stipulations, such as not using the home as a rental property.  So, why is it on this list?

Pros: FHA loans have low-interest rates, have extra funding available for renovations, and are less restrictive on the down payment.

Cons: You need to occupy the residence. That’s a big con. An FHA loan cannot be used for an investment property. However, it can be used for multi-unit properties. You can use an FHA loan to finance a three-flat, live in one unit, and rent the other two. That’s exactly how I financed my investment property.

5. VA loan

Veteran loans started in 1944 with the G.I. Bill of Rights. A VA loan is a home loan with no down payment. VA loans are available to vets whose service met a certain requirement. Like, FHA loans, VA loans cannot directly be used for investment properties, but there is a way around that.

Pros: VA loans can be used on properties with up to four units. If you want to use a VA loan to finance a rental property, you must occupy one of the units. The benefits of VA loans are no down payment, no PMI, eased debt-to-income requirements, and they are flexible.

Cons: There is a VA funding fee that is used to continue funding the VA loan program. You cannot buy a rental property that you do not occupy. It is difficult to qualify.

6. Cash-out refinance

A cash-out refinance is when you leverage the equity of a property you already own to purchase another. Let’s say your primary residence has $100,000 of equity in it. As long as you leave 20% equity in the property, you can refinance and take the cash out to invest in another property.

Pros: If your property has the equity, it is a quick process to get approved. You pay the interest rate of your primary residence, avoiding the high interest that comes with an investment property.

Cons: You start your mortgage over again. You might end up with a higher interest rate on your primary home than before. Without enough cash in your reserves, you might not be able to qualify for a refinance.

7. Seller financing

Seller financing, also known as private money mortgage, is financing supplied by the seller of the property. The financing can be for the down payment, whole mortgage, or both. Seller financing is popular among property investors and can benefit both the buyer and seller. Sellers can finance in two ways.

1) The buyer signs a contract to pay off the loan over a certain period of time, and the seller provides a deed of trust that lets them foreclose on the buyer if the buyer fails to pay, but also gives the buyer the right to sell. 2) The second option is a land contract where the seller keeps the deed until the loan is paid off. This option is less popular than the first because the buyer does not have the right to sell or refinance until the loan is paid off.

Pros: The approval process is fast. The closing fees are low. Down payment is flexible. The seller has pros as well. A motivated seller can finance the sale of their property. They have fewer tax implications. The promissory note can be sold to another investor if they need cash. The property can be sold “as-is” easier.

Cons: The seller needs to have the mortgage free and clear for a seller financing option to work. The interest rate is usually higher than with a standard loan. The seller needs to be willing to take the risk of holding a loan. Not all sellers will want to be responsible for financing.

Related: How to do a seller-financing deal

Conclusion

There are many ways to finance an investment property, but they each option has its quirks. When making an investment, look at all your options for financing. Making the wrong decision can cause you to go broke, but making the right decision can make you rich.

After my trip down the rabbit hole, I have an idea of which route is best for me. What’s right for your investment strategy?

What to consider when buying a foreclosure for a rental property

Written by Sarah Block on . Posted in edited, For Landlords, Income Ideas, Laws & Regulations, Maintenance & Renovations, paid, Rent & Expenses

The lure of a good deal can make some pounce before they think, and foreclosures are no exception.

Let’s say you’re scanning the internet for some hiking boots. As you know, your search history follows you, and a pair of hiking boots pop up in an ad for 50% lower than others. You pounce. You get them in the mail, and they look like a floppy, sad version of what you actually wanted.

That’s what acting too fast on a foreclosure is like. You see a good deal, buy, and find that it wasn’t worth the money.

Related: Save 40%-70% on your next rental property with a pre-foreclosure

Four considerations when buying a foreclosure

Before you buy a foreclosed home as your next rental property investment, consider these four things.

1. Can you view before you buy?

When you find a good deal, it might be tempting to buy sight unseen because of the fear of missing out (FOMO) nagging at your brain. Don’t let FOMO win. Always make time to see your potential investment before you buy, even if you need to travel to see it. No one wants a surprise money pit.

By seeing the property ahead of time, look for the following:

  • The neighborhood. This can tell you what kind of tenants you will likely have.
  • The house. This gives you an idea of what work needs to be done.
  • Area rents. You’ll need to know what rent you are likely to get to determine whether the deal will be worth doing.

2.  How long was it empty?

When homes are unused for a long time, the decay gets worse, not better.

Rodents and bugs infest the house. Plumbing dries up from being unused. Bigger problems could have happened and never noticed like a roof leak, plumbing burst, mold, or vandalism/theft.

If you are purchasing a foreclosure that had been abandoned for some time, it’s even more important to get a thorough inspection before buying. You always want to get an inspection, but when it has been empty for a long period of time, ensure that the inspection dives deep.

Related: Risks of leaving a property vacant

3. Should you find skilled labor before you buy?

With nearly all foreclosures, there will be repairs that need to be completed. You should have a team of tradespeople in place before you buy, and have them review the property with you.

By having trusted tradespeople lined up, you have a better idea of what you are getting into or on whether to pass on the property. Ask them to go to the inspection, and then begin pricing repairs before you purchase. Ask their opinion on whether this is a good investment. A reliable team can help you budget properly, quickly repair the property, and turn a profit faster.

4. Are there any rules I should know?

Foreclosures have different rules than a typical property-buying situation.

Some government programs will not allow a buyer to rent out a property for up to five years. Understand the program you are buying your foreclosure from, and ensure that you are allowed to rent it once you own it.

If there are current tenants, legally, you need to honor their lease in some states. The Helping Families Save Their Homes Act of 2009 requires that all new owners of a foreclosure honor leases of previous tenants if they plan on renting the property.

However, if the new owner plans on living in the property, they are allowed to give the tenants 90 days’ notice. This law expired in 2014, and now tenant’s rights vary by state. In Illinois, tenants still need 90 days’ notice; however, in Wisconsin, they can be evicted immediately.

Related:  Are tenants required to move out during a foreclosure?

Use the same best practices as with any property

The same considerations for any rental property are still valid with a foreclosure.

Before buying, consider the cap rate. What is your predicted rent? Subtract expenses, including expenses to get the property ready to rent, from the annual rental income. Divide that number by the value of the property. A cap rate of 5%-10% shows that the property is a good investment.

The bottom line

Before making the decision to buy a foreclosure as a rental property, know what you are getting into. Landlords need to find tenants, make fixes, collect rent, and have great relationships with your tenants. You’re running a business, so weigh the pros and cons before diving into renting a foreclosure.

Don’t buy the discount hiking boots without doing the research first.

3 signs it’s time to sell your investment property

Written by Sarah Block on . Posted in edited, For Landlords, Income Ideas, paid

communicationI had to make a tough decision. Was it time to sell my investment property?

As I’m writing this, my condo—and very first real estate investment—just went on the market. I had to say bye to that memory-filled investment to say hello to a new investment: one that is actually profitable. (Who buys a property in a real estate bubble? Me.)

What made me make the decision? How did I choose to say so-long to my always-rented property? The process started when I became a writer for Landlordology. I realized that while my condo’s always rented, and someone else was making the mortgage payments, the property wasn’t checking all the boxes for a good real estate investment.

What makes a good real estate investment?

While it’s easy to get carried away in the fun of starting a real estate business, it is important to pay close attention to know that your investment is a good one. Sometimes the signs are not so obvious that the property is a bad fit. So, what makes a good investment?

1. Your rental property is cash positive each month.  

The first thing you want to do when choosing a rental property is to determine the potential cash flow. To do this, use sites like Apartment.com, Redfin, WalkScore, and—of course—Cozy, to research the rental price. Now, look at the principal, interest, property tax, and insurance (PITI) per month. Subtract your rental estimate from your PITI. Is there positive cash flow? This is the first factor in a good investment.

2.  It’s in a high-demand rental community.

Location, location, location. We’ve all heard it, and it’s true. Renters flock to areas that are desirable. Look for properties that are walkable, have public transportation, shopping, beach, or are near popular destinations. For example, my rental properties are near Northwestern University with public transit to Chicago, the beach, and shopping. Universities with a high graduate population have great potential for rental properties. While the tenant turnover will be higher than other areas, there is always demand. Last, look at areas that will be hot soon. Certain areas price people out of the market, so renters move to another location that is nearby.

3.  You can easily manage the property.

If you are a Dave Ramsey fan, you know he always says to stay close to your rental properties. This makes managing your rental property easy. However, if your property is not so close, it gets tricky. A good real estate investment is close to where you live, low maintenance, and offers an easy system for managing your property and tenants. For example, let’s say you have a single-family home you rent out that is 10 years old and 10 miles from your home. The property management can be simple. Hire a lawn care service, a maintenance person, and use Cozy for collecting rent online and communicating with your tenants about maintenance requests. Now, if the property is high maintenance or hard to rent—that’s another story.

Related: When to sell your rental property

When should I sell my real estate investment?

While you should think of real estate investments like the stock market (buy and hold), sometimes the signs are there that it’s time to sell and reinvest or get out of the real estate game completely. Whatever makes you happy. Here are the surefire signs that it’s time to sell.

 1. Cash flow is consistently negative.

The No. 1 reason to choose a property to invest in is positive cash flow each month. When it’s negative, it’s time to sell. My first rental property was an accident. We bought a new house and couldn’t sell the old one. Because of this, checking the cap rate and PITI was not part of our “strategy” (read:  there was no strategy) for choosing an investment property. We fell into it, and from that first month, August of 2011, it has had negative cash flow. Negative cash flow is the first sign your rental property may not be meant to be. Consider moving back into it or selling it.

2. You’re a remote landlord.

When I began my landlord journey, I was only a few blocks from one rental property and lived in the other (a three-flat). Managing my property was easy. However, I sold the property I lived in, and now live 35 miles from my other property. I no longer had a relationship with my tenants. Showings were impossible. I felt panicked about maintenance requests. It wasn’t easy. If you’re moving away from your rental property, think about selling it and buying local. The property will be easier to manage, and you’ll have more control over your investment.

3. The cap rate has changed.

A cap rate is the income-expenses/value. The goal is to keep the cap rate between 5% and 10%. Generally, property investors determine the cap rate when choosing an investment property. However, if you are on the fence about whether to keep or sell a rental property, you should revisit this equation. Several changes can occur during the life of ownership that can turn a good cap rate bad. Did property taxes go up? Did the rental market in the area go down? Is maintenance more than expected? Are the utilities higher than you originally thought? Add up your monthly expenses over the year, and subtract that from your annual income from the property. Divide this number by the current value. If the percentage is less than 5%, you may want to consider selling.

Real estate investing can be lucrative, and the buy-and-hold strategy is typically best. However, sometimes you need to take a hard look at your investments and ask yourself, “Does this investment still make sense?” That’s what I did, and in the end, it didn’t make sense for me own my property anymore. Once you let go of a property that isn’t working for you, you can move onto the next property investment!

Home flipping reached 10-year high: Can you say froth?

Written by Apartment Management Magazine on . Posted in Blog

house flipping
Rising home prices are bringing more house flippers out of the woodwork, and that may be a sign of an overheating housing market. The number of active home flippers last year was the highest in nearly a decade, and it is only growing.

Nearly 180,000 family homes and condos were flipped in 2015, according to RealtyTrac. A flip is defined as a home that is bought and sold again within the same 12 months. Flips made up 5.5 percent of all sales last year, and that is the first increase in the flip share after four years of shrinking. Flipping increased in 75 percent of U.S. markets, and the profits are growing as well.

“As confidence in the housing recovery spreads, more real estate investors and would-be real estate investors are hopping on the home flipping bandwagon,” said Daren Blomquist, senior vice president at RealtyTrac. “Not only is the share of home flips on the rise again, but we also see the flipping trend trickling down to smaller investors who are completing fewer flips per year.”

Jim Pinson works with investors to flip houses on the south side of Chicago and does two or three flips of his own each year in the Oak Lawn area. Home prices in Chicago have not soared as much as in other parts of the nation, but there are still a lot of distressed homes available for sale, and plenty of investor demand.

“Oh my God, there are multiple offers on almost every decent margin profit house that pops on the market,” said Pinson.

The concern now is that prices are rising too fast, not because buyers can afford to pay more but because of extremely short supply of homes for sale, especially on the lower end of the market. Home prices in January were 6.9 percent higher than the January 2015, according to CoreLogic, a higher annual gain than in December. Home flipping can push prices artificially higher, especially in markets with the tightest inventory.

“When home flipping numbers go up, it is usually an indication that the housing market is in trouble,” said Matthew Gardner, chief economist at Windermere Real Estate in Seattle, who was quoted in the RealtyTrac report.

That was the case during the housing boom in the mid-2000s, but at that time flippers were putting next to no money into their investments, instead using cheap credit. That credit no longer exists. They have to put significant money into their flips, even when using investor loans.

“More inexperienced home flippers with a smaller financial cushion could be a sign of an over-speculative market, but the data indicate that flippers in 2015 continued to operate within relatively conservative margins,” said Blomquist. “Homes flipped in 2015 were on average purchased at a 26 percent discount below estimated market value and resold by the flipper at a 5 percent premium above estimated market value.”

Still, affordability for that end-user, the owner occupant looking to buy perhaps a first home, is weakening. First-time home buyers are still a much lower share of home buyers today than they are historically. The risk of another home price bubble could push them even further away.

As home prices rise, even in Chicago, investors have to put more money down and put money into renovating the homes, which are often in severe disrepair. Investors have to be careful to make sure they’re buying the right house in the right place, otherwise they won’t find buyers ready to move in.

“Demand is block by block, and you’ll have people running out and making offers, but it depends on what block you’re in,” added Pinson.

Just after the housing crash, large institutional investors moved in and bought thousands of distressed properties and turned the vast majority of them into rental homes. They are now buying fewer homes, leaving the field open for smaller investors who would rather flip than hold the homes. The total number of investors who completed at least one flip in 2015 was at the highest level since 2007, and the number of flips per investor was at the lowest level since 2008, according to RealtyTrac.

Flippers are watching home prices rise, and in turn seeing returns rise. Homes flipped in 2015 yielded an average gross profit of $55,000 nationwide, the highest for flips nationally since 2005, according to RealtyTrac. The return on investment was close to 46 percent, up from 44 percent in 2014 and up from 35 percent in 2005. 2005 was when flipping was rampant, thanks to super easy credit. Back then, over 8 percent of all sales were flips.

Today flippers are seeing the best returns in Pittsburgh, New Orleans, Philadelphia, Cincinnati and New Haven, Connecticut. The biggest dollar returns are in California and New York, but investors there must put bigger dollars down for those flips.

Source: cnbc.com

– See more at: http://www.american-apartment-owners-association.org/property-management/latest-news/home-flipping-reached-10-year-high-can-say-froth/#sthash.xVe1M5ty.dpuf

How to Retire Early Investing In Apartment Buildings

Written by Apartment Management Magazine on . Posted in Blog

How to Retire EarlyWe all work hard at our J.O.B., don’t we? We work hard each day and hope to retire when we’re 65, that’s the American dream, right?

Many of us are looking for something better, maybe a scenario where we can retire earlier or perhaps enter a state of semi-retirement. The answer: investing in apartment buildings.

Imagine working really hard to find a good building at a fair price, putting the financing together, and hiring a property manager to run the whole thing. Was that a lot of work? Of course. But don’t you work hard anyway? Here’s the difference….

Apartment Ownership – What’s It Really Like?

Imagine the day you close on the building and your property manager takes over. Ask most apartment building owners, and they will say they spend anywhere between 2 and 5 hours per week on their building if it’s managed by a professional management company.

What have you done? You went from a job that took 40-50 hours of your time each week to one that takes a fraction of that. And you replaced part or all of the income of your job with that from the apartment building.

You’re working less while maintaining your income.

What would this mean to you? Maybe you could spend more time with your family. Maybe you want to travel more. Pursue a hobby. Give back. Or maybe do more deals.

How is something like this possible with apartment buildings? The answer is in how apartment buildings are valued.

How Do you Make Money On Apartment Investments?

The value of an apartment building is driven by its net operating income, the amount of income left after all expenses are paid. The more money the building spits out after all expenses, the more it’s worth.

In many parts of the country, a building is worth 10 times its net operating income. This “10 times multiplier” is referred to as the “capitalization” or “cap rate” for short. Don’t worry about this for now – it’s not important to the point I’m trying to make. Let’s just use a cap rate of 10 for our discussion.

Let’s say a building has a net operating income of $100,000, which would make it worth $1M. If you could somehow make the building generate $10,000 more each year, maybe by increasing rents or decreasing expenses, you would have generated $100,000 in value (a cap rate of 10 times the additional income of $10,000 is an additional $100,000 in value).

Let’s look at a more specific example, so that you can start visualizing how this “math” could work for you in real life.

Assume you bought a 10-unit building for $540,000, and you had to put 30% down. The building was bought at a “10-cap” based on our formula we’ve used so far. Which means its net operating income (or NOI) is $54,000 per year, times our cap rate of 10 is $540,000. The income per unit is $1,000, and the expenses are 55% of the income. The building is in great shape and has been managed by the owner himself.

So far there is nothing special about this deal.

However, suppose you found out that the average market rent in the area is actually a $200 higher per month. Suppose further that you meet a property manager who manages two similar buildings in the area, and he tells you that his expenses are only 45% of income.

Let’s say it takes us 3 years to get the building to where it should be, i.e. with each unit bringing in $1,200 per month and lowering our expenses to 45% of income. Here’s how this would impact our financials:

By making small improvements each year, we have added $25,000 to our Net Operating Income. What is our value now?

Our new NOI is $79,000, so our value now is about $790,000 ! That is an increase of $250,000 in three years! Isn’t that incredible?

But that’s not all.

You also had between $2,600 and $4,700 in monthly income from this building over those three years.

That’s still not all. You (em, I mean your tenants), paid down $21,500 of your mortgage balance during that time, too.

Here’s what you get if you add everything together:

Your down payment was $160,000, and your total profit if you sold this building in 3 years is $284,000. This means you nearly doubled your investment!

In the meantime you enjoyed an average of $3,500 per month in cash flow.

Maybe you need more than that each month to quit your job. No problem. Buy a bigger building. Or get a second or third one. Three of these buildings will give you $10,000 per month in income and almost a $1M of profit in 3-5 years.

Retirement Possible In 5 Years After Investing In Aparments?

Would it be a lot of work? Absolutely. Do you work pretty hard right now? Probably.

Imagine working just as hard for the next 5 years and being able to retire. Imagine. 5 years.

And then you can do whatever you want. Keep working. Keep finding new deals (why stop?). Travel. Family. Give back. Whatever.

You don’t have all the answers, and you probably feel overwhelmed. That’s to be expected. The point I’m trying to make is, make sure that whatever you’re working hard at gets you to where you want to go.

I always say, “where there’s a will, there’s a way. And where there isn’t a will, there is NO way”. So ask yourself first, how badly do you want it? If you want it badly enough, you will choose to commit to the journey.

Use REIClub.com as a resource to get started – there are tons of articles, blog posts, and videos! I’ll try to do my part to write articles (and maybe publish a few videos) on the subject of investing in apartment buildings with a particular focus on raising money from private individuals (called “syndication”).

For me, and many others, apartment buildings are the single best way to retire early. It might be a good wall to consider climbing. Why not get started today!

Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus in real estate investing is buying apartment buildings by raising money from private individuals.

Michael has been investing in residential and multifamily real estate since 2005 and began syndicating deals in 2010. He is the author of the Syndicated Deal Analyzer and the free eBook “The Secret to Raising Money to Buy Your First Apartment Building”.

www.TheMichaelBlank.com

Income Property Management Expo

Written by Apartment Management Magazine on . Posted in Blog

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Apartment News Publications Inc. is teaming up with the Income Property Management Expo to provide Apartment Owners/Managers & Commercial Property Management Companies with tools for efficient, cost effective management, operation and maintenance of their communities & facilities!

Join us May 7, 2013 for the Southern California Income Property Management Expo at the Ontario Convention Center!
Click here to Pre-Register Online!
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Southern California Attendee Information:

  • Apartment Owners
  • Property Managers
  • HOA
  • Commercial Property Management Companies
  • Service & Maintenance Staff
  • Industry Partners & Vendors

This expo will host FREE seminars throughout the day addressing CA Energy Efficiency Programs, Landlord Legal Updates, Tax Code & 1031 Exchanges, Property Maintenance and more!  The goal of the Expo is to provide attendees with the opportunity to network with other industry professionals while enjoying fine food tastings, the PGA Experience, Luxury Car Display & Test Drives, raffles & giveaways and the expo floor which will have over 100 exhibitors!

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To learn more about the Income Property Management Expo, how to attend for FREE, or learn how to reserve a booth for the Expo Floor, visit IncomePropertyExpo.com!

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