Archive for the 'Investing' Category
Investing or Loan Fraud
March 2nd, 2008 Categories: Buying, Investing, Real Estate News
You Notice He Said Co-Conspirator Not Victim
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Salt Lake County Rental and Vacancy Rates
December 2nd, 2007 Categories: Investing
Now Is A Good Time To Buy Rental Properties In Salt Lake
Salt Lake County Rental Rates have risen and are expected to rise again. Along with the money tightening and the endless stream of what would be first time home buyers, that enter the market every year they are now going into the rental pool. That along with inventory on the rise there are definitely good deals to made.
Another factor is our employment, not many people will be leaving the area, in fact immigration continues because of our employment growth, we will fair the real estate market pretty well.
Change In Rates By Types Of Unit – Salt Lake County
Overall Rental And Vacancy Rates In 2006 By Type Of Apartment Unit
Rental and Vacancy rates By Location of Apartment Communities – 2006
Single Family Rates and Vacancies
This data above is for apartment communities, mainly because there is no real central data base for single family rental units in Salt Lake County. However houses if they are clean and in repair will pretty much mirror this data in percentages of vacancies.
Just like the first table above, rents on the East are little higher than the West side, however the acquisition cost on the West is disproportionally lower, making the ROI higher.
For information on determining the value of a rental property complete with a spread sheet to download.
“Don’t Wait To Buy Real Estate, Buy Real Estate and Wait”
The above tables are from Commerce CRG
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How To Evaluate An Income Property
November 11th, 2007 Categories: Investing
Cap Rate
We hear many different ways to evaluate rental property. The one method that is the most effective is called the Capitalization Rate, affectionately called the Cap Rate.
I have heard many variations of the cap rate, things like 100 times the rent. That is called the rent multiplier, takes the rent and times it by say 120. The problem with that approach is it doesn’t account for expense variations. It is a good rule of thumb measure to see if it is worth drilling down.
Are you ready for the unequivocal simple version of the Cap Rate, drum roll please?
Income, Minus Expenses, Divided By The Sales Price, Equals Rate of Return. It really is that simple. Always use annual numbers.
| Gross Income | $18,000 |
| Minus Expenses | $3,600 |
| = Net Income | $14,400 |
| Divided By Sales Price | $200,000 |
| = Rate Of Return | 7.2% |
Property evaluations are based on cash purchases. When you leverage a property that is a different equation and has more factors than evaluating just the property, remember we are evaluating the property. If you are going to leverage a property, the property must perform at a higher interest rate than what you can borrow at.
Click for full functioning Excel Spread Sheet
Now the trick is getting real income and expenses on a piece of property you don’t own. Remember the seller’s motivation is the highest price. So based on the above formula, they like to overstate income and understate expenses.
When purchasing an income property the surest way to get the most accurate information is, for income use a tenant landlord estoppel letter. This letter is signed by both parties stating the basic terms of the lease, start date, end date, monthly payment, how much security deposit and where is it, that the tenant is current. Compare the letters to the leases and now you have your income.
As for expenses, if you really want to know how much a property owner has spent ask for a copy of the Schedule E of their tax returns. You know they didn’t leave anything out there.
Here are some things to consider when looking at the expenses.
How Many Utility meters are there?
How old is the-
Roof
Furnaces
Water Heaters
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Why Real Estate Works
October 13th, 2007 Categories: Investing
Here is a part of a Robert Kiyosaki newsletter someone had emailed me about 6–7 years ago, hard to remember now. I had retyped it and have it saved in a small book with other prices I will share. Obviously the principles of investing haven’t changed.
Why Real Estate Works
“Real estate is the simplest, most reliable, and most consistent vehicle to convert even a little financial intelligence into cold cash,” says Rich Dad advisor and author Dolf de Roos Ph.D. in Real Estate Riches. Real estate is an asset that keeps pace with inflation, generates wealth, and shelters it from taxes. The majority of the wealthiest people in the world own real estate. What do the rich know about real estate that you don’t? Their secrets are:
• Cash flow
• Leverage
• Tax Benefits
Cash Flow
“The beauty of real estate investments is when you open your mailbox and your rent checks are there,” says Dolf de Roos. If you have invested wisely and your property is truly an “asset,” it should be generating a positive cash flow. The cash flow is passive income, so it’s taxed at a lower rate than earned income. So how many rental properties can you afford if you have a positive cash flow coming in on a monthly basis from these investments? As many as you can get your hands on!
Leverage
The easiest way to understand the lesson of leverage is to consider a situation where you have $10,000 to invest. You want to compare the return on a paper asset purchase (stocks) with the possible return on a $100,000 piece of property. You could purchase the stock for $10,000 cash, or, you could put a down payment on the property. Your choice is to create an asset worth $10,000, or one worth $100,000. The benefit of leverage is using other people’s money, in this case $90,000 of the bank’s money, to accelerate the growth of your net worth. How is this possible? Say both the stock and properties go up by 10 percent. Your stocks would worth $11,000 a profit of $1,000. However, your property would have appreciated to $110,000, a profit of $10,000. In this case, leverage is the difference in profit of $1,000 and $10,000.
Tax Benefits
Current tax law allows many benefits for the real estate investor such as:
1. Sell a house and $250,000 (single) or $500,000 (married) of your gain from the sale tax free. The only requirement is you must have lived in the house for two of the past five years.
2. For those with a flair for decorating or skill in home improvements, consider buying a home that you can fix up. Let’s say that after fixing up the house and occupying it for two years, you sell it for a profit of $30,000. If you normally pay, 31% federal and state taxes on your income, you would have to make an additional $43,480 in earned income to equal $30,000 after tax.
3. Defer tax gain from a property sale by exchanging it for another of like-kind.
4. Offset investment real estate income with depreciation to reduce your tax on income from the property. While you receive cash flow from the property, you may pay little or no tax on the cash you receive depending on the amount of depreciation.
5. Refinance the property for tax free cash after your property has appreciated.
Rich Dad advised,”… invest your excess cash and hold your wealth in real estate. It may not be the most exciting investment, but if you invest wisely, it will keep you the most happy and secure.” By purchasing rental property, you will gain a source of ongoing passive income as well as hedge against inflation, since rents can be raised. So regardless of what the stock market does, you can receive steady income from your rental properties each month. Fortune, as they say, favors the prepared mind. So, do your research, and then step ahead.
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The Millionaire Real Estate Investor
October 11th, 2007 Categories: Books, Investing
The Millionaire Real Estate Investor
ANYONE CAN DO IT… Not everyone will… Will you?
Times have changed and inventory is starting to accumulate a little. Because of that it is now time to be investing in Real Estate. The quick buck strategy of a screaming hot market is exactly that a quick buck thing. Real Wealth is created by buying and keeping real estate. As inventory starts to gather, bargains are starting to become available. Remember you sell real estate for cash, you keep it for wealth.
There are lots of real estate books and seminars on how to make a killing being a real estate investor. This is a no nonsense work hard and over time…
Thoroughly researched with interviews and insights from more than 100 millionaire real estate investors who have struck it rich through Keller’s concepts and practices, this book shows you how to:
• Think Like a Million: Develop the mind-set and financial strategies of a millionaire investor
• Buy a Million: Amass a real estate portfolio with a market value of a million dollars or more
• Own a Million: Turn investments into an asset-based business with ever-increasing net worth
• Receive a Million: Build an investment empire that provides a million dollars a year in passive income
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Flip How To Find, Fix, And Sell Houses For Profit
September 29th, 2007 Categories: Books, Investing
Flip How To Find, Fix, And Sell Houses For Profit written by Rick Valani and Clay Davis. This is a no nonsense approach to buying, fixing and re-selling houses.
THIS IS NOT A GET RICH QUICK BOOK.
This book explains how to in great detail, gives practical applications on how to
FIND (How to find a deal)
ANALYZE (How to understand the numbers)
BUY (How to understand the purchase price)
FIX (How to fix in a budget and on time)
SELL (How to get it sold quickly to minimize the carrying cost)
The authors are senior executives of HomeFixers Corp., North America’s Leading Franchisor of Rehab companies.
The third installment in the Gary Keller Series of Books. The other two books Gary Keller is responsible for bringing to market are The Millionaire Real Estate Agent: It’s Not About The Money… It’s About Being The Best You Can Be! and The Millionaire Real Estate Investor: Everyone Can Do It . . . Not Everyone Will . . . Will You?
These are all practical books with a lot of how to, proven by experts that have done it over and over.
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Why It Is Time To Buy Rental Properties In Salt Lake
September 23rd, 2007 Categories: Buying, Investing
Things are looking good for buying rental units in and around Salt Lake. Rental rates are on the rise and vacancies are low. We can expect rates to go a little higher, but the real key is low vacancies. Vacancies can be one of the highest expenses to a property owner.
With the tightening of the lending climate and home prices that sky rocketed. Over 25% of the population is under 18 years old, there is a steady stream of renters entering the market.
This makes for an interesting situation. Properties being harder to finance (especially non-owner occupied) means there are less buyers, yet rents are attractive.
Rental Market Outlook From Commerce CRG Real Estate
Over the next 12 months the rental market conditions in Salt Lake County will continue to improve for existing rental property owners, but little change is expected in the difficult conditions for developers of rental properties. Strong demand will drive rental rates higher over the next year with possible double digit increases. On the supply side, there are not a large number of new units under construction that will ease the tight market conditions, and vacancy rates will remain in the 3.0 to 4.0 percent range over the next 12 months.
I recommend the classic three bedroom starter home for the same reasons rents are steady and vacancies are low. It has a built in steady flow of people entering the housing market. The starter homes are a the easiest to rent, easiest to liquidate if necessary.
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College Savings Plan
September 22nd, 2007 Categories: Investing
Gov. Jon Huntsman Jr. has declared September as “College Savings Month” from an article in the Salt Lake Tribune, to encourage Utahns to save for their children’s education. You can get information about “The Utah Educational Savings Plan” at www.UESP.org or calling 800-418-2551.
This must be the law of attraction or something like that. I had drafted an article on Real Estate as a College Fund. This is not a new concept but one that is starting to catch momentum, especially among grandparents. Grandparents typically are more liquid and they can benefit from it financially also.
The more I think about this the more it makes sense to me. One set or both sets of grandparents can join forces for more leverage.
They buy rental properties with a large enough down payment to enjoy cash flow with a 15 year mortgage. Using a property management company of course (they don’t want to mess with tenants). They can use the cash flow for themselves or pay down the note faster and have tax benefits too. There are many financial benefits of owning investment properties. The idea is at the end of 15 years the property(s) are paid off and all the rent minus expenses would go toward college expense or the property(s) can be sold at the current market value. We all know no matter what the condition of the current market is in, 15 years from now all real estate will be worth a lot more.
I like the idea of creating some form of trust to own the property and it is passed down generation to generation for education. Please seek advice from tax and estate planning professionals.
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