InvestorLoft Real Estate Investing Blog

Is it time to look for investment property beyond your own backyard?

The Wall Street Journal reported that July showed a 9.6% rise in new home sales, sealing the deal on a fourth month of a faster pace in the housing industry.

Is it cause for panic?

Have we missed the boat if we haven’t yet bought?

We don’t think so.

While business may be picking up across the residential real estate sector, there are plenty of deals to be had throughout the U.S. You just have to be willing to do the math and think beyond county or state lines.

If your own backyard is on the upswing and prices are picking up pace, why not consider shopping outside your local market? If there’s a rental property in a prime location with low vacancy rates (throw in turnkey to boot), does it make sense to keep dollars that could be working for you at bay because you can’t do a drive-by on your investment on a Saturday morning? For the do-it-yourself landlord, yes. Managing property yourself beyond state lines is, without a doubt, a task. But if you’re going to hire a property manager and prefer to leave the day-to-day to someone else, what does it really matter where you make your investment?

If you’re going to shop beyond your backyard for rental property or other investment property, here are some things to take into consideration:

• Property Management: for rental holdings beyond your backyard, it’s imperative. Why burden family with the task when you can keep the Thanksgiving table a friendly place to be by outsourcing to the pros?
• Vacancy Rates: do your research (and a property management firm can help greatly). Don’t get stuck with a great price on a property that will be vacant for 3 to 4 months out of the year.
• Know the Neighborhood: is it prone to floods? Hurricanes? Blizzards? What’s the average rent rate in the area for similar properties.
• Extra Expenses: don’t forget to ask about things like property taxes and HOAs.

Use InvestorLoft’s PropScout Investment Property Search Engine to begin the search beyond your backyard. What’s available in Fresno? Virginia Beach? Albuquerque? Las Vegas? Take a wider search for a spin and see what you might be missing.

Real estate investment terms - today's topic

Cash flow…cap rate…cash on cash return…

It’s enough to blow your mind, isn’t it?

We’ve put together this primer for our readers from the most common questions our Customer Service Team comes across. They work with our Investor members to define key real estate terms, help them navigate our site and find articles in our Real Estate Investing Articles library day in, day out. So today, we’re focusing on three key terms that real estate investors need to know: Cash Flow, Cap Rate and Cash on Cash Return.

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CASH FLOW

Annual Net Operating Income is also commonly referred to as Cash Flow. This represents the annual income or loss the investment property actually generates after collecting a year’s worth of rent and paying the annual expenses associated with owning and operating the property. Cash Flow is calculated by subtracting the Annual Total Operating Expenses from the Annual Gross Rental Income.

So, the formula is:

Annual Net Operating Income = Annual Gross Rental Income – Annual Total Operating Expenses

Read InvestorLoft’s expanded explanation of Cash Flow.

CAP RATE

Cap Rate is a component of return on investment for an investment property as it relates to the Purchase Price and based on the amount of Annual Net Operating Income the property will yield (not including mortgage payments or considering income tax) in proportion to the purchase price of the property.

Cap Rate is calculated by taking the Annual Net Operating Income (or Cash Flow) of the investment property and dividing it by the Purchase Price.

So, the Cap Rate formula is:

Cap Rate = Annual Net Operating Income (not including mortgage payments)/Purchase Price

Read InvestorLoft’s expanded explanation of Cap Rate.

CASH ON CASH RETURN

The Cash on Cash Return of a property is often times referred to as a property’s yield. Cash on Cash Return is a way of evaluating the return on investment of an investment property in relation to your out-of-pocket expense, based on the amount of Annual Net Operating Income the property will yield (not considering income tax) in proportion to your Down Payment and Repair Cost. The Cash on Cash Return formula is calculated by taking the Annual Net Operating Income of an investment property divided by the amount of your Down Payment and immediate Repair Cost.

So, the Cash on Cash Return formula is:

Cash on Cash Return = Annual Net Operating Income/(Down Payment + Repair Cost)

Read InvestorLoft’s expanded explanation of Cash on Cash Return.

How long are you willing to wait for a tenant?

Your rental home is sitting vacant and you’re left paying the tab on the mortgage and everything else that comes along. Sure, you expected a month or two of vacancy every year, but it’s still empty! Whether houses surrounding yours are in the same boat or getting snapped-up off Craigslist like $20 bicycles, there are certain steps you can take to drastically increase your property views and lower the likelihood of longer than necessary vacancy periods.

Photos. Blurry doesn’t cut it. And if you don’t have photos on your listing, that’s even worse. Photos are the difference between lookers and renters. Take the time to get some great photos of your rental property. Big backyard for dogs? Take a picture. Hardwood floors? Take a picture. New appliances? Take a picture!

Incentives. If your rental property has been vacant more than 45 days, it’s likely you’re at the threshold of your estimated vacancy rate. It’s time to get creative, and that’s where incentives come in. What are you willing to do in order to get a tenant in place? One month free rent, utilities paid for first month, pick up the water bill, free lawn maintenance, new ceiling fans, a brand-new garage door opener, or option to renew at 2^nd year for same rate all make enticing offers for prospective tenants.

Be a Craigslist Snoop. If you’re a self-managing landlord or find that your property management company is missing the boat with securing tenants for your rental property, start snooping on your own. Visit Craigslist and enter your zip code in the rentals section and see what your neighboring homes/apartments/condos/duplexes have that you don’t. You can also see how you compare to your neighboring rentals and whether you’ve got some work to do to be competitive or if yours really is the nicest property on the block. There’s nothing wrong with being nosey!

Allen Klosowski (K2 Photo Studio), Josh Mishell (Flying Dog Brewery), Erika Napoletano (InvestorLoft.com), Janie Gianotsos (Food Bank), Josh Clauss (Tuggl.com), and Rich Chirco (Food Bank) - photo by Scott Lawan

Some people ask: what can you really say in 140 characters? The answer might surprise you.

At InvestorLoft, we prefer to ask what we feel is a better question:

What can you DO with 140 characters?

InvestorLoft has been actively involved in the Twitter online community since November of 2008 (you can follow our feed and join the conversation here). It’s here that we connect with other real estate industry professionals, real estate investors and members of our local Denver community and beyond.  Being a Denver-based business, there’s no lack of enthusiasm we have for this city we call home and we’re always looking for a way to give back.

Last night, InvestorLoft was proud to be a part of the largest live gathering of Twitter users in Denver to-date by participating in the monthly Denver Tweetup. A live gathering of “virtual people,” the event saw over 300 local business owners, entrepreneurs and other users of Twitter come out to socialize in full force. Last night was special, however: the event was working to raise funds for the Food Bank of the Rockies. Flying Dog Brewery generously donated the refreshments for the event while another local Denver business, Tuggl.com, worked with the Food Bank to arrange the donations. Eventgoers generously donated $1261.50, which translated to 5046 meals that the Food Bank of the Rockies can now provide to Coloradans in need.

And it was all done through Twitter. The people who attended last night’s event are to be thanked, alongside all of the event volunteers, Flying Dog Brewery and Tuggl.com. If it weren’t for the power of Twitter and social media, InvestorLoft and our co-organizers wouldn’t have been able to get this event organized — we were given 5046 great reasons to keep using Twitter last night! Our Director of Communications, Erika Napoletano, has been an integral part of the planning process for the Denver Tweetup events since their inception in December 2008. From that first monthly event until August’s, they’ve seen attendance steadily increase from 30 guests to last night’s 300. That is the power of Twitter.

If you’re a real estate industry professional using Twitter, ask yourself: what can I DO with 140 characters? As we said, the answer might surprise you. Sometimes it’s not all about your business.

Sometimes it’s about the community in which you DO business.

Watch CBS 4 Denver’s coverage of the event HERE!

We thank @mistymontano and @CBS4Denver for covering the event on the 10pm news last night as well as Kendra Wiig (@polyhazard) for her great write-up on Examiner.com. We’re delighted to have partnered with the Food Bank of the Rockies and glad for the generous donations from our attendees. Additional thanks to Tuggl.com and Josh Clauss for coordinating the charitable aspect, Flying Dog Brewery for their generous donation of libations, venue and marketing support by Josh Mishell, and Allen Klosowski for working with our Director of Communications month after month to consistently create great events for the Denver Twitter community.

Receive buyer leads from InvestorLoft in your market

Realtors – you’ve worked hard and long to be a local expert in your market. You know sales trends, great neighborhoods, ones to avoid and the ins and outs of making offers on short sales. Wouldn’t it be great if you could share that knowledge and expertise with InvestorLoft’s investor buyers?

You can!

If you are a Realtor who meets the following criteria, you are eligible to be a Local Market Expert for InvestorLoft and receive leads from unrepresented buyer members shopping in your area!

Criteria our experienced Success Team Members must meet to join our Lead Network:

• Must have at least three (3) years experience as a real estate professional
• Must have handled a minimum of five (5) investor transactions
• Must have a clean ethical professional record with no ethics complaints against your professional licensure.

Benefits of Success Team Membership:

• More Leads, Less Legwork: receive leads from buyers who do not have representation in your market. Our buyers look to you to guide them through a real estate investment purchase as an expert in your local market.
• Month-to-Month Contracts: start receiving buyer leads for as little as $9 per month (market pricing varies depending on number of listings and local population, one-time setup fee applies)
• Design Your Own Territory: reserve one or several counties in your local market – pay the setup fee only once!