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.

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!

As big believers in quantitative data, InvestorLoft consistently tracks the numbers behind our site’s listings. We want our members to have access to the most timely data possible to help with their investment property purchase decisions, so we’ll be publishing quarterly results like those in this blog. Forbes.com and Forbes Magazine recently utilized our data in their article The Landlord Game, and we’re now passing on an enhanced version of that data to you! The following numbers were derived by analyzing all of the listings on InvestorLoft and then crunching those numbers a few different ways and under different scenarios (varying down payment amounts, types of residence, etc.).

Note on Cap Rate calculations:
The following is the method by which our cap rate calculations have been derived:

CR = ((income – expNotMtg)/PP)*100)
Cap Rate = ((income less expenses not including mortgage)/Purchase Price)*100

All results were multiplied by 90% to account for the following variances and arrive at more conservative figures:

Rent:

• Seller entered rent as the first value. If there is none, then we used median rent derived from between 1-5 miles averages.

Expenses:

• Some listings do not have HOA or taxes – the system does not currently estimate these numbers, so the cap rate would be very high in that case. Thus, we estimate numbers for insurance fees, and property management (based on the rent val) in the expenses.

Top Cities Nationwide for Cap Rate – National Totals
(includes both single-family and condo/town homes – multifamily excluded)

Top Cities Nationwide for Cap Rate – Single Family

Top Cities Nationwide for Cap Rate – Condo/Town home

Top Cities Nationwide for Cash Flow – National Totals
(sorted assuming 30% down payment)

Top Cities Nationwide for Cash Flow - Single Family
(sorted assuming 30% down payment)

Top Cities Nationwide for Cash Flow - Condo/Town home
(sorted assuming 30% down payment)

Share this post with your clients and colleagues and look for our Q3 data to be released in October.

Looking for rental property?

So, you’re thinking about getting into investment property. If that’s the case, there are a few basic questions you need to ask yourself before you get started. The first one is simple: are you most interested in appreciation on the property or cash flow? If your answer is cash flow, read on.

The concept behind cash flow properties is simple: take in more in rent than you spend to own the property. There is no getting around the fact that, in order to purchase a property that is going to generate cash in your pocket every month, you’re going to have to look at a lot of places and do a lot of research. You could go take a seminar from a “guru” who will tell you that you can get property that generates tons of cash for no money down to make you rich. If this the case, don’t you think he would be running around buying properties instead of giving seminars? Save that money for your down payment.

First, you have to decide what kind of property you want to buy. If you want to enter the rental market game for as little money as possible, mobile homes are worth a look. However, you should keep in mind this isn’t going to yield the most stable pool of renters. Maybe you’ve found a house or condo that you want to rent for a few years then move into when your kids are all off to college. Do you want a single-family detached home, a few condos or town homes, or a multi-unit building? Once you’ve weighed the different options and decided, it’s time to get busy with your research.

Who’s going to manage the property? If you are going to use a property management service, the property can essentially be anywhere. This might be an option if you live in an area with a unstable renter base, for instance, such as if industry is leaving the area and taking jobs with it. If you are going to save money and manage the property yourself, your purchase should probably be local … and you have to be honest with yourself as to whether you can really handle it. If you are a busy executive that works long hours, you may be able to handle one or two properties, but if you add any more you may rethink it. If you’re buying several units and your research shows that you can make a living off the cash, you can do it full time. But don’t underestimate the rigors of property management. When a tenant’s toilet breaks, she’s going to want it fixed today, NOT when you get back from vacation. Weigh the cost benefits. Is the standard 8-10% property management fee worth you having both the benefit of monthly cash flow AND your freedom?

There is usually going to be a trade-off between appreciation and cash flow. An executive home in a nice neighborhood may appreciate rapidly but not generate as much money per month because of the higher mortgage. Conversely, multi-unit structures that generate a lot of rental income every month may not be in the nicest part of town, and therefore appreciate less. And remember the lessons learned from recent market cycles: appreciation is never guaranteed.

Once you’ve decided what you’re going to buy, partner with a real estate agent that specializes in rental and income property. Insist upon seeing the records for any property for at least the past two years before you buy. Look at capital expenditures, rental income, maintenance costs, association fees and any other expenses. A positive balance sheet should ideally be accompanied by reliable, existing tenants.

Investment property can be an excellent way to make money every month from rental income, but don’t kid yourself. There are a lot of factors to consider. Are you cut out to be a landlord? Are you in a position to weather inevitable vacancy rates? Are you able to financially handle major problems like a new HVAC unit or replacing a roof? If so, don’t skimp on the research: start building your rental property portfolio the right way. Patient research, due diligence, the assistance of an experienced local real estate professional are all key to your success. It’s more than just finding what looks like a great buy and closing the sale: it’s everything beyond the sale that determines the cash flow potential of a rental.

Rental Property Goes Green! Tips for Real Estate Investors

There’s the popular slogan in modern marketing campaigns: “Green is the new black.” But is “environmentally friendly” really something a real estate investor needs to consider? Green (money) and black (net profit) together can be a winning team for real estate investment. Here are a few reasons why going green can help your investment property portfolio.

It’s a good long term investment

When an environmentally friendly home comes onto the market, the higher sticker price may be a bit of a deterrent to potential investors. But a shift in thinking from the cost of the property to the long-term benefits shows there’s a lot to be gained from buying green.

Many homes that have undergone remodels to integrate green energy production (like solar panels) get inspected as part of the upgrade. The installation company typically goes through the entire house and counsels on how to make the residence as energy efficient as possible, from replacing windows to fixing cracks and updating wiring and air ducts. These repairs are made before the renewable energy system is installed. What this means is that most homes with these upgrades will have the added bonus of more energy efficient windows, air ducts and heating/cooling systems. Double check to see if the house was inspected with the upgrade. If it was, it means less money out of your pocket for repairs and more immediate cash flow.

The other investment doesn’t show up on a financial report. Every effort to cut back carbon emissions helps to clean up pollution, reduce global warming and improves the quality of air in our urban centers. Properties tend to be more desirable when surrounded by good air quality and a healthy outdoor environment.

Significant tax incentives

If you’ve been putting off updating your current rental properties to be more green, the tax incentives put into place by the Emergency Economic Stabilization Act of 2008 make conversion to renewable energy more attractive to your bank account.

The new legislation extends tax credits to residential buildings that were previously only available to commercial properties. Until 2017, property owners can claim upwards of 30% of the cost of installation of solar panels or a renewable energy system deemed self-sufficient for energy use.

Not feeling up to the large project of solar panel installation? Small updates can be used as well to reduce your tax bill. Itemize any improvements you make, whether it be replacing appliances or just switching incandescent lightbulbs to more energy-friendly halogen or compact fluorescent bulbs. Just make sure you consult with your accountant to find out what paperwork and receipts you’ll need when tax time rolls around.

More attractive to potential tenants

Consumer awareness of green living has expanded beyond recycling and turning off lights. People are more likely to seek out living arrangements that enable them to reduce their carbon footprint in every aspect of their daily life. If you can advertise your properties with phrases like “green,” “renewable energy,” and “environmentally friendly,” it will help your listing stand out from other available rentals.

Potential tenants also appreciate the budget-friendly aspect of a green home. Just updating appliances to Energy Star-approved models can cut the electric bill for the home by 1/3. Insulated windows will help reduce heating costs for properties in states that typically have brutally cold winters or scorching summers. Highlight how your green property can save money for a tenant through reduced utility bills and you’ll be competitive in the market without having to cut your rent rates. Keeping rent rates at the upper end of the median means more money in your pocket and a better return on investment.

The main role that a title company plays in a 1031 exchange is that they are the last line of defense for the client. Often clients don’t know about 1031 and if their escrow officer does not bring it up, then they most likely will be looking at a tax liability. Escrow officers can be heroes to their clients just by simply asking if their client is going to be doing a 1031 exchange. Escrow officers that are not familiar with 1031 could be costing their clients money that they could be deferring and using to purchase higher valued assets.

In the 1031 arena, there is little to no question that if you are not working with a 1031 exchange group, you are doing yourself a disservice as an investor. It is imperative that you are working with a group that has loads of escrow experience and their specialty is 1031 exchanges.

With that being said, you also want to make sure the group you are working with is part of a larger entity with money in the back and a diversified transaction portfolio. Why? Because when investors are looking to employ a 1031 exchange close title on a sale property, they must place the money with a qualified intermediary such as a bank or title company. You want this company to have money in the bank, and a company like ours (Fidelity National Title) has over $2.8 billion in reserve.

Having the right title company in place will help you succeed in a 1031 Exchange transaction. Plus, since hiring an in-house consulting can cost a fortune, having a good partner such as an experienced title company in the deal can make all the difference.

For more on the Fidelity National Title “Difference” go to www.fntarizona.com or send an email to
info-fntarizona@fnf.com.

The content in this blog is not affiliated with nor is it endorsed by InvestorLoft.com and contributors receive no compensation for submitted articles. All articles submitted to InvestorLoft are subject to editorial review. Please seek the advice of qualified real estate, tax and financial professionals before investing in any project or opportunity. InvestorLoft does not provide tax or legal advice and any and all content herein is provided for informational and educational purposes only.

Not all rates are created equal.  Rates for a residential resale for a first-time home buyer are not the same rates that apply to an investor that will be purchasing multiply properties with cash.  Nor should they be.

The question that an investor should ask when it comes to rates is, “Will the rate I get today benefit me when I go to sell this property and purchase another property?” This is where your title company comes in.  The title company you chose will be your biggest ally in the fight to get the best rate and return on your investment.

For example, at Fidelity National Title (www.fntarizona.com) there is a hold open rate that is 125% of the owner’s policy. This allows the policy to stay open for up to 2 years awaiting a resale and the net will be a substantial reduction in the owner’s policy.

For example: say you have a $100k property and the title is $730, 125% of $730 = $182.50.  This is what the investor (as a buyer) pays.  If you sell the property within the time allotment and the policy is $1,020, you will then pay the difference of the two policies $1,020-$730 = $290.

To learn more about Fidelity National Title’s and the 30% investor rates available, send an email to info-fntarizona@fnf.com or call 480-214-4540.

The content in this blog is not affiliated with nor is it endorsed by InvestorLoft.com and contributors receive no compensation for submitted articles. All articles submitted to InvestorLoft are subject to editorial review. Please seek the advice of qualified real estate, tax and financial professionals before investing in any project or opportunity. InvestorLoft does not provide tax or legal advice and any and all content herein is provided for informational and educational purposes only.

Where are the good real estate investment deals these days?

There’s definitely no shortage of hot investment property floating around out there these days…but where do you go to minimize the “digging” for good deals?

How do you know what markets are hot, lukewarm, tepid and just plain ‘ol cold?

There are a ton of resources floating around out there on the web that are ready and waiting to provide you with timely, market-relevant information to aid in an investor buyer’s decision. This week’s blog post is a compilation of these resources, and we hope that if you have your own tools, you’ll share them with us in the Comments section below:

• Interactive Maps from NAR: Check out the interactive maps for Median Home Price and Existing Home Sales by State
   
• FinancialDynamix from InvestorLoft: Sure, we’re pimping our own ride here a bit, but every property on the site has a built-in calculator attached to it. Once you conduct your search by cash flow, cap rate, cash on cash return , downpayment and more, click on the “View Financials” tab of any property on our site an run the numbers real-time. Find out if it’s just a good price or also a great investment.
   
• Keep Tabs on Forbes.com: They regulary publish great stories like Where US Home Sales Are Rising , America’s 25 Strongest Housing Markets , and America’s 25 Weakest Housing Markets.
   
• Data Sets from Cyberhomes.com: When you log into their home page, they’ve done some preliminary sorting for you. View Home Values, Going Fast Listings (high page views) and more and explore their Real Estate Markets section for timely news and insights. 
   
• Do Some Simple Math: There’s no shortage of doom and gloom in the daily news about the real estate markets and which have been hardest hit. Florida, Nevada, Arizona, Colorado, California – they’re in the blogs, online and traditional news reports and on the tips of every professional in the industry. Here’s a tip: start with THOSE cities for finding great investment properties. Foreclosure rates are high, inventory is plentiful, and with a little elbow grease and math, you just might find your next cash flowing gem!

Improve your Rental Property on a Dime

Sometimes we have to face the reality that it’s time to spruce things up a little bit at our rental properties. However, improvements often mean down time between tenants – so how do we make decisions that will:

Improve aesthetics

Up our asking rent

Result in as little downtime as possible between tenants?

Here’s a list of five simple improvements that you can do to your rental property in less than two days that won’t only NOT break the bank, but result in virtually no downtime between tenants!

• A Fresh Coat of Paint: If you stick with a neutral color in a high-hiding variety that will go on in one coat, you’re done in a day! True Value has a handy paint calculator that will help you figure out just what you need. Don’t go for designer varieties – stick with staple colors from major paint manufacturers so you can get more when you need to touch up or paint again.
• New Baseboards: With the advent of the “no-mitre” variety, you can now just install all of your corner and radius pieces and make straight cuts. This decreases install time significantly. Check out Home Depot and Lowes as they generally have baseboards in contractor packs in sizes up to 3.5 inches. Get a contemporary look with low wallet impact. Hint: use a satin or kitchen & bath finish paint in Swiss Coffee instead of traditional white – shows less wear and can be wiped clean! Most condos and homes can be demo’d in a half day and re-installed in one. Paint your baseboard strips the same day as the demo to speed-up the process.
• Get Rid of that Grass! Xerascaping (also known as desert landscaping) is not only eco-friendly but easy to do as well. If you live in water-sensitive areas like AZ or NV, often the government has a program to PAY YOU to remove your grass and replace it with low-maintenance landscaping. Having a yard that a tenant does not have to keep maintained not only increases the desirability of your property to prospective tenants but lowers water bills, increases curb appeal and will make your property inherently “pet friendly” too!
• Plumbing Fixture Update: It’s a breeze to install new faucets and showerheads, so hop on it! They’ll spruce-up a lackluster sink or shower and lower your maintenance costs in the long run. Keep them fresh and even if you’re not the “handy” type, your property manager will have a handyman who can go in and replace everything for you in one day.
• Lighting Fixture Update: There are so many attractive, low-cost lighting options available that it’s time to put those “Hollywood lighting” bath bars to rest (permanently). Look for options where the sconces are upward-facing so you can use compact flourescent bulbs to save energy (especially important if you’re including utilities in the rent). For closets and hallways, flush-mount flourescent fixtures like these are not only cost-effective but easy to install as well!

Released November 28, 2008, the Federal Housing Finance Agency report threw out some pretty staggering statistics about the residential real estate market. Home prices slid and additional 1.8% in the third quarter of last year, establishing a record decline for the Agency’s purchase-only index. And mind you – this is a 17 year-old index! But wait…there’s more.

The FHFA’s All Transaction Price Index slid 4% over the previous 4 quarters, marking the largest four-quarter drop in the index’s history (33 years).

Frankly, we could all sit around and bemoan the fact that:

• Arizona property prices fell 13.5%
• Florida property prices fell 16%
• Nevada poperty prices fell 20.9%