Archive for the 'Multi-Family Property Investing' Category

Comments Off on Real Estate Investors: There’s An App For That

appsWhether you’re looking to buy and rent a single family home, duplex or apartment building or rehab and sell a property for a profit, chances are there’s an App that will save you endless hours with spreadsheets and calculators.

For residential rental property,  I’ve become fond of Property Evaluator – Real Estate Investment Calculator. Available for free from iTunes (there are upgrades available, but the free version may be plenty for most users), it allows you to enter all relevant data for an investment property spreadsheet.

With that information, it automatically calculates your cash flow, rate of return, cap rate and even a gross rent multiplier. This helps you decide in an instant whether a property is worthy of acquisition, and also, whether you should keep it in your portfolio after you own it.

If you’d like to earn a little sweat equity as well, there’s an app called Real Estate Flip – Investing Calculator. This app requires slightly more math than the first one. For example, it doesn’t allow you to calculate your down payment as a percentage, what the remaining balance on a note would be, or what your closing costs might be based on commission and county tax percentages (you have to manually enter the actual amount).

It does, however, automatically calculate your payments and holding costs. It also has a list of common repair items, like windows, for example. It will give you an average of what they’ll cost based on the type (casement vs. double hung) and number.

Everybody has different tastes. The good news is Apps aren’t that expensive. Play around with them. You just might discover one that will make you a fortune.

Comments Off on Is Your Duplex Equity Earning All It Can?

Return on Investment DuplexIf you purchased a duplex any time since 2007, chances are it’s worth a lot more now than it was.

What this means is you now have equity in your property. In addition to your initial down payment and the amount of your loan you’ve paid off, you have the equity you’ve earned through appreciation.

This is great news. That’s how real estate investment is supposed to work. But it also means you should now be asking yourself whether you’re getting the maximum return on that equity.

If your ultimate goal is to increase your cash flow to the point where you can quit your day job, it might be time to look at moving your money into a larger property that generates more passive income for you.

For example, you may find you have enough equity for a down payment on a four, six or eight unit building. You will find the cost of each unit in the building (purchase price divided by number of units) to be much lower than that of a duplex. More importantly, however, you will also have more than just two sets of tenants paying you rent.

More tenants may equal bigger cash flow.

If you’d like to explore whether you’re maximizing your equity, give me a call or email me. Interest rates are low, and there are still plenty of terrific real estate investment opportunities to be found.

Duplex Owners Enjoy The Sun

said on February 14th, 2014 categorized under: Multi-Family Property Investing

Comments Off on Duplex Owners Enjoy The Sun

duplex owners love this marketIt may be the coldest winter in memory, but most Minneapolis and St Paul duplex landlords are extraordinarily sunny when I speak with them.

And why not? After all, vacancy rates and interest rates are extraordinarily low, meaning rents are high and the cash flow is terrific.

The one thing many of them forget is what goes down, must go up.

No, I didn’t get that backwards.

Vacancy rates are not a constant. At some point, the economy will rebound. And when that happens, many tenants will decide to become homeowners.

This will force vacancy rates up, which will cause things like concessions to attract tenants (think first month free), and lower rent.

As the economy improves, we are also likely to see the Federal Reserve raise interest rates in an effort to slow inflation. This will reduce the affordability of many income properties, as well as reduce cash flow.

With smaller returns, investors will begin to leave the marketplace. And as demand for investment properties slows, prices with rise less aggressively, and may even decline somewhat.

Let’s hope warm sunny days are in all of our futures. But it’s always wise to bring an umbrella.

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time to invest in real estateIf recent good news about real estate values have made you think you’ve missed out. You haven’t. Here are 11 reasons it’s real estate is still a great investment.
  1. Leverage – Real estate is one of the few investments where you can use someone else’s money — namely, the bank’s, to pay for most of it.
  2. Pride of Ownership- It’s difficult to drive your family past your stock portfolio and point to it with pride. A nice duplex, however, with great curb appeal is an investment you can touch and be proud of.
  3. Tax-Free Growth – While you should never buy an investment property and count on appreciation, history suggests that it is reasonable to assume given enough time, it will be worth more than you paid for it. As this happens, you are not taxed on that appreciation until you sell the asset. And when you do, you may want to consider a  1031 exchange or contract for deed to lessen your tax liability.
  4. Tax-Free Cash Flow – Thanks to depreciation and mortgage interest deductions, your cash flow may not be taxed.
  5. Tax Write Offs Against Your Day Job – Check with your accountant, but there’s a reasonably good chance that your investment property will give you so many tax deductions that you can use it against your other income.
  6. More Tax Deductions – Owning an investment property is like owning a business. As such, paying your son to mow the lawn is tax deductible, as is driving past to check on the property. Not only does this help reduce your annual taxes, but it may help offset future capital gains taxes as well.
  7. Forced Retirement Savings – For most of us, it’s tough to have the discipline to consistently put extra money in an IRA or 401k. However, the money tenants contribute toward the mortgage of an appreciating asset is comparatively easy to save. After all, the bank requires payment, and the amount you pay off on your loan every month will help fund your retirement later.
  8. Diversification – Having investments in both real estate and the stock market helps you hedge against crashes in either market.
  9. Infation is Rent Friendly – One of the few investments you can make that will keep pace with inflation is real estate. After all, it keeps pace with market prices.
  10. Reliable Returns – If a property has a positive cash flow when you buy it, there’s no reason to think provided that you properly manage and maintain it, that it won’t for years and decades to come.
  11. Prices Are Still Depressed – While real estate values have begun to make a comeback, they are still well below the highs of 2005 and 2006. What this means for investors is smaller multifamily properties that previously were too expensive to produce much of a positive cash flow are now providing double digit returns.

Why I Won’t Call If I Find A Good Deal

said on October 7th, 2013 categorized under: Multi-Family Property Investing

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call a duplex realtorIf I had a dollar for every time a prospective duplex buyer or investor told me to call them if I found a property that’s “a good deal”, I’d be retired.

But I won’t call.

Why?

Well, there’s a couple of reasons.

This conversation usually happens when I first meet a prospective client.  And that investor may not be at a point where she’s ready to buy something immediately or commit to a Realtor. As a result, if I bring them a duplex I perceive to be a terrific value, she might not be ready to buy just yet.

Part of the reason she may not be ready to take that step may be financing.  Perhaps she hasn’t sat down with a lender just yet, and fully intends to once she identifies a property. But there is a problem in this thinking. Most sellers won’t even look at an offer without seeing proof a buyer can afford it. And that proof requires either a pre-approval letter from a lender (which can take several days to get) or proof that she has the cash.

I have a number of buyers at any given time looking for a good deal. And the ones who have demonstrated to me their ability to get financing on a moments notice or pay cash for a property are the ones I call first. After all, their financing in place, and I know they can move to acquire the property.

Finally, I will not call someone who wants to hear from me only when I find a good deal because I don’t know how many other Realtors they’ve said the same thing to. When I call, I may discover that buyer has just purchased an investment property with another agent or, worse yet, that Realtor has called them about the same duplex and they are in the process of writing an offer.

Realtors work entirely on commission. We are not paid by the company we have our real estate license with (like Keller Williams). Instead, we are compensated only when we locate a property our clients then purchase. As a result, it only makes sense that we spend our time and energy on buyers who can truly afford a property.

It isn’t that I won’t call someone with a good deal. I absolutely will; if I know that investor is not only truly ready, but willing and able to perform.

Comments Off on Does Housing Affordability Suggests Future Rise In Vacancy Rates?

duplex vacancyGuess what? It’s still less expensive to buy a house or a duplex than rent one.

Last week, Trulia released their Summer 2013 Rent vs. Buy Report, which found that nationally, in spite of rising interest rates, owning is 35 percent cheaper than renting. Last year, that number was 45 percent.

If duplex and house prices stayed the same, interest rates would have to slip into double digits– about 10.5 percent- before it made more sense to rent.

Of course, numbers vary somewhat according to where you live. In Honolulu, for example, it is 10 percent cheaper to own than rent, and interest rates would have to rise to just 5.8 percent for that not to be true. In New York, that figure is 7 percent.

Buyers in Minneapolis find buying is 42 percent more affordable than renting, down from 52 percent one year ago. Interest rates would have to top 12.5 percent for it make more sense to be a tenant.

In cities like Detroit, on the other hand, it’s 65 percent less expensive to own than rent.  Interest rates would have to rise higher than credit cards– to a staggering 32.8 percent for it to make sense to rent in the Motor City.

Should lending standards relax, duplex owners and income property investors should be on the lookout for higher vacancy rates, as tenants look to not  only save money, but reap the rewards of home ownership as well.

How To Avoid Long Duplex Vacancies

said on August 26th, 2013 categorized under: Multi-Family Property Investing

Comments Off on How To Avoid Long Duplex Vacancies

for rentWhat’s the one thing you can do to make sure you don’t spend more time with a vacant unit on your hands than you can afford?

Lower the rent.

Yes, I’ve blogged about this before. And, to some of you, it may seem obvious that lowering the price (rent) would result in immediate occupancy. However, that is actually the biggest fear my clients who intend to occupy their duplex have.

They worry they’ll go months and months without tenants, emptying their life savings to cover the mortgage payment.

And I wonder if they are envisioning themselves as the world’s worst landlords.

If you have an empty duplex, and endless advertising on Craigslist hasn’t netted you a qualified tenant, one of two things is wrong:

  1. It’s dirty or dated and needs a face lift.
  2. The rent is too high.

After all, if you have a clean, well-maintained unit available for rent that’s $100 or $200 less per month than every other property in the area, do you think you’ll have trouble finding a tenant?

I doubt it.

Comments Off on How To Use A “Checkbook IRA” To Buy A Duplex

Use a checkbook IRA to buy a duplexAs I’ve discussed in the past, a self-directed IRA gives its owner the ability to invest in real estate, among other things.

To be brief, the IRS allows you to put some or all of the funds in your IRA into real estate, so long as you don’t benefit directly.

To ensure this, the IRS requires you to put that IRA in the trust of a custodian. (There are companies who specialize in this such as Entrust and Nexus Direct IRA.)

This could be expensive when it comes to real estate; especially if the custodian charges fees to write the checks for monthly expenses like water and trash, snow removal, etc.

However, there is a simpler, more cost-effective way to structure your IRA, which also gives you more control over your duplex.

A checkbook IRA, also called a self-directed IRA LLC,  is created when you set up or roll-over your existing IRA into a self-directed account.  Then you create an LLC to be owned by the IRA. You tell your IRA custodian to invest in the LLC, which you then manage yourself.

There are restrictions. Anything you earn must go directly back into the IRA. You can’t compensate yourself or use the duplex as your own primary residence or vacation home. You also can’t do business with any family members.

However, you can sell a duplex and buy another one, buy multiple properties, raw land, and even pool your money with other investors. Any money you use to buy, repair or maintain the duplex must come from your IRA, not you personally.

Of course, there are fees to initially set up the LLC, but ultimately, these should total a lot less than paying a custodian to write out checks every month on your behalf.

Comments Off on Why You Don’t Need A Real Estate License To Be A Successful Duplex Investor

Laminated Card - Real Estate License for Agent ProfessionalSometimes new investors see obtaining their real estate license as the key to achieving success as a duplex and rental property investor.

Many think simply having a real estate license will not only allow them to pocket the commission an agent would have earned, but also, give them an inside track on all of the “good deals”.

The trouble is, most of those mysterious, best deals only agents allegedly have access to? They come from hours, days, weeks, months and years of networking, talking with prospective sellers, and in general, making real estate a full time career.

Realtors can’t buy every property we find. And for many of us in today’s difficult lending environment for self-employed people of all professions, financing isn’t even possible.

So what do we do when we stumble across a good deal we’d buy ourselves if we had the money? Pass it along to our best clients.

And for many of us, that’s our investors. In other words, it’s my loyal clients who get the first calls when I stumble upon a great deal; not investors who are part time agents looking to “save the commission” on my hard work.

If you’re thinking of getting started investing in real estate, it pays far more in opportunity to align yourself with a full time Realtor than you’ll ever save in commission.

Comments Off on Duplex Sales Slip As Prices And Delinquencies Rise

Slippery floor hazard symbolAccording to the National Association of Realtors (NAR), existing home sales slipped one percent in June from May’s three-year high.

While a dip of  1.2 percent to an annual rate of 5.08 million from what had been a pace of 5.27 million does not seem like much, the suspected reason behind it may have longer term implications.

NAR’s Chief Economist Lawrence Yun believes rising mortgage interest rates may be the cause of the slowdown.

However, thanks to pent-up demand, and a low supply of inventory, home and duplex prices continue to rise at an above-normal pace. In fact, the national median home price was up 13.5 percent from June 2012, to $214,200.

Fewer foreclosures and short-sales, which typically sell at a discounted price, were part of the price increase is well. In fact, they were responsible for just 15 percent of all existing home sales, down three percent from May.

This trend may not hold, as the data company Lender Processing Services (LPS), reported this morning that the national mortgage delinquency rate rose 9.9 percent from May to June. At 6.7 percent of all mortgages, it is the highest level since February. However, compared to June of 2012, it nonetheless represents a year-over-year decrease of 6.5 percent.