I recently read an article on Forbes.com by Matt Woolsey called Best and Worst Cities for Renters, that I am summarizing here. I have found the Forbes website to be a valuable source of information, and an amusing place to find some top 20 lists. (I like looking at the lists of the top billionaires in the world. It helps me daydream.)But the article about the Best and Worst Cities for Renters had a lot of good information that I wanted to share with other investors. It was no surprise to read that the highest rents are paid in New York City and San Francisco. The 2.8% vacancy rate in NYC is partially responsible for keeping the rents so high. The sales prices of homes are much higher in the city, but so are the incomes. So those people who cannot afford to buy a home and need to rent, have a higher income than in other areas of the country. Therefore they can afford the higher rents as long as the cost is still less than that of buying a home.
In places like Cincinnati, that are expecting 100% more new homes this year will see a slow down in rental prices of only 2.7% (the lowest increase nationwide). More inventory slows the growth of prices and rents in the city. This rental increase is predicted to be the slowest nationwide. For a comparison, a 2% raise in construction in Washington DC is expected to lead to a 5% increase in rents there.
Job growth also plays an important part in rental rates. Salt Lake City boasts one of the most rapid new construction rates, but it still cannot keep up with the rate of job growth in the area of 3.1% in 2008. Of course more jobs means more people and higher wages and increases in sales prices and rents.
“Slow sales countrywide means more opportunities for renters as developers and homeowners look to lease their properties while waiting for buyers.” This is happening in Miami, but a lot of the new rental units here are unsold condos that are not really affecting the overall rental market.
Those are the basics of the article. I hope it was informative.
Saturday, February 09, 2008
Sunday, February 03, 2008
What real estate to buy in 2008.
This week we attended a meeting of the New Jersey Real Estate Investment Club. The topic this week was What real estate to buy in 2008. The founder of the club, Christopher Goodson, was going to talk to us about his recommendation for investing in the New Year. Since it is a real estate investing club, it was no surprise that he recommended investing in real estate. It is also important to point out that he recommended buying real estate for the long term, and not flipping or short sales. He had a lot of good things to say about flipping and short sales, but he believes that it is vital to invest in real estate for the long term.
He believes, as a lot of economists currently do, that we are in a recession. A recession is simply defined as “A period of general economic decline, specifically, a decline in GDP for two or more consecutive quarters.” I have never followed the GDP levels, but from what I have heard, it is easy to believe that we are in a recession. But being in a recession is not necessarily a bad thing, especially for people just starting to invest in real estate. I am a big believer in going back to the basics. Everything that we do is based off of some basic facts and ideas. It is vital to never forget those basics, or any new knowledge gained is baseless. These are some of the basics that were reviewed before Mr. Goodson made any investing suggestions:
There are 4 ways to make money in real estate:
1- Rental Income (cash flow)
2- Depreciation (phantom cash flow)
3- Amortization
4- Appreciation
Mr. Goodson believes that a lot of the problems that investors are having is because they bought real estate based on appreciation only. We were in a long period of time that saw unprecedented increases in real estate appreciation. A lot of investors were buying real estate based solely on the appreciation. They were willing to lose some money every month in hopes to make it all back plus extra when they finally sold. Those who did not sell prior to the downturn of the market have not been getting the returns they expected, and I am sure that a number of them have lost money.
The main thing that he stressed throughout the whole meeting was that you should only buy real estate that is cash flow positive, even if your goal is appreciation. In a nutshell this is what he was recommending to all of us for 2008. Only buy real estate that cash flows. He also recommended buying 2-3 family houses. (Please keep in mind that he is only speaking about buying real estate in the New York/New Jersey/Pennsylvania Metropolitan Area. The rest of the country was not discussed.) He made this recommendation because of the abundance of these types of properties, and the ease of using alternate types of creative financing, such as seller financing. Since real estate has not been selling quickly in this area, sellers are going to be more willing to make creative deals now, in order to make the sale.
He believes, as a lot of economists currently do, that we are in a recession. A recession is simply defined as “A period of general economic decline, specifically, a decline in GDP for two or more consecutive quarters.” I have never followed the GDP levels, but from what I have heard, it is easy to believe that we are in a recession. But being in a recession is not necessarily a bad thing, especially for people just starting to invest in real estate. I am a big believer in going back to the basics. Everything that we do is based off of some basic facts and ideas. It is vital to never forget those basics, or any new knowledge gained is baseless. These are some of the basics that were reviewed before Mr. Goodson made any investing suggestions:
There are 4 ways to make money in real estate:
1- Rental Income (cash flow)
2- Depreciation (phantom cash flow)
3- Amortization
4- Appreciation
Mr. Goodson believes that a lot of the problems that investors are having is because they bought real estate based on appreciation only. We were in a long period of time that saw unprecedented increases in real estate appreciation. A lot of investors were buying real estate based solely on the appreciation. They were willing to lose some money every month in hopes to make it all back plus extra when they finally sold. Those who did not sell prior to the downturn of the market have not been getting the returns they expected, and I am sure that a number of them have lost money.
The main thing that he stressed throughout the whole meeting was that you should only buy real estate that is cash flow positive, even if your goal is appreciation. In a nutshell this is what he was recommending to all of us for 2008. Only buy real estate that cash flows. He also recommended buying 2-3 family houses. (Please keep in mind that he is only speaking about buying real estate in the New York/New Jersey/Pennsylvania Metropolitan Area. The rest of the country was not discussed.) He made this recommendation because of the abundance of these types of properties, and the ease of using alternate types of creative financing, such as seller financing. Since real estate has not been selling quickly in this area, sellers are going to be more willing to make creative deals now, in order to make the sale.
Sunday, January 20, 2008
Keeping Financial Records
Filing taxes should be considered an illegal form of torture. It seems to just get worse and worse every year. I spent years struggling to file them myself and I was never sure that I did them correctly. Since I have switched over to professional accountants, I have never been happier.
I have been trying to keep close track of all of the expenses that we have had for this property, because we will need to file soon. I wanted to make sure that I was organized ahead of the game to save time. Of course, the accountant will be filing for us, but we are the ones that will be supplying him with all of the numbers that he needs. We used this same accountant for the past few years. When we were filing last year, and knew then that we would be buying an investment, I should have asked him how he wanted the information organized. I have it all in a excel file now, so sorting it into different views will be relatively easy. I know a lot of people use Quicken, or other similar software, but I have never found the need. A few spreadsheets have been easy enough to set up to keep all of the records that I have.
I have one spreadsheet for expenses that are not directly related to the property that we bought, but that we still might be able to use as a deduction. There are phone and internet expenses, FedEx bills for some of the bidding and closing paperwork that we needed to send overnight, and just some general office supplies. I do not yet know how much of these things we can use as deductions, but I have them all on my list anyway.
Then I have a sheet for the expenses that directly relate to the property in Dallas. On this sheet I have separated the closing costs from the operating costs. Linked to this sheet is one for the income the property generates. I have it broken down by apartment numbers, that I transferred from the monthly statements from the property managers. But I also just have the monthly totals that then are linked back to the operating costs page to give a running total of the profits.
Once we meet with our accountant I will know how good or bad my record keeping has been. Then I will come back and share any insights into better record keeping.
Sunday, January 06, 2008
My goals for the New Year
1-Buy a second real estate investment
2-Create information products related to investing
3-Have more blog content and expand the information on it
4-Start a second website with other information products as source of income (topic not yet determined)
5-Write a business plan and create prototype for one new product (item not yet determined)
Those are the basics of my business and financial goals for the year. I also have certain goals for the one investment property that we now one, but I will review that separately.
1-Buy a second real estate investment. There is a lot more to this than just this one sentence. Our first property we bought rather conventionally. This was a unique experience that taught us a lot. But for our next investment, we are going to try to purchase it with different methods.
2- Create information products related to investing. I have so much information inside me, and I just keep picking up more. I want to put it all down on paper and see if it will sell. Secondary sources of income are also essential to my overall goals of becoming wealthy. A lot of the information will come from my personal experiences and opinions, as well as market and general information. I want to go beyond the “rah rah-you can do it” that is currently on the market.
3- Have more blog content and expand the information on it. This is pretty self-explanatory. I feel guilty about not writing on my blog as much as I should. I have re-prioritized my time to allow for more time to create content. I also have more time to research and learn about different investment topics that I want to share with the world.
4- Start a second website with other information products as source of income. This is sort of a vague goal at this point, and I have yet to decide what the service is that I will offer. I have some other interests in my life that I am passionate about. The site may be an interactive community of sorts, or a reseller of a niche product or something entirely different. My first step is to take my top two or three ideas for this site and do a little bit of market research to see if how plausible the idea is. Then I will develop a marketing plan for promoting the site, and set up a simple site to launch it.
5- Write a business plan and create prototype for one new product. My husband and I are big fans of the show “The Big Idea”. The Donny Deutsche show features entrepreneurs who have had simple ideas and made them into million dollar businesses. A lot of the ideas come out of simple frustrations in daily life. So, we have examined our daily lives and come up with a few new products. We understand that bringing a product to market can take more than a year. So my goals for this year are simply to pick one of the products that seems most feasible, write a business and marketing plan for it, and create a prototype. That sentence makes it all sound so simple, but it will actually be a lot of work.
Now, not only in my list of goals written with pen and paper, posted on my desk, but the whole world can now read about it. I am not getting away from this now!
Tuesday, January 01, 2008
A NEW YEAR!!!!!!
I will be the first to admit that I have been delinquent in my blog writing duties. But since it is a new year, I have been reviewing my goals not only for the year, but for my entire future. The good news is that I still plan on becoming wealthy.
Every January gyms across the country are loaded with new people trying to keep their New Year’s Resolutions to lose weight. By early spring, most of those people will not go to the gym again until next January when they make the same resolution.
Setting goals is a daunting task for me that I have never enjoyed. I always have the ideas in my head, but I have never been comfortable putting pen to paper to document it. The fear for me has always been having the proof at the end of the year that I have not accomplished the goals. Once I put pen to paper I become accountable for those goals. But last year I bought my first real estate investment and it has changed my perspective quite a lot. A lot of the fear that I one felt is gone. I am now officially accountable for every single one of the goals on my list.
The first few items are personal items that will not directly affect my financial future. After living in my house for two years I need to make a decision about how the living room should be furnished before another year goes by. I think it is important to have personal, family and business goals on the same list. We can all define ourselves in more than one way. All the aspects of life need to be tended to in order for us to grow as a whole. Too often we spend so much time and effort on one thing in life that all of the secondary and tertiary roles get lost.
Be reasonable when you make your list. If you think there is not enough time to accomplish an item on the list, then break it down into smaller components and set the goal for just the beginning steps. I don’t mean to tell anyone that they cannot accomplish anything they set their minds to do. I am just advising to keep in mind that some things are harder to accomplish over night then others. Time is also a limiting factor for all of these things that we do. Hours in the day are limited, and I tend to lose functioning after a certain hour of the night.
Every January gyms across the country are loaded with new people trying to keep their New Year’s Resolutions to lose weight. By early spring, most of those people will not go to the gym again until next January when they make the same resolution.
Setting goals is a daunting task for me that I have never enjoyed. I always have the ideas in my head, but I have never been comfortable putting pen to paper to document it. The fear for me has always been having the proof at the end of the year that I have not accomplished the goals. Once I put pen to paper I become accountable for those goals. But last year I bought my first real estate investment and it has changed my perspective quite a lot. A lot of the fear that I one felt is gone. I am now officially accountable for every single one of the goals on my list.
The first few items are personal items that will not directly affect my financial future. After living in my house for two years I need to make a decision about how the living room should be furnished before another year goes by. I think it is important to have personal, family and business goals on the same list. We can all define ourselves in more than one way. All the aspects of life need to be tended to in order for us to grow as a whole. Too often we spend so much time and effort on one thing in life that all of the secondary and tertiary roles get lost.
Be reasonable when you make your list. If you think there is not enough time to accomplish an item on the list, then break it down into smaller components and set the goal for just the beginning steps. I don’t mean to tell anyone that they cannot accomplish anything they set their minds to do. I am just advising to keep in mind that some things are harder to accomplish over night then others. Time is also a limiting factor for all of these things that we do. Hours in the day are limited, and I tend to lose functioning after a certain hour of the night.
Sunday, October 21, 2007
PAY DAY
We have finally received our first paycheck from our apartment building. $4906.22.
I made color copies of it and plan on keeping it in a special place, sort of like what you see restaurants do with $1 bills put in frames behind the register. Officially it is not the first money that we received from the apartments (we were credited for a prorated portion of the rents at closing), but it is the first official check that we have received from rent.It will not always been for this same amount. The property manager has been doing a lot of work for us, at an hourly rate, in order to get the property in the running condition that we want it to be. They roofing and the siding are still being replaced, but the security gates are fully installed and awaiting fire department inspection. Once these things are fully completed, the property manager will not have as much to do outside of collecting the rent, and any minor repairs that may arise.
As I mentioned in my last post, not all of the tenets are caught up on their rent. But this payment covers two months worth of rents, minus two $800 management fees from the get go. Other fees that were deducted were for permits for repairs, and lawn services that the property manager paid for, new lease fees, and the service fees for each time they had to meet with the various vendors. Basically the property manager pays for the cheaper items out of pocket first and them gets reimbursed from the rent payments. They way she does not have to contact us for every little item that is needed and then wait for us to send the money. It makes less work for both of us.
So, what do we plan to do with this money? Not much at this point. It is going into the bank to re-build up our cash reserves for the next investment opportunity. We are just adding it back into our cash reserves. We are not big spenders nor are we prone to splurging. We are already looking for other properties, and the more cash we can set aside, the more properties we will buy. When the money starts to pile up faster than I can invest it is when I will finally feel comfortable.
I made color copies of it and plan on keeping it in a special place, sort of like what you see restaurants do with $1 bills put in frames behind the register. Officially it is not the first money that we received from the apartments (we were credited for a prorated portion of the rents at closing), but it is the first official check that we have received from rent.It will not always been for this same amount. The property manager has been doing a lot of work for us, at an hourly rate, in order to get the property in the running condition that we want it to be. They roofing and the siding are still being replaced, but the security gates are fully installed and awaiting fire department inspection. Once these things are fully completed, the property manager will not have as much to do outside of collecting the rent, and any minor repairs that may arise.
As I mentioned in my last post, not all of the tenets are caught up on their rent. But this payment covers two months worth of rents, minus two $800 management fees from the get go. Other fees that were deducted were for permits for repairs, and lawn services that the property manager paid for, new lease fees, and the service fees for each time they had to meet with the various vendors. Basically the property manager pays for the cheaper items out of pocket first and them gets reimbursed from the rent payments. They way she does not have to contact us for every little item that is needed and then wait for us to send the money. It makes less work for both of us.
So, what do we plan to do with this money? Not much at this point. It is going into the bank to re-build up our cash reserves for the next investment opportunity. We are just adding it back into our cash reserves. We are not big spenders nor are we prone to splurging. We are already looking for other properties, and the more cash we can set aside, the more properties we will buy. When the money starts to pile up faster than I can invest it is when I will finally feel comfortable.
Sunday, October 14, 2007
Renters
When it comes to our first real estate investment, we are relying solely on rental income as the only source of income. There are no coin-op washersand dryers on site or anything else that could bring in extra income. In away we feel that we are at the mercy of our tenets. We have not raised the rent on them We are considering a moderate increase once the repairs are all done. We realize that our tenets are below the national poverty line, and we do not want to put any extra pressure on them to pay us more money.The problem is that they do not pay their rent on time. It is not just one or two tenants that have this problem, but most of them have this problem. I think that it is not a problem of discipline, but a problem of the lack of money. So, we have been trying to think of a solution. We have discussed payment plans with our property manager, but she did not sound too hopeful.
I have made no secrets of my plans to be a philanthropist, and I genuinely want to help people like our tenants who are at the bottom of the financial barrel, so I have been trying to think outside the box for a solution. I have thought about starting a business where employees could work for me from home, so that I cannot only have these people as tenants, but as employees. The major problem I have with this is that my tenants do not have access to computers, and most if the jobs like this require internetaccess. I plan on doing more research for opportunities for people in these situations to see what sort of solutions area already out there. I had an idea, before we even closed on this property, to give everyone of our tenants, regardless of their payment history, a break at Christmas time. I was thinking of either a discount for the month of Dec, or a freemonth of rent depending on how well we were doing for the year. At this rate I do not know if we can pull it off for this year, but I still want to do something for these people. So, we are considering sending them gift cars to the nearest grocery store.
I have made no secrets of my plans to be a philanthropist, and I genuinely want to help people like our tenants who are at the bottom of the financial barrel, so I have been trying to think outside the box for a solution. I have thought about starting a business where employees could work for me from home, so that I cannot only have these people as tenants, but as employees. The major problem I have with this is that my tenants do not have access to computers, and most if the jobs like this require internetaccess. I plan on doing more research for opportunities for people in these situations to see what sort of solutions area already out there. I had an idea, before we even closed on this property, to give everyone of our tenants, regardless of their payment history, a break at Christmas time. I was thinking of either a discount for the month of Dec, or a freemonth of rent depending on how well we were doing for the year. At this rate I do not know if we can pull it off for this year, but I still want to do something for these people. So, we are considering sending them gift cars to the nearest grocery store.
Sunday, September 23, 2007
Rich Dad LIVE
This past Tuesday, my husband and I went to see Robert and Kim Kiyosaki speak live at a small college in NYC. It was an event sponsored by public television WLIW. We learned about the event when we caught one of his shows with fund raising breaks interspersed throughout. We made a donation and received two tickets to the event. If we had donated more we also could have gotten a set of some DVDs and books. We just went for the tickets. For anyone that has even tried to get into the city thru the Lincoln Tunnel between 5:30 and 6:00 will understand why we were late to the show. We missed about the first half hour. But once we sat down it seemed like he was discussing items that we had seem him give similar speeches about on tv. There was one item that we caught that he has promised to talk about during this seminar. He was going to reveal the next big thing in investing, or at least the next big thing in his opinion. I am sharing that revelation here with you now. SILVER. Silver is supposed to be the next hot item to invest in. Of course if everyone who listens to Kiyosaki invests in silver stocks, the price will go up. I know that he already owns some silver, and may even have ownership in silver mines, so it will be good for him too.
Discussing the future of silver was just the briefest portion of the seminar. He mostly spoke about what the tools are needed to be a successful real estate investor. He discussed what he refers to as the Financial IQ:
1- Make $
2- Protect
3- Budget
4- Leverage
5- Intelligence
He referred back to these 5 points several times throughout the evening to help solidify the points he was trying to make. He also stressed three important things that every investor needs.
1- Good Partners
2- Good Finances
3- Good Management
In fact he had a gentlemen with him who was his business partner and owned a management company. Unfortunately I do not recall his name. But he was a valuable part of the evening because he was able to discuss in some details how he has worked the numbers on some past real estate deals with Kiyosaki. He believed that an important part of investing in not just the property management, but the management of the finances of the purchase and sale of the properties. I would love to hear more from him. He actually had a product that he was selling that night, but we were not in the mood to spend any more money that night, so we did not even look.
To go back to some of the points above. He suggested starting businesses as the best way to make money to invest in. Of course it sounds a lot easier than it is for most people. But I think that it is excellent advise that I plan on pursuing. Unfortunately I missed most of what he said about protect, which I would love to see if he covers this topic during his TV programs. It sounds self-explanatory, but I think there may be some secondary definition or twist that he adds that I am upset that I missed. Budget and Leverage were two important points as well, that I did hear fully explained, and were pretty much what you would expect. Keeping a budget is important for any thing that you do. I also think that preparation of the budget is also important, especially when presenting the deal to investors. Kiyosaki is also a supporter of the art of leveraging one property to buy another. He is a believer in good debt. A lot of the examples that they discussed were deals where the property was reassessed and refinanced after purchase in order to pull out the initial cash investment in the property. He called this infinite leverage.
They glossed over the points of creative financing and using investors, which as points that we wanted to hear more about. So, at the end of the evening, after we got our books signed, we asked the other gentleman (He was more accessible that Robert or Kim.) and asked if he could share some of the gems of creative financing. Of course there is no easy answer to that question. He mostly said that networking is the key. Just getting yourself out there and letting people know what you do. So, I asked if it was the person or the deal that really sold investors. He believed that it was the deal first and then the people. This was my assumption too, since most people only care about the bottom line. But it was still good to hear it from someone with a lot more experience.
Discussing the future of silver was just the briefest portion of the seminar. He mostly spoke about what the tools are needed to be a successful real estate investor. He discussed what he refers to as the Financial IQ:
1- Make $
2- Protect
3- Budget
4- Leverage
5- Intelligence
He referred back to these 5 points several times throughout the evening to help solidify the points he was trying to make. He also stressed three important things that every investor needs.
1- Good Partners
2- Good Finances
3- Good Management
In fact he had a gentlemen with him who was his business partner and owned a management company. Unfortunately I do not recall his name. But he was a valuable part of the evening because he was able to discuss in some details how he has worked the numbers on some past real estate deals with Kiyosaki. He believed that an important part of investing in not just the property management, but the management of the finances of the purchase and sale of the properties. I would love to hear more from him. He actually had a product that he was selling that night, but we were not in the mood to spend any more money that night, so we did not even look.
To go back to some of the points above. He suggested starting businesses as the best way to make money to invest in. Of course it sounds a lot easier than it is for most people. But I think that it is excellent advise that I plan on pursuing. Unfortunately I missed most of what he said about protect, which I would love to see if he covers this topic during his TV programs. It sounds self-explanatory, but I think there may be some secondary definition or twist that he adds that I am upset that I missed. Budget and Leverage were two important points as well, that I did hear fully explained, and were pretty much what you would expect. Keeping a budget is important for any thing that you do. I also think that preparation of the budget is also important, especially when presenting the deal to investors. Kiyosaki is also a supporter of the art of leveraging one property to buy another. He is a believer in good debt. A lot of the examples that they discussed were deals where the property was reassessed and refinanced after purchase in order to pull out the initial cash investment in the property. He called this infinite leverage.
They glossed over the points of creative financing and using investors, which as points that we wanted to hear more about. So, at the end of the evening, after we got our books signed, we asked the other gentleman (He was more accessible that Robert or Kim.) and asked if he could share some of the gems of creative financing. Of course there is no easy answer to that question. He mostly said that networking is the key. Just getting yourself out there and letting people know what you do. So, I asked if it was the person or the deal that really sold investors. He believed that it was the deal first and then the people. This was my assumption too, since most people only care about the bottom line. But it was still good to hear it from someone with a lot more experience.
Sunday, August 26, 2007
Starting New with the Investment
We had secretly hoped that we would be able to make money right out of the gate with our first investment. We weren’t really expecting to, but we were hoping to. We knew from very early on that the building needed to have a new roof and new siding put on, but a few other surprises have popped up, along with their price tags.
Our first priority was to have the roof and siding done to prevent further damage to the building. This property had a history of deferred maintenance, so we wanted to try to get some of the big problems out of the way to try to protect against further damages. Our property manager set it up for us, and we spoke to the contractor ourselves before starting.
What we weren't expecting was a notice from the local police. We knew that the building was in a bad neighborhood, but we did not know that the police were cracking down in the area and putting pressure on property owners who ignore the problems with their properties. Fortunately it is not in my nature to do unethical and immoral things involving other human beings. I saw this as another opportunity, not only to improve my investment, but to improve the whole area for everyone involved. So, we spoke to the police officer about how to improve the property. So, we are going to be putting in security gates at all the access points to the central courtyard. We are hopeful that this will solve some of the crime problems and give our tenets some security. Of course we are also putting in policies to screen potential tenets, and will evict any tenets that cause continual problems. So far it is working well.
Our property manager asked us today if some of the tenets could contact us directly. Of course, one of the main purposes of having a property manager is so that tenets do not call us with every little problem, but we have given them our mailing address. Now we just have to wait and see, but the manager made it sound positive.
Our first priority was to have the roof and siding done to prevent further damage to the building. This property had a history of deferred maintenance, so we wanted to try to get some of the big problems out of the way to try to protect against further damages. Our property manager set it up for us, and we spoke to the contractor ourselves before starting.
What we weren't expecting was a notice from the local police. We knew that the building was in a bad neighborhood, but we did not know that the police were cracking down in the area and putting pressure on property owners who ignore the problems with their properties. Fortunately it is not in my nature to do unethical and immoral things involving other human beings. I saw this as another opportunity, not only to improve my investment, but to improve the whole area for everyone involved. So, we spoke to the police officer about how to improve the property. So, we are going to be putting in security gates at all the access points to the central courtyard. We are hopeful that this will solve some of the crime problems and give our tenets some security. Of course we are also putting in policies to screen potential tenets, and will evict any tenets that cause continual problems. So far it is working well.
Our property manager asked us today if some of the tenets could contact us directly. Of course, one of the main purposes of having a property manager is so that tenets do not call us with every little problem, but we have given them our mailing address. Now we just have to wait and see, but the manager made it sound positive.
Wednesday, August 22, 2007
Closing
The trial and tribulations of closing on this investment seemed never ending. In fact we were due a small refund at the time of closing which we still have not received after a month and a half. (I am told that it is in the mail.)
The entire closing process was a very daunting task indeed. I only made it worse by how worried we were about the whole thing falling thru now that we had finally reached the end. The paperwork was never ending. I am sure that we duplicated information many millions of times. We had to supply all sorts of forms to the lender, not just the basic application forms with the details about the property, but notarized forms to prove that we were who we said we were, and even a form to say that there was never a dry cleaning business on the property. At points I thought that the paperwork would drive me insane. Every time I thought that it was all over and I had sent in everything that I needed to, they would request more. Maybe it was due to the lender, maybe the type of loan, or maybe the type of property, I just do not know.
My plan is to put together a list and copies of all of the documents needed for closing, or at least the ones that we needed for this closing. So then in the future we can have the items available in advance to make the process smoother. I have just not had the stomach to go over it all again. But when I do I will post it as a reference for everyone else. I hope that it will be a useful tool for anyone who is on the selling end also since the seller supplied a large number of the items.
The entire closing process was a very daunting task indeed. I only made it worse by how worried we were about the whole thing falling thru now that we had finally reached the end. The paperwork was never ending. I am sure that we duplicated information many millions of times. We had to supply all sorts of forms to the lender, not just the basic application forms with the details about the property, but notarized forms to prove that we were who we said we were, and even a form to say that there was never a dry cleaning business on the property. At points I thought that the paperwork would drive me insane. Every time I thought that it was all over and I had sent in everything that I needed to, they would request more. Maybe it was due to the lender, maybe the type of loan, or maybe the type of property, I just do not know.
My plan is to put together a list and copies of all of the documents needed for closing, or at least the ones that we needed for this closing. So then in the future we can have the items available in advance to make the process smoother. I have just not had the stomach to go over it all again. But when I do I will post it as a reference for everyone else. I hope that it will be a useful tool for anyone who is on the selling end also since the seller supplied a large number of the items.
Saturday, July 07, 2007
We closed on our first apartment building.
There were times when I wasn’t sure that we were ever going to make it to the closing table. Even the last few days were a little hairy at times. But we did, as a matter of fact, close the transaction. We are now officially Real Estate Investors!!!!!!!
There are a lot of steps to the whole transaction that I have not yet written about, but I plan to go over the whole thing in future entries. For now I am looking ahead to what we are going to do next. First we need to do is make sure that all of the terms are clear between the management company and us. They were employed by the seller, and we have decided to keep them on, and we want the transition to be smooth. Then we are going to go over the estimates that we have already received for replacing the roof and the siding, and arrange to actually have the work done this summer. I have no idea how long the work will actually take to get done, or how soon anyone can start the work, but we are hoping that the actual cost remains within 20% of the estimates. We were fortunate that the appraised value came in higher than the amount that we paid. So, we have $25,000 instant equity, plus the amount of cash that we put down. Once the work on the roof and siding is done, (and maybe a few other minor repairs) we are going to try to get secondary financing on the property and pull some of our money out for the next investment. I have no idea how much of a difference the work that we are doing will make on the appraised value of the property. The hope is that the value will increase more than the amount that the repairs cost.
Until then, I am waiting for the feeling of being a new real estate investor set in. It still does not quite feel real yet. Maybe it will feel more real when we lose on our second investment.
Sunday, June 03, 2007
The Millionaire Inside
On CNBC, there is a show called “The Millionaire Inside”. I caught part of the show the other day, and found it rather fascinating. They had four guest experts on to advise people on how to make money the same ways that they have, David Bach, Phil Town, Loral Langemeier, and Barbara Corcoran. I cannot give you all of the details about their personal backgrounds. More of that information can be find on the website for the show, http://www.cnbc.com/id/17912006, and I am sure that Google searches will also pull up even more info. I am going to do that myself to see if I can learn more about them. I always like to know what sort of background people have in order to put their advice and experiences in proper perspective.
There are some very important points that they made that I think are worth repeating and thinking about. I jotted down a few points during the show.
Invest early, and don’t fear your first investment.
This sounds pretty basic, but most people don’t follow these rules, including me. I wish that I started investing with my very first paycheck, or at least in my 20s. Instead, I am starting in my mid-30s with the better late than never philosophy. If you think about it, I might not be wealthy until my 40s or 50s since I began later in life. But I am going to be 50 one day either way. I would rather be wealthy at that age, then in the same boat that I am in now. So I don’t let these thoughts stop my actions.As far as fear is involved, it is difficult to keep ones emotions in check. Fear is a natural response to any new experience. I just have to keep in mind that investing is a risk and fear is just a natural part of it. The trick is to not let it rule your actions. I take a deep breath and look at the each situation objectively and just give it a try.
Pay Yourself First
This point really struck out in my mind. Just yesterday I read just the opposite information in a book about buying businesses. The point that the book was trying to make was that a lot of small business owners end up paying themselves last, after all of the other business needs have been finished. What the experts on the millionaire inside were trying to point out was that this is the incorrect mindset to have. If you are going to be in business to make money you need to make sure that you get paid, and paid first. If this does not work, then the business needs to be re-evaluated.
Buy, don’t lease
Home equity is your single greatest asset
Building equity is a point that I keep seeing come up over and over again. It is better to own your own home than to rent. That is a basic idea of building wealth.This was a point that the show emphasized, but not just for personal residences. They stressed that if you are going to own your own business, it is also important to own the property that houses that business. Not only is it another excellent source of income from other possible tenets, it is one extra safe-guard for the business.
REIT can be an easier way to invest in real estate
I have not personally looked into investing in REITs (Real Estate Investment Trusts), but I am going to look into them and report back.
There are some very important points that they made that I think are worth repeating and thinking about. I jotted down a few points during the show.
Invest early, and don’t fear your first investment.
This sounds pretty basic, but most people don’t follow these rules, including me. I wish that I started investing with my very first paycheck, or at least in my 20s. Instead, I am starting in my mid-30s with the better late than never philosophy. If you think about it, I might not be wealthy until my 40s or 50s since I began later in life. But I am going to be 50 one day either way. I would rather be wealthy at that age, then in the same boat that I am in now. So I don’t let these thoughts stop my actions.As far as fear is involved, it is difficult to keep ones emotions in check. Fear is a natural response to any new experience. I just have to keep in mind that investing is a risk and fear is just a natural part of it. The trick is to not let it rule your actions. I take a deep breath and look at the each situation objectively and just give it a try.
Pay Yourself First
This point really struck out in my mind. Just yesterday I read just the opposite information in a book about buying businesses. The point that the book was trying to make was that a lot of small business owners end up paying themselves last, after all of the other business needs have been finished. What the experts on the millionaire inside were trying to point out was that this is the incorrect mindset to have. If you are going to be in business to make money you need to make sure that you get paid, and paid first. If this does not work, then the business needs to be re-evaluated.
Buy, don’t lease
Home equity is your single greatest asset
Building equity is a point that I keep seeing come up over and over again. It is better to own your own home than to rent. That is a basic idea of building wealth.This was a point that the show emphasized, but not just for personal residences. They stressed that if you are going to own your own business, it is also important to own the property that houses that business. Not only is it another excellent source of income from other possible tenets, it is one extra safe-guard for the business.
REIT can be an easier way to invest in real estate
I have not personally looked into investing in REITs (Real Estate Investment Trusts), but I am going to look into them and report back.
Wednesday, May 30, 2007
Still Trying to Buy the First Property
We still have not gotten to the closing on our first property. The initial problem was our naiveté in thinking that the transaction would move along quickly and smoothly. We were very wrong. We should have chosen date at least 6 months out. We just simply did not know how long some of these things would really take to get done. It is also difficult to do things quickly because we both have full time jobs, which leaves only evenings and weekends to get things done. We are forced to rely heavily on email because we are not available to call people during regular business hours.
There always seems to be a need for more paperwork. I had a huge mortgage packet of items that were needed for the mortgage. I sent it all in, and then phoned the lender a few days later to see if there was anything else that was needed. I was told no, that the mortgage package was complete. Since then, they have come back to me twice needing at least 8 different items, all of which they need before they can complete whatever they need to close. So, it takes me a couple of days to put it together and mail it to them. Another delay. I am going to make a master list of all of the items that I have had to present to them, and prepare it in advance for the next property that I try to buy. This way I will have it ready before they even ask. It sounds like an ideal plan, but most of the items come from the seller, so you I will need to make sure that they also have their paperwork in order for me.
But I don’t let all of this stuff get me down. It is all part of the learning process. I just keep thinking ahead and moving forward with my plans and goals.
There always seems to be a need for more paperwork. I had a huge mortgage packet of items that were needed for the mortgage. I sent it all in, and then phoned the lender a few days later to see if there was anything else that was needed. I was told no, that the mortgage package was complete. Since then, they have come back to me twice needing at least 8 different items, all of which they need before they can complete whatever they need to close. So, it takes me a couple of days to put it together and mail it to them. Another delay. I am going to make a master list of all of the items that I have had to present to them, and prepare it in advance for the next property that I try to buy. This way I will have it ready before they even ask. It sounds like an ideal plan, but most of the items come from the seller, so you I will need to make sure that they also have their paperwork in order for me.
But I don’t let all of this stuff get me down. It is all part of the learning process. I just keep thinking ahead and moving forward with my plans and goals.
Monday, May 28, 2007
Personal Updates
It has been too long since I last posted anything about my real estate dealings.Basically, we still have not closed on our first transaction. Everything seems to take about 10 times longer to complete that I estimate in my head.
On a more personal note, I have found new employment. I always complained about the commute and how it took too much time each day just to get to work. It just so happened that a new job within five minutes of my house fell into my lap. I consider myself very lucky to have gotten this job. I sent out only one resume in my job search, and got just the job that I wanted. It was a lateral move as far as salary goes, but a big step up in lifestyle.I get to come home everyday for lunch and water my garden. It is wonderful.
My husband has been making great strides in starting his business. He is getting ready to start his first marketing campaign for new clients. I am very excited for him. He has so many great ideas about the industry and about the future of the corporate climate. It makes me very happy to see him having the opportunity to do this.
Thursday, April 05, 2007
Subject To
The term Subject To is used to describe a certain method of buying real estate. Basically during the purchase the deed is transferred from the seller to the buyer, but the mortgage remains in the sellers name. You have ownership rights, but those rights are "subject to" the existing mortgages.
This sort of deal requires a very motivated seller who does not have a lot of equity in their property. There are any number of reasons that sellers might find themselves in this financial situation. It would be a good option for people who are facing foreclosure if they do not sell, as long as they are not already behind on their mortgage payments. You, as the buyer, structure the deal so that they sign the deed over to you, and you take over their mortgage payments.
There is much legality involved that I am just learning all of the details about, but there are also a lot of benefits. First of all, there are no mortgage qualifications, and no down payment or mortgage fees are required. It is easier to refinance the property once you own it than it is when you are first purchasing it.
This topic will require a lot more research before I would attempt it. I always thought that mortgages were structured to come due at the time of the sale of the property. There must be some legal instance where this sort of subject-to deal is allowed. It also seems like the sort of deal that can mostly be found on single-family houses, and not commercial properties. But it cannot hurt to ask for this kind of selling structure for any deal.
This sort of deal requires a very motivated seller who does not have a lot of equity in their property. There are any number of reasons that sellers might find themselves in this financial situation. It would be a good option for people who are facing foreclosure if they do not sell, as long as they are not already behind on their mortgage payments. You, as the buyer, structure the deal so that they sign the deed over to you, and you take over their mortgage payments.
There is much legality involved that I am just learning all of the details about, but there are also a lot of benefits. First of all, there are no mortgage qualifications, and no down payment or mortgage fees are required. It is easier to refinance the property once you own it than it is when you are first purchasing it.
This topic will require a lot more research before I would attempt it. I always thought that mortgages were structured to come due at the time of the sale of the property. There must be some legal instance where this sort of subject-to deal is allowed. It also seems like the sort of deal that can mostly be found on single-family houses, and not commercial properties. But it cannot hurt to ask for this kind of selling structure for any deal.
Sunday, March 11, 2007
Closing-The Continual Delays
When we first put a bid on this 15-unit apartment building in Dallas, we thought it would be easy. We set a closing date for only 2 months away. Now we have learned our lesson. Our most recent closing day was supposed to be last Friday, the 9th, but now it has been moved out another three weeks to the 30th. I have been going crazy for the last two weeks trying to make sure that everything was getting done on both sides. So I am thankful to have more time and more sanity.
There is no single party at fault that has been causing these delays. There is simply just a lot of work to do and in the end it is benefiting us because if we did close early we would have been missing out on a lot of information that could have cost us in the future.
Just this week I learned that an out of state LLC needs permission to operate in Texas. I have been led to believe that this is not true for all states, but I imagine that it is. There is a simple form to fill out and a $750 fee to send in and that takes care of it. But we would have been in a lot of trouble if we closed without it. Especially if we were later sued by a tenant and then found out that because we were not properly set up as an LLC in Texas and we no longer have the protection of the LLC. The moral of this story is to make sure that you have a good lawyer.
There is no single party at fault that has been causing these delays. There is simply just a lot of work to do and in the end it is benefiting us because if we did close early we would have been missing out on a lot of information that could have cost us in the future.
Just this week I learned that an out of state LLC needs permission to operate in Texas. I have been led to believe that this is not true for all states, but I imagine that it is. There is a simple form to fill out and a $750 fee to send in and that takes care of it. But we would have been in a lot of trouble if we closed without it. Especially if we were later sued by a tenant and then found out that because we were not properly set up as an LLC in Texas and we no longer have the protection of the LLC. The moral of this story is to make sure that you have a good lawyer.
Sunday, February 25, 2007
Buying with No Money Down
I have seen a lot about a method of purchasing properties with No Money Down. Some people seem to have enough success with it that they sell their systems to others. Other people do not seem to have much luck with it at all. I recently found a link to a man who purchased 8 properties in one year using this method and he is now facing foreclosure and the fact that he may have committed mortgage fraud.
I have read through most of one book on the subject. “Nothing Down for the 2000s” by Robert Allen. The reason that I stopped reading the book is because every example of a no-money-down transaction that he gave seemed fishy. I read this book before I knew most of what I know today about investing. Since then I have also read a review of this man by John T. Reed that highlights illegal activities that the author has been convicted of.
If you look at the basics of the no-money-down deal, and take out of the equation the fact that mortgage companies may not like those deals, or whatever other legal or ethical issues there may be, and look purely at the profit and loss numbers the deals do not make much sense. The entire purchase price is a loan of some form or another. Therefore the entire purchase price of the investment needs to be paid back with interest. I have evaluated hundreds if not thousands of properties. I analyze them with the assumption that I am only putting down 20% of the purchase price. Even with this assumption most of the properties do not have a significant cash flow if any cash flow at all. So, if you put down $0 and have to make additional payments on that extra loan, the cash flow becomes even worse. It just makes no sense to me.
I believe leveraging debt is an important tactic for beginning investors to use to build up their portfolio, but eventually it is good to start to pay off that debt to maximize cash flow. There is a man who I have encountered on some forums that claims to purchase properties with all cash and no mortgage debts. Of course it takes a while to get to the position where you can afford to do this, and I am sure that there are limits to how much he can buy. But it is something that I will fantasize about being able to do myself one day.
As I write this I am thinking of a way to formulate not only the maximum cash flow, but also maximum return on investment for each property based on the amount of mortgage owed. It seems to be that there had to be an optimal level that will give you the most ROI and cash flow depending in the property.
Something to work on……
Monday, February 19, 2007
Mentoring
Popular opinion states that in order succeed as a real estate investor one of the things that you need is a mentor. Therefore a lot of the real estate gurus offer mentoring programs as part of their sales packages. I do not have a mentor, I am not actively seeking a mentor, and I think I will do just fine without one. However, if you look at it from a different perspective, I have several mentors all at once.
There is no single person that I look to for advice and guidance. There is no one person that I can phone with questions that has done what I am trying to do before me. But the resources that I have found and that I use regularly have taken the place of this single mentor for me. There are two discussion forums that I visit quite regularly, richdad.com and biggerpockets.com. If I have any questions, I look for the answers there. If I cannot find what I am looking for, I ask. Of course I also freely offer my opinions to anyone who cares to read them.
I suggest that everyone check out these forums, as well any others that you can find. I wish that I had more time to spend on them. It is the best source of advice that I have found so far. I consider everyone on those forums to be my mentor. Be sure to check out people’s profiles so that you have a sense of what they do and where they are coming from.
There is no single person that I look to for advice and guidance. There is no one person that I can phone with questions that has done what I am trying to do before me. But the resources that I have found and that I use regularly have taken the place of this single mentor for me. There are two discussion forums that I visit quite regularly, richdad.com and biggerpockets.com. If I have any questions, I look for the answers there. If I cannot find what I am looking for, I ask. Of course I also freely offer my opinions to anyone who cares to read them.
I suggest that everyone check out these forums, as well any others that you can find. I wish that I had more time to spend on them. It is the best source of advice that I have found so far. I consider everyone on those forums to be my mentor. Be sure to check out people’s profiles so that you have a sense of what they do and where they are coming from.
Thursday, February 08, 2007
LLC Accounts
There is more involved in opening and LLC than just filing with the state. This week we went one step further and opened a business checking account in the name of the LLC. Even though the financial info for the LLC will be filed with our personal tax returns, this will make it that much simpler to keep track of our expenses and profits. The hope is that it will also legitimize business expenses in the eyes of the IRS. Or that is at least what our account advised us to do. We are also going to need to set up a savings account for any overflow if money (I like to think positively.) and any security deposits.
There is something that I read about once that I have just done some research on again. It is called Accredited Investor Status by the SEC. Some of the requirements for this status involve corporations that trade securities. But for individuals, you either have to have a net worth of $1,000,000 or an income over the past two years of $200,000 ($300,000 for spouses) with the expectation to continue at that level. There are a lot of investment companies out there (a lot of hedge funds) that want you to be accredited before you can invest in them. Some of these companies invest in real estate domestically and globally.
Why and I interested in this? I am looking in to the distant future, beyond just getting out of the rat race. Although anyone can start out investing in real estate there are still opportunities out there that are only available to seasoned investors. I am going to keep this accredited status in mind and file for it once I can qualify and then see what sort of other investment opportunities present themselves.
Tuesday, February 06, 2007
Commercial Mortgages
I am new to the world of commercial mortgages, but I have found it to be very confusing. I have talked with several brokers and direct lenders, and the all seem to have different standards and requirements. I have been given rates, for the same property, that were as high as 13.5% and as low as 6.75%. Some of them were willing to finance 90% LTV others would not budge from 80% LTV. All of them required some sort of basic documentation. Some of them weighted the property numbers more than our personal finances, while others were more concerned with our personal finances than the property.
I learned the basics about mortgages from the purchase of my home in 2005. Basically the bank will only lend you a percentage of the value of the home. This percentage is called the LTV-Loan to Value. The value used by the lender is the lesser of the purchase price or the appraisal value. For people buying a property as their personal residence, there are various programs that allow people to buy homes with a very high LTV and very little money down. It is much different for investment properties. Once the lender knows that you are not planning on living in the property that you are purchasing the rules change. People are not as vested in properties that they are not living in and therefore the risk of them not paying the mortgage increases.
Applying for any loan requires lots of paperwork. I knew that I had all of the paperwork that they required, but putting it all together proved to be more work than I had planned on. I have now learned to reorganize my files in order to have everything that the lender requires in one area, instead of a dozen places. I am planning to put together my own financial statement that I can update regularly with my personal information. The format and information contain will be a combination of some of the standard forms that lenders sent to me. I will give more details in a future blog once I have it all set up.
It also makes a big difference if the seller is organized and has all of the financials on their properties organized. One of the items that most lenders wanted to see was the profit and expense lists for the past year or two of the property as well as rent rolls. I am trying to keep this in mind as I set up all of the files and paperwork that I will need to manage this property. That way I will have less work to do when we decide it is time to sell this investment.
I learned the basics about mortgages from the purchase of my home in 2005. Basically the bank will only lend you a percentage of the value of the home. This percentage is called the LTV-Loan to Value. The value used by the lender is the lesser of the purchase price or the appraisal value. For people buying a property as their personal residence, there are various programs that allow people to buy homes with a very high LTV and very little money down. It is much different for investment properties. Once the lender knows that you are not planning on living in the property that you are purchasing the rules change. People are not as vested in properties that they are not living in and therefore the risk of them not paying the mortgage increases.
Applying for any loan requires lots of paperwork. I knew that I had all of the paperwork that they required, but putting it all together proved to be more work than I had planned on. I have now learned to reorganize my files in order to have everything that the lender requires in one area, instead of a dozen places. I am planning to put together my own financial statement that I can update regularly with my personal information. The format and information contain will be a combination of some of the standard forms that lenders sent to me. I will give more details in a future blog once I have it all set up.
It also makes a big difference if the seller is organized and has all of the financials on their properties organized. One of the items that most lenders wanted to see was the profit and expense lists for the past year or two of the property as well as rent rolls. I am trying to keep this in mind as I set up all of the files and paperwork that I will need to manage this property. That way I will have less work to do when we decide it is time to sell this investment.
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