Tag Archives: Florida Real estate

The real estate game in Canada has new rules

COVID-19 has changed the way Canadians shop for homes and that may not change, says Phil Soper, president and CEO of Royal LePage.

“The impact of COVID-19 on the Canadian economy has been swift and violent, with layoffs driving high levels of unemployment across the country. While is it sad that these people skewed strongly to young and to part-time workers, for the housing industry, the impact of these presumably temporary job losses will be limited as these groups are much less likely to buy and sell real estate,” says Soper. “From our experience with past recessions and real estate downturns, we are not expecting significant year-over-year price changes in 2020. Home price declines occur when the market experiences sustained low sales volume while inventory builds. Currently, the inventory of homes for sale in this country is very low, matching low sales volumes as people respect government mandates to stay at home.

“It is easy to mistakenly equate a handful of transactions at lower prices to a reset in the value of the nation’s housing stock. Distressed sales that occur during an economic crisis are a poor proxy for real estate values.”

The Royal LePage House Price Survey and Market Survey Forecast released this week says the aggregate price of a home in Canada is expected to remain remarkably stable through the COVID-19 pandemic.

“If the strict, stay-at-home restrictions characterizing the fight against COVID-19 are eased during the second quarter, prices are expected to end 2020 relatively flat, with the aggregate value of a Canadian home up a modest one percent year over year, to $653,800,” says Soper. “If the current tight restrictions on personal movement are sustained through the summer, the negative economic impact is expected to drive home prices down by three percent to $627,900.

“In December 2019, Royal LePage forecast the national aggregate price to increase 3.2 percent by the end of 2020. Due to COVID-19, expected price growth has been revised down almost 70 percent compared to Royal LePage’s base scenario.”

The market will return looking different, says Soper.

“As we ease out of strict stay-at-home regimens, sales volumes will return; traditional home sales practices will not,” he says. “The popular open house gathering of buyers on a spring afternoon is gone, and it won’t be coming back any time soon. The industry is leveraging technologies that allow a home to be shown remotely and social distancing protocols, where we restrict client interaction with our realtors to limited one-on-one or two meetings, will continue for months and months. This process is inherently safer than a trip to the grocery store.”

Soper presents two scenarios

• “If the fight against the coronavirus requires today’s tight stay-at-home mandates to remain in place for several months more, with no semblance of normal business activity allowed, temporary job losses will become permanent and consumer confidence will be harder to repair,” he says. “This would place downward pressure on both home sales volumes and prices.”

• “Equally, if the collective efforts of Canadians slow the spread of the disease to manageable levels, and if promising science and therapeutic drugs are announced, people will return to their jobs, market confidence will bounce back quickly, and we could see Canada’s real markets roar back to life, with 2020 transactions delayed but not eliminated.”

Source: thesudburystar April 18, 2020 12:12 PM
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Planning to buy a snowbird retreat in Florida?

Florida’s housing market is constrained by tight inventory which is not likely to improve significantly due to several challenges cited in a new report from Florida Realtors.

Chief Economist Dr. Brad O’Connor sees robust growth for the market with strong immigration and low unemployment in the state. Home sales are expected to gain 4% year-over-year in 2020, similar to 2019.

Last year, Florida saw an uptick in sales despite a 9% pullback from international buyers.

“It was exciting to see the almost 6% growth (5.9%) in closed single-family sales in 2019 from 2018,” O’Connor said. “Florida topped over $100 billion (total of “$101.9 billion) in volume in home sales last year, up 8.3% from 2018; for condo-townhouses, we reached $31.6 billion in volume, up 1.8% over the 2018 figure.”

But with new listings down 11.4% year-over-year for single-family homes and down 9.7% for condos, prices are set to rise around 4%, although O’Connor doesn’t see that as a problem currently.

“The median sales price still continues to rise, but looking at what the monthly mortgage payment is, that’s still a lot lower due to current historically low mortgage rates,” O’Connor said. “And that continues to drive sales and makes it a good time to buy.”

Supply side issues
The challenges to increased supply in Florida were discussed at the 2020 Florida Real Estate Trends summit during last week’s Florida Realtors Mid-Winter Business Meetings.

One of the panelists was Kristine Smale, senior vice president, Meyers Research, who says that there are three main factors restricting supply: higher construction costs, which moderated slightly in 2019 but are expected to rise again in 2020; a shortage of labor – 2019 had the largest amount of construction job postings since the Great Recession; and a lack of available, affordable land supply.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Source: Canadian Real Estate Magazine – by Steve Randall 28 Jan 2020

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Is now a good time to buy a home in the US?

Canadian snowbirds or real estate investors considering a home purchase in the United States can be confident in the state of the market according to a new survey.

Results of a poll conducted in the fourth quarter of 2019 have been released this week by The National Association of Realtors and show that 63% of American consumers felt it is a good time to buy (33% strongly) while 74% said it is a good time to sell.

The strength of the jobs market and economic conditions are boosting sentiment.

“The mobility rate has been very low as many have opted to stay put for longer,” said NAR chief economist Lawrence Yun. “However, this latest boost – Americans saying now is a good time to move – is good news. With mortgage rates low, the timing is indeed ideal for those who want to enter into homeownership and for those looking to move on to their next home.”

Older respondents (the Silent Generation and Baby Boomers) showed the highest confidence in buying conditions and higher earners ($100K+) and those in the West are more likely to feel that it’s a good time to sell.

“The Western region has seen home prices increase to the point that costs have outpaced income,” said Yun. “So, it is no wonder that those living in the West would think that now is a perfect time to place a home on the market. California especially is seeing some of the highest prices ever.”

Home prices

The NAR survey has also asked about home prices with 64% saying their believe that prices in their communities have increased in the past 12 months.

More respondents expect local home prices to rise in the next 6 months (48% said so) than those that expect them to stay the same (41%) or decrease (11%).

On the economy, 52% believe it is improving although this falls to 47% among millennials and 41% of those living in urban areas (66% among those in rural areas).

“Whether it is a reflection of politics or true economic conditions, there is a difference of views between rural and urban areas,” added Yun.
Source: Real Estate Professional – by Steve Randall 10th January, 2020

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The Top 8 Real Estate Calculations Every Investor Should Memorize

investment-portfolio
Despite what many of us math-allergic folk would prefer, real estate does involve some math. Luckily, most of the formulas are simple and straight-forward. In fact, if you can master the calculations below, you should be just fine.

The Top 8 Real Estate Calculations Every Investor Should Memorize

Cap Rate

Net Operating Income / Total Price of Property

Example:

NOI: $25,000

Total Price (Purchase + Rehab): $300,000

$25,000 / $300,000 = 0.083 or an 8.3 Cap Rate

This calculation is mostly used for valuing apartment complexes and larger commercial buildings. It can be used for houses and small multifamily too, but operating expenses are erratic with houses (because you don’t know how often and how bad your turnovers will be).

Related: The Investor’s Complete Guide to Calculating, Understanding & Using Cap Rates

You want to have a cap rate that is at least as good, preferably better, than comparable buildings in the area. I almost always want to be at an 8 cap rate or better, although in some areas, that’s not really possible. And always be sure to use real numbers or your own estimates when calculating this. Do not simply use what’s on the seller-provided pro forma (or as I call them, pro-fake-a).

Rent/Cost

Monthly Rent / Total Price of Property

Example:

Monthly Rent: $1,000

Total Price of Property (Purchase + Rehab): $75,000

Rent/Cost = $1,000 / $75,000 = 0.0133 or a 1.33% Rent/Cost

This is a great calculation for houses and sometimes small multifamily apartments. That being said, it should only be used when comparing the rental value of like properties. Do not compare the rent/cost of a property in a war zone to that in a gated community. A roof costs the same, square foot for square foot, in both areas. And vacancy and delinquency will be higher in a bad area, so rent/cost won’t tell you what your actual cash flow will be. The the old 2% rule can lead investors astray, and they shouldn’t use it. But when comparing like properties in similar areas, rent/cost is a very helpful tool.

According to Gary Keller in The Millionaire Real Estate Investor, the national average is 0.7%. For cash flow properties, you definitely want to be above 1%. We usually aim for around 1.5%, depending on the area. And yes, I would recommend having a target rent/cost percentage for any given area.

Gross Yield

Annual Rent / Total Price of Property

Example:

Annual Rent: $9,000

Total Price (Purchase + Rehab): $100,000

Gross Yield = $9,000 / $100,000 = .09 or a 9% gross yield

This is basically the same calculation as above but flipped around. It’s used more often when valuing large portfolios from what I’ve seen, but overall, it serves the same purpose as rent/cost.

Debt Service Ratio

Net Operating Income / Debt Service

Example:

NOI: $25,000

Annual Debt Service: $20,000

Debt Service Ratio = $25,000 / $20,000 = 1.25

This is the most important number that banks look at and is critical for getting financing. Generally, a bank will look at both the property’s debt service ratio and your “global” debt service ratio (i.e. the debt service ratio of your entire company or portfolio).

Anything under 1.0 means that you will lose money each month. Banks don’t like that (and you shouldn’t either). Generally, banks will want to see a 1.2 ratio or higher. In that way, you have a little cushion to afford the payments in case things get worse.

Cash on Cash

Cash Flow / Cash In Deal

Example:

Cash Flow (Net Operating Income – Debt Service): $10,000

Cash Into Deal: $40,000

Cash on Cash: $10,000 / $40,000 = .25 or 25%

In the end, this is the most important number. It tells you what kind of return you are getting on your money. In the above example, if you had $40,000 in the deal and made $10,000 that year, you made 25%. This is a critical calculation not only when it comes to valuing a property, but also when it comes to evaluating what kind of debt or equity structure to use when purchasing it.

The 50% Rule

Operating Income X 0.5 = Probable Operating Expenses

Example:

Operating Income: $100,000

Operating Expenses = $100,000 * 0.5 = $50,000

This is a shorthand rule that I judge to be OK. It is for estimating the expenses of a property. Whenever possible, use real numbers (i.e., the operating statement), but this is good for filtering out deals that don’t make sense. Just remember, a nicer building will have a lower ratio of expenses to income than a worse one and other factors, like who pays the utilities come into play. Don’t simply rely on this rule.

Related: Rental Property Numbers so Easy You Can Calculate Them on a Napkin

The 70% Rule

Strike Price = (0.7 X After Repair Value) – Rehab

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After Repair Value: $150,000

Rehab: $25,000

Strike Price = (0.7 X $150,000) – $25,000 = $80,000

This is another rule like the 50% rule, although I think this one is better. This one is for coming up with an offer price. Always crunch the numbers down to the closing costs before actually purchasing a property. But if you offer off the 70% rule, you should be just fine as long as your rehab estimate and ARV (after repair value) estimates are correct.

Comparative Market Analysis

Unfortunately, there’s no real calculation for this. It’s mostly used for houses, and it’s all about finding the most similar properties and then making adjustments so that a homeowner or investor would find each deal identical. The MLS is by far the best for this, but Zillow can work too (just don’t rely on the Zestimate). For a more detailed explanation, go here.

In the end, the math isn’t that bad. No rocket science here luckily. Instead, there are just a few handy calculations and rules to evaluate properties before purchase and analyze their performance afterward. Memorize these, and you should be fine.

What formulas do you use to analyze your deals? Any calculations you’d add to this list?

Let me know with a comment!

Source: BiggerPockets – Andrew Syrios
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Cash Flow vs Capital Gains: The 2 Types of Investment Income

Cash Flow vs Capital Gains by Kim Kiyosaki

Making money through cash flow versus capital gains

How do you currently make money? By going to your job every day and collecting a biweekly paycheck in exchange for your work? Most people make money this way, because it’s what they are taught to do by their parents or teachers. Also, it feels like a safe and secure path because it’s the traditional route.

Well, what if I told you that there’s another way? Another path in life that doesn’t require you to trade time for money? A path that allows you to follow your passion, achieve financial freedom, and reach your life goals? Now I’ve piqued your interest, right?

This path is precisely how the rich make their money — and it’s not from an hourly wage or salary. Instead, they make their money from their investments. In fact, the best way to make money is as an investor — but the question I’m often asked is: How do you make that money? If your monthly income as an investor does not come from a job, then where does it come from?

Making Your Money Work for You

If there’s one thing the rich do differently than the poor, it’s that they put their money to work instead of working for their money. What does that mean? Their money isn’t just sitting around in a savings account, accruing little-to-no interest, waiting for a rainy day. Their money is being invested — and delivering a return!

Different investments produce different results. The question is, what results do you want?

There are two primary outcomes an investor invests for:

Investor Income #1: Capital Gains

If you enjoy watching those “fix it up and flip it” TV shows, you’re probably already familiar with the concept of capital games — essentially, it’s the game of buying and selling for a profit.

In real estate, let’s say you buy a single-family house for $100,000. You make some repairs and improvements to the property, and you sell it for $140,000. Your profit is termed “capital gains.” Any time you sell an asset or investment and make money, your profit is capital gains. Of course, there are also capital losses (which occur when you lose money on a sale).

The same concept holds true outside of real estate. If you buy a share of stock for $20, and sell it once the stock price increases to $30, that’s also a capital gains profit.

The Problem with Capital Gains

While there is money to be made through capital gains, it’s also important to note the risks.

First, it’s a formula you have to keep repeating over and over again — you have to keep buying and selling, buying and selling, and buying and selling, or the game and the income stop.

Second, if the real estate market takes a nosedive, “flippers”— people who buy a real estate property and quickly turn around and sell it for a profit, or capital gains — can get caught with inventory they can’t sell.

Before the housing bubble burst in 2008, the mindset for many was that the market would continue to go up. So, when the market reversed and crashed, the properties were no longer worth what the flippers bought them for, and there were no buyers to flip the properties to. This led to a record-breaking number of foreclosures, and people simply walking away from homes.

Most investors today are chasing capital gains in the stock market through stock purchases, mutual funds, and 401(k)s. These investors are hoping and praying the money will be there when they get out. To me, that’s risky.

As long as market prices go up, capital-gains investors win. But when the markets turn down and prices fall — something nobody can predict — capital-gains investors lose. Do you really want that gamble?

Investor Income #2: Cash Flow

Cash flow is realized when you purchase an investment and hold on to it, and every month, quarter, or year that investment returns money to you. Cash-flow investors, unlike capital-gains investors, typically do not want to sell their investments because they want to keep collecting the regular income of cash flow. If you aren’t already familiar with my motto, cash flow is queen!

If you purchase a stock that pays a dividend, then, as long as you own that stock, it will generate money to you in the form of a dividend. That is called cash flow. To cash flow in real estate, you could purchase a single-family house and, instead of fixing it up and selling it, you rent it out. Every month you collect the rent and pay the expenses, including the mortgage. If you bought it at a good price and manage the property well, you will receive a profit, or positive cash flow.

The cash-flow investor is not as concerned as the capital-gains investor whether the markets are up one day or down the next. The cash-flow investor is looking at long-term trends and is not affected by short-term market ups and downs — what a great position to be in!

The Advantage of Cash Flow versus Capital Gains Investing

The best thing about cash flow is that it’s money flowing into your pocket on a continual basis — whether you’re working or not. You could be on the golf course, jet-setting around the world, watching Neflix in your jammies, or building a business, and your money is busy working for you. And generally, cash-flow investing is based on fundamentals that aren’t as susceptible to market swings like capital-gains investments, which means that even in bad times, money still flows into your pockets.

Additionally, cash flow is what is known as passive income, which is the lowest taxed type of income. This is not always the case with capital gains taxes, which vary depending on the type of asset you’ve invested in and how long you’ve owned that asset. In some cases, the taxes can be very high.

If you’re ready to start enjoying the lifestyle advantages of cash flow, don’t miss my recent blog on getting started with real estate.

Source – RichDad.com – Kim Kiyosaki Original publish date: September 12, 2013 (Lastupdated:April 18, 2019)
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Millions of Americans still trapped in debt-logged homes ten years after crisis

EAST STROUDSBURG, Pa., 2018 (Reuters) – School bus driver Michael Payne was renting an apartment on the 30th floor of a New York City high-rise, where the landlord’s idea of fixing broken windows was to cover them with boards.

Click here to hear Payne’s story. 

So when Payne and his wife Gail saw ads in the tabloids for brand-new houses in the Pennsylvania mountains for under $200,000, they saw an escape. The middle-aged couple took out a mortgage on a $168,000, four-bedroom home in a gated community with swimming pools, tennis courts and a clubhouse.

“It was going for the American Dream,” Payne, now 61, said recently as he sat in his living room. “We felt rich.”

Today the powder-blue split-level is worth less than half of what they paid for it 12 years ago at the peak of the nation’s housing bubble.

Located about 80 miles northwest of New York City in Monroe County, Pennsylvania, their home resides in one of the sickest real estate markets in the United States, according to a Reuters analysis of data provided by a leading realty tracking firm. More than one-quarter of homeowners in Monroe County are deeply “underwater,” meaning they still owe more to their lenders than their houses are worth.

The world has moved on from the global financial crisis. Hard-hit areas such as Las Vegas and the Rust Belt cities of Pittsburgh and Cleveland have seen their fortunes improve.

But the Paynes and about 5.1 million other U.S. homeowners are still living with the fallout from the real estate bust that triggered the epic downturn.

As of June 30, nearly one in 10 American homes with mortgages were “seriously” underwater, according to Irvine, California-based ATTOM Data Solutions, meaning that their market values were at least 25 percent lower than the balance remaining on their mortgages.

It is an improvement from 2012, when average prices hit bottom and properties with severe negative equity topped out at 29 percent, or 12.8 million homes. Still, it is double the rate considered healthy by real estate analysts.

“These are the housing markets that the recovery forgot,” said Daren Blomquist, a senior vice president at ATTOM.

Lingering pain from the crash is deep. But it has fallen disproportionately on commuter towns and distant exurbs in the eastern half of the United States, a Reuters analysis of county real estate data shows. Among the hardest hit are bedroom communities in the Midwest, mid-Atlantic and Southeast regions, where income and job growth have been weaker than the national norm.

Reuters Graphic

Developments in outlying communities typically suffer in downturns. But a comeback has been harder this time around, analysts say, because the home-price run-ups were so extreme, and the economies of many of these Midwestern and Eastern metro areas have lagged those of more vibrant areas of the country.

A home is seen in the Penn Estates development where most of the homeowners are underwater on their mortgages in East Straudsburg, Pennsylvania, U.S., June 20, 2018. REUTERS/Mike Segar

“The markets that came roaring back are the coastal markets,” said Mark Zandi, chief economist at Moody’s Analytics. He said land restrictions and sales to international buyers have helped buoy demand in those areas. “In the middle of the country, you have more flat-lined economies. There’s no supply constraints. All of these things have weighed on prices.”

In addition to exurbs, military communities showed high concentrations of underwater homes, the Reuters analysis showed. Five of the Top 10 underwater counties are near military bases and boast large populations of active-duty soldiers and veterans.

Many of these families obtained financing through the U.S. Department of Veterans Affairs. The VA makes it easy for service members to qualify for mortgages, but goes to great lengths to prevent defaults. It is a big reason many military borrowers have held on to their negative-equity homes even as millions of civilians walked away.

A poor credit history can threaten a soldier’s security clearance. And those who default risk never getting another VA loan, said Jackie Haliburton, a Veterans Service Officer in Hoke County, North Carolina, home to part of the giant Fort Bragg military installation and one of the most underwater counties in the country.

“You will keep paying, no matter what, because you want to make sure you can hang on to that benefit,” Haliburton said.

These and other casualties of the real estate meltdown are easy to overlook as homes in much of the country are again fetching record prices.

 

But in Underwater America, homeowners face painful choices. To sell at current prices would mean accepting huge losses and laying out cash to pay off mortgage debt. Leasing these properties often won’t cover the owners’ monthly costs. Those who default will trash their credit scores for years to come.

DREAMS DEFERRED

Special education teacher Gail Payne noses her Toyota Rav 4 out of the driveway most workdays by 5 a.m. for the two-hour ride to her job in New York City’s Bronx borough.

“I hate the commute, I really, really do,” Payne said. “I’m tired.”

Now 66, she and husband Michael were counting on equity from the sale of their house to fund their retirement in Florida. For now, that remains a dream.

The Paynes’ gated community of Penn Estates, in East Stroudsburg, Pennsylvania, is among scores that sprang up in Monroe County during the housing boom.

Prices looked appealing to city dwellers suffering from urban sticker shock. But newcomers didn’t grasp how irrational things had become: At the peak, prices on some homes ballooned by more than 25 percent within months.

Slideshow (19 Images)

Today, homes that once fetched north of $300,000 now sell for as little as $72,000. But even at those prices, empty houses languish on the market. When the easy credit vanished, so did a huge pool of potential buyers.

Eight hundred miles to the west, in an unincorporated area of Boone County, Illinois, the Candlewick Lake Homeowners Association begins its monthly board meeting with the Pledge of Allegiance and a prayer.

Nearly 40 percent of the 9,800 homes with mortgages in this county about 80 miles northwest of Chicago are underwater, according to the ATTOM data. Some houses that went for $225,000 during the boom are now worth about $85,000, property records show.

By early 2010, unemployment topped 18 percent after a local auto assembly plant laid off hundreds of workers. At Candlewick Lake, so many people walked away from their homes that as many as a third of its houses were vacant, said Karl Johnson, chairman of the Boone County board of supervisors.

“It just got ugly, real ugly, and we are still battling to come back from it,” Johnson said.

While the local job market has recovered, signs of financial strain are still evident at Candlewick Lake.

The community’s roads are beat up. The entryway, meeting center and fence could all use a facelift, residents say. The lake has become a weed-choked “mess,” “a cesspool,” according to residents who spoke out at an association meeting earlier this year. Association manager Theresa Balk says a recent chemical treatment is helping.

 

“A gated community like this, with our rules and fees, it may be just less attractive now to the general public,” he said.

Source: Reuters.com – Reporting by Michelle Conlin and Robin Respaut; Editing by Marla Dickerson SEPTEMBER 14, 2018

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How to Choose an Out-of-State Market for Investment (in 3 Easy Steps!)

Aerial view of of a residential neighborhood in Hawthorne, in Los Angeles, CA
You’ve decided, for whatever reason, that you want to invest outside of your local area or state. Your next question is—where should I invest?

 

I’m going to offer you a list of things that you can consider when trying to figure out what market to invest in. These things are in no particular order, and some of them may not apply to you or your particular situation. My intention with each one is to give you something to think about and hopefully some ideas on where and how to start looking for a market that suits your investment needs.

Here we go!

Step #1: Narrow Down Your Market Options

First, if you are brand new to out-of-state investing and don’t have a clue where to start, your location choices are likely going to feel extremely overwhelming. I have two things for you to think about that will hopefully at least get you moving in some kind of direction.

Where do you have friends and family?

Are there any cities where you have friends or family who might be good assets to have on your “team” on the ground? I’m not necessarily saying go into business with your friends or family or make them an official part of the team. But if you already have ties to any particular cities, maybe take a little time to decide if any of those cities might be good ones to get started.

Even if your friends or family there aren’t part of your team, they may be able to occasionally drive by your property once you own it and tell you if anything crazy seems to be going on. It never hurts to have an extra set of trustworthy eyes on an investment property!

Where are other investors buying?

Thanks to technology and the internet (and websites like BiggerPockets!), you can easily and quickly network with other out-of-state investors. Ask people which markets they are buying in, and if they seem friendly and interested in chatting more, find out why they are buying in those markets.

Don’t struggle to reinvent the wheel when experienced investors are already out there succeeding with out-of-state properties. I did secretly throw a keyword in there—experienced. Don’t take just anyone’s word for what they claim to be a good city to invest in. But remember, you’re just trying to get a list started. You can dig into details later as you go along.

Start there. Make a list of the cities that come up when you consider those two things. Again, this isn’t your final list, but at least your list is much shorter now than it was when it had all 19,354 U.S. cities on it as investing options.

You may not have known you had a list of 19,354 cities on it, but if you were starting from scratch, the whole country was a possibility! That would have to be intimidating and overwhelming—and almost an impossible point to start from. Now you have a less intimidating starting point.

Related: What Moving Out of State is Teaching Me About Remotely Managing Rentals

Step #2: Analyze Those Markets

So, you are looking at your list of some number of cities or major markets, and now your question is—how do I know a good city to invest in from a bad city?

In my mind, there are only two major questions I ask to determine whether I want to invest in a particular city:

  • Do the numbers work?
  • How likely am I going to be able to sustain those numbers?

If you don’t know what numbers I’m talking about, I’m talking about your returns. Returns (aka profits) can be generated in two major ways: cash flow and appreciation. This is at least true for rental properties.

If you are flipping out of state, some of this will not apply to you, and there are some slightly different considerations that you’ll need to incorporate into your analyses. You’re on your own, though, for those—I’ve never flipped, so I definitely shouldn’t be the one to tell you how to rock that method out.

Most likely, if you are wanting to invest out of state, you’re probably doing so because you want cash flow. Most of the investors who invest out of state do so because the numbers locally don’t pencil out. This is often the case in a lot of the bigger markets—Los Angeles, San Francisco, New York, etc.

businesswoman doing paperwork at office desk, working through finances, using calculator and making notes in her notebook with pen

And while those markets don’t usually pencil out for cash flow, they are the bigger players when it comes to appreciation. So, in thinking of anyone who lives there and wants to buy out of state, it’s probably because they want cash flow. See my logic?

Either way, let’s assume you are going after cash-flowing rental properties out of state because you can’t find cash flow locally. If that’s the case, the numbers need to work in the market you choose to invest in. Otherwise, what’s the point?

So, let’s think about the numbers. What kind of numbers do you need to understand when it comes to cash flow?

If you are in it for cash flow, you want to be able to determine the projected cash flow on a property. To help you do that, use the easy formulas in this article: “Rental Property Numbers so Easy You Can Calculate Them on a Napkin.”

In addition to the equations in that article, a term you will want to be familiar with is “price-to-rent ratio.” This term compares the price of a property to how much rent it can collect. The reason these two things matter is because they will determine whether you can cash flow on the property or not.

As you saw in those cash flow equations, you need the rental income you collect on a property to surpass the expenses of buying and owning that property in order to have positive cash flow. If the expenses of buying and owning that property are higher than the rent you can collect from the property, you’re in a negative cash flow situation and losing money (on the cash flow front at least).

Knowing this term now, if someone asks you if you’re interested in a particular market for investing, your first question might be—how are the price-to-rent ratios there? What you’re ultimately asking here is—is there an option for cash flow in that particular city?

For instance, I can tell you that hands-down the price-to-rent ratios in Los Angeles are not supportive of cash flow. I can tell you that the price-to-rent ratios in Indianapolis are generally favorable for cash flow. In no way does that mean every property or every location within Indianapolis will cash flow, but it does mean there is an option for it—whereas in Los Angeles, there’s really no option for cash flow.

Now, let’s say a particular market has generally favorable price-to-rent ratios for cash flow.

Oh wait, I just heard you ask—how do I know if a market has favorable price-to-rent ratios? Great question.

The fastest way to find that out is to network with other investors. You can either ask other people where they are investing, which I already mentioned, or let’s say you have a family member in a particular city and you’re curious about whether or not you can cash flow there. Post in a BiggerPockets Forum and ask people if they have any knowledge of cash flow potential in said market.

Look for people investing there, and find out the best places for cash flow there. If all of that fails, start looking up properties and running those equations I taught you, and see if you’re coming out ahead on cash flow.

Let’s say a particular market has generally favorable price-to-rent ratios for cash flow. This is where that second question I asked comes in—how likely am I going to be able to sustain those numbers?

The answer to this question is lengthy, so I’ll just give you one basic thought to consider for now. Is the market you are looking at a growth market or a declining market? The reason this matters is because you can project cash flow numbers until the cows come home, but if certain factors come into play with your property, you may never see a single bit of that projected cash flow materialize.

Bad tenants, for example, can cause you to not see a penny of your projected flow because they can cost so much in expenses—IF they are even paying the rent.

For details on growth versus declining markets, check out “How to Know If Any Given Real Estate Market is Wise to Invest in (With Real Life Examples!).”

To help you understand the potential consequences of investing in a declining market, check out “5 Risks of Buying Rental Properties in Declining Markets.”

Step #3: Decide on a Market

Your list of potential markets should be even shorter now than it was when you narrowed it down from 19,354 cities to either cities you know people in or have ties to or cities other investors recommend. It should only include markets/cities where the numbers not only work but also where the numbers have good potential of sustaining themselves. (That last part is purely my own personal investment strategy preference—it’s certainly not a requirement.)

You may have one market on your list at this point, or you may have a handful. Which one you ultimately decide on may just come down to personal preference at this point—or it may depend on your situation and your resources.

At this point, here are a few more things you can look at.

Budget/Capital

You just might not have enough capital to invest in all of the good options out there. For instance, I know of some amazing deals in Baltimore and Philadelphia, but those particular deals require a minimum of $90,000 up front.

You may not have $90,000. You might only have $20,000. Well, good news—$20,000 can get you a great cash-flowing property in other cities!

So, for your budget, you may stay focused on one area over another. I used to work with triplexes in both Chicago and Philadelphia. At that time, you could get a good cash-flowing triplex in Philadelphia for $130,000. The triplexes in Chicago at the time were bigger and nicer, and they were around $270,000.

The cash flow on the Chicago properties was higher, of course, but not everyone’s budget would support buying one of those triplexes. But many of those people could get one of the Philadelphia properties. So, more than anything, your available capital may further limit you on where you can invest. This isn’t always the case, but it is a consideration.

Property Type

This is simply a personal preference factor. For example, some markets like Philadelphia and Baltimore tend to have properties with more of an urban feel. They are often more of the row house-type of structure. Not everyone likes the urban feel, and not everyone likes adjoined buildings.

The other option would be properties with a suburban feel that are free-standing. You can find lots of these in the Midwest. Additionally, some markets offer a lot of multifamily (MFR) options, and some markets only have single-family (SFR) options that will cash flow. So, if you prefer urban or suburban over another, and if you prefer SFR or MFR over another, those personal preferences will steer you toward particular cities and away from others.

Related: Forget the Demographics and Focus on Researching THIS Before Investing Out-of-Area

Look! You’re continuing to narrow down your list! Here’s how to further narrow it.

Returns vs. Risk

At the end of the day, some cities and property types will be more risky than others. Even if you are looking within stable growth markets and none of the areas you are looking in are majorly dangerous, some may have significantly better schools than others, etc.

Maybe one market is slightly more in a “gentrifying” stage than another more matured market. It’s always fine to take on a little more risk, but make sure the proposed returns are high enough to justify it. Or if you are more risk-adverse, you may choose to accept slightly lower returns in exchange for staying with a less risky market and property. That’s totally fine as well.

So, you want to have a feel for the returns versus the risk available to you in each potential market and weigh that against where you are on your own personal scale of desire. What’s more important to you: returns or playing it safer? That should help you further whittle down your list.

Ease of Commute

This one may be less significant than others, but it could play a role. If you have narrowed your list down to say, two markets, and those two markets are weighted pretty evenly against each other—which one is easier to get to? If a nonstop, not-too-lengthy flight is available to one and to get to the other would require a couple stops and a longer travel time (which would also probably be more expensive), go with the one you can get to easier!

Ultimately, the most important thing about whichever market you decide on is whether or not you will lose sleep over investing there. Maybe it’s because you can’t stomach your investment property being so far out of reach, maybe it’s because the market is a little riskier, maybe you hate single family homes and really wanted a multifamily. Whatever the situation, go with what will put a smile on your face (and hopefully some cash flow in your pocket).

marketing-strategy

Summary

A quick summary on the steps you can take to help you decide on a market:

Step 1: Narrow down your market options.

  • Where do you know people?
  • Where are other people investing?

Step 2: Analyze those market options to further narrow down your list.

  • Is it a good market to invest in?
  • Do the numbers work?
  • Will you be able to sustain the numbers?

Step 3: Choose what you like!

  • Decide on your personal preferences and see which markets fit those.

Then, once you have your market decided on, go shopping! Even if you only narrowed your list down to a couple of cities, that’s fine. Two cities is easier to shop in than 19,354.

And here’s one last tidbit for you. At the very end of it, no matter how or why you chose the market(s) you did, you need to confirm one last thing. Are you ready?

The last thing that matters is that you can form a good team in the market you choose.

If you can’t find good team members to help you with your property, go to another market. If you don’t have a solid team as an out-of-state investor, you’ll be up that famous creek without a paddle.

If you’ve narrowed your list down to a couple of cities you’d be willing to invest in, choose the one that offers the best team. If you’ve narrowed your list down to one city you want to invest in but then you can’t form a solid team of good people there, start over and choose a new market. You must have the team!

There you have it! Now go market shopping.

 

 

Source: BiggerPockets.com – By Ali Boone November 5, 2019

 

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WATCH: Why Being Near Water Could Be the Key to Happiness, According to Research

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Even daydreaming about traveling off to a faraway island, where the sand is warm, and the water is crystal-clear blue can give people a sense of calm. So, this should make it no surprise that actually sitting next to a pristine body of water actually does come with some pretty fantastic well-being benefits.

According to best-selling author and marine biologist Wallace J. Nichols, merely being close to a body of water, be it sea, river, lake, or ocean, promotes mental health and happiness. And he wrote all about it in his book, Blue Mind.

“The term ‘blue mind’ describes the mildly meditative state we fall into when near, in, on or under water,” Nichols told USA Today in 2017. “It’s the antidote to what we refer to as ‘red mind,’ which is the anxious, over-connected and over-stimulated state that defines the new normal of modern life.”

As Nichols noted, research proves his theory that being near water can help us all achieve “an elevated and sustained happiness.”

That elevated level of happiness happens because, according to Nichols, water helps in “lowering stress and anxiety, increasing an overall sense of well-being and happiness, a lower heart and breathing rate, and safe, better workouts. Aquatic therapists are increasingly looking to the water to help treat and manage PTSD, addiction, anxiety disorders, autism and more.”

Perhaps this is why we are all willing to pay more for a house along the water, or a room with an ocean view.

Moreover, being near water can increase our creativity, including our conversational abilities. But, being near water doesn’t only help us during our waking hours. It can help us in our sleep, too.

“There is some research that says people may sleep better when they are adjacent to nature,” W. Christopher Winter, M.D., author of The Sleep Solution, told Conde Nast Traveler. “No wonder sleep machines always feature the sounds of rain, the ocean, or a flowing river.”

And this gift of Mother Nature’s to soothe us all with a simple drop of water is precisely why Nichols believes it’s so important to protect this precious gift.

Source: SouthernLiving.com – By Stacey Leasca July 19, 2018

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Fix & Flip Overview: How is the current economic environment impacting the market?

 

Deciding on whether or not to invest in fix-and-flip properties can be tricky, as significant benefits and challenges can influence an investor’s decision. The determinants of a good investment in fix-and-flips include the price you pay for the purchase of the property and the cost of the renovation. An investor must also be aware of the general health of the economy and the location of the property, according to a blog post by Allen Shayanfekr at Sharestates.

Understanding how the current economic environment impacts the market can help you get the most out of your investments. If the economy is bad, people resist purchasing homes, often opting for rentals instead. If the economy is too good, the competition for fix-and-flip increases, diminishing profits. If a property is in a bad neighborhood, it will be hard to sell while the cost to renovate could outweigh the investment in the property, risking the loss of some or all of the profits.

To better recognize the potential of a fix-and-flip, Shayanfekr establishes three metrics for ideal conditions when deciding whether or not to move forward on this type of investment property.

The availability and changes in housing inventory can significantly influence decision-making. Low housing inventory is perfect for house flippers, as home buyers have fewer good options, especially with new homes, creating a higher demand for rehabilitated properties. While some have seen higher housing inventory levels in 2019, others see inventory still in decline. It depends on the location. Either way, keep an eye on inventory levels in 2019.

Changes in the rate of home purchases also have a strong impact on investment decisions. The market is seeing an influx in homebuying, specifically with first-time home buyers. Though millennials have waited longer than any previous generation to buy homes, we are seeing millennials now buying or planning to buy homes. This upward trend is a good sign that the market will remain steady.

Fluctuation in the cost of homebuying puts additional pressure on the outcome for investors. Home prices rose 5.6% from January 2018 to January 2019, according to the Federal Housing Finance Agency. The increase in the cost of purchasing homes creates a challenge for many families, often displacing families with few options in future home buying.

While these metrics may not look great, Shayanfekr recognizes the value of the location as a key to finding a good investment property. CNBC Home Hacks writer Shawn M. Carter establishes the following markets as the top 10 states to invest in:

  • Tennessee
  • Pennsylvania
  • New Jersey
  • Louisiana
  • Colorado
  • Maryland
  • Virginia
  • Florida
  • Illinois
  • Kentucky

These states have an average ROI of 83-155% and an average flip of 180 days, making them ideal markets for fix-and-flip investments.

With the market in constant flux, it’s important to keep in mind that just because one market goes south, it doesn’t mean that another location or market can’t offer good opportunities. If fix-and-flip isn’t looking like a sound investment, rental properties are another area that is growing. Whichever direction you choose, remember to asset class diversification is key to building a profitable investment portfolio.

Source: Mortgage Professionals America – Ryan Rose 04 Jun 2019

 

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How Much You Need to Earn to Buy a Home in America Today

Seven years after the U.S. housing market bottomed in February 2012, the market has staged a dramatic recovery. U.S. housing prices are now about 11 percent higher than their 2006 peak, according to the latest S&P/Case-Shiller U.S. National Home Price Index data.

National Averages

While that surge in home prices is great for homeowners, it’s made it difficult for homebuyers, particularly younger buyers in large cities where the real estate market is hottest.

To make matters worse, rising interest rates have pushed mortgage rates higher than they’ve been in years, creating yet another obstacle for buyers. HSH.com recently compiled a list of the most- and least-affordable U.S. metro housing markets. The list incorporates median housing prices, interest, taxes and insurance payments and is ranked by the salary a homebuyer would need to afford the average home in each market.

On a national level, the salary needed to comfortably afford a home is $61,453, according to HSH.com. That estimate is based on an average mortgage rate of 4.9 percent on a median home price of $257,600. That average home price is up 3.95 percent from a year ago. The average monthly mortgage payment is around $1,433.

Least Affordable Markets

Of course, some markets are much pricier than the national average. The following are the top five most expensive housing markets:

San Jose, California

  • Median home price: $1.25 million
  • Year-over-year change: -1.5 percent
  • Monthly payment: $5,946
  • Salary required: $254,835

San Francisco, California

  • Median home price: $952,200
  • Year-over-year change: +3.5 percent
  • Monthly payment: $4,642
  • Salary required: $198,978

San Diego, California

  • Median home price: $626,000
  • Year-over-year change: +2.6 percent
  • Monthly payment: $3,071
  • Salary required: $131,640

Los Angeles, California

  • Median home price: $576,100
  • Year-over-year change: +4.1 percent
  • Monthly payment: $2,873
  • Salary required: $123,156

Boston, Massachusetts

  • Median home price: $460,300
  • Year-over-year change: +2.6 percent
  • Monthly payment: $2,491
  • Salary required: $106,789

Most Affordable Markets

If these numbers are enough to make the average American earner dizzy, there are also plenty of metro housing markets around the country that are much more affordable. The following are the five most affordable cities to buy a house, according to HSH.com:

Pittsburgh, Pennsylvania

  • Median home price: $141,625
  • Year-over-year change: +4.9 percent
  • Monthly payment: $878
  • Salary required: $36,659

Cleveland, Ohio

  • Median home price: $150,100
  • Year-over-year change: +6.9 percent
  • Monthly payment: $943
  • Salary required: $40,437

Oklahoma City, Oklahoma

  • Median home price: $161,000
  • Year-over-year change: +5.3 percent
  • Monthly payment: $964
  • Salary required: $41,335

Memphis, Tenessee

  • Median home price: $174,000
  • Year-over-year change: +4.3 percent
  • Monthly payment: $966
  • Salary required: $41,400

Indianapolis, Indianapolis

  • Median home price: $185,200
  • Year-over-year change: +7.4 percent
  • Monthly payment: $986
  • Salary required: $42,288

Millennials Getting Burned

In addition to paying higher prices for homes, a recent survey by Bankrate suggests that millennials are being too hasty about jumping into the market. One in three millennials under the age of 35 own a home, but 63 percent of those young homeowners admitted to having regrets about the home they purchased.

The biggest source of buyer’s remorse for millennial homeowners is underestimating the amount of hidden costs associated with owning a home. Insurance costs, property taxes and closing costs can add up to between 2 and 5 percent of the total value of the home, but many buyers don’t consider these fees when shopping for homes.

Homeowners should also set aside at least 1 percent of the value of the home each year for repairs and maintenance, according to HGTV.

In addition to paying too much, nearly 1-in-5 (18 percent) of millennial homeowners regret not buying a larger house.

 

Source: News Republic – March 11, 2019 

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