Understanding Investment of Income Property

Understanding-Investment-of-Income-Property

Many investors find rental income property a good way to build wealth. As an investor, it is essential to have income producing properties as part of your portfolio. The idea of owning real estate is gaining popularity as investors tire of the stock market’s volatility. However, not everyone has what it takes to be a landlord. Correctly investing in rental income properties requires an effort to acquire knowledge which is crucial to your success. Don’t be completely dependent on so-called “experts” to make decisions for you. Remember, it’s your money, not theirs. Timing is a critical component because buying in an overheated market will require a bigger potential annual return to make up for that risk. You should also have a good idea regarding how long you plan to own a rental property. The longer you plan to own the property, the more you’ll probably need to invest in maintenance, repairs and improvements. A 20 year old property will require more money to maintain then a 5 year old property. Avoiding the expense of any major improvements will naturally result in a better investment.

Lenders and their requirements

During the last 25 years as a mortgage banker, my career has evolved around lending, underwriting and approving loans to potential clients. Lenders look at any loan as an investment and the stability of that investment and the applicant seeking financing to is part of that approval. Potential investors should understand what and how lenders look at applicants and what it means. The better your credit rating, the better the chance of having your loan approved. This translates into the less credit card and other consumer debt you have, the better your prospects for getting a decent loan. Lenders also look at the down payment towards the purchase. A bigger down payment is an indication of strength as a borrower and that is important. Lenders look favorably on a large down payment because they see you as an investor that has the resources and ability to save by properly and efficiently managing your finances since the default ratio on investment property tends to be higher. The amount of cash reserve left over after buying a property is as important as the initial down payment. Lenders need to approve the borrower as well as the investment property. Know that the property will be thoroughly scrutinized before approval is given. It is extremely important to understand the Debt Coverage Ratio (DCR). It is also known as (DSCR). Debt Service Cover Ratio is a widely used benchmark which measures an the income producing property’s ability to cover the monthly mortgage payments. A debt coverage ratio of 1 to 1 or 1.0 indicates that the income generated by a property is insufficient to cover the mortgage payments and operating expenses. A DCR of.95 indicates of a negative income. A property with a DCR of 1.25 generates 1.25 times as much annual income. Let’s use the DCR of 1.25 as an example. The property creates 25% more net operating income (NOI) than is required to cover the annual debt service. It is imperative to get a good interest rate as the interest rate has a direct impact on the DCR. Verify the current interest rate given by your local lender on a similar property prior to your purchase. Start asking you lender what they prefer to lend on in terms of the DCR and down payment. This step will alleviate most of your problems early in the process and allow you to present the proper offer to meet your lender’s requirement.

Overpaying

Keep in mind that profit is made when you purchase the property, not when you sell it. It is important to spend some time researching the property and the area in which you are interested in buying. The rental real estate market is generally tougher on investors who overpay for an income producing property. This is not an emotional purchase. Successful investors look strictly at the numbers to see if their investments will pay off. If you pay too much for a rental property, don’t count on getting bailed out by another fool. Some investors tend to use a single formula to analyze their purchase such as a gross multiplier (GM), Net Multiplier (NM) or cap rate (CR). Others try to estimate what the property could be worth after needed repairs and upgrades. All that is fine but it is really not enough. The truly successful investor examines all of these factors and more in order to make a correct calculation. A comprehensive assessment achieves the desired result: a clear picture of your investment.

Expense

Analyzing the expense of any income property is tedious and can be an inaccurate presentation. The national average operating expense in the US is approximately 40 to 45% plus or minus 2% which includes management fees, vacancy rate of 3 to 5%, operating expense, maintenance, property taxes, legal fees and so on. It is important to verify the information before you commit to the purchase of the property and all offers should be subject to proper verification and validation of the income and expense statement. If not properly verified, false information will skew the numbers and result in an incorrect analysis of the property. You also should know how repairs and improvements are treated for tax purposes. Understand that some improvements can also mean an addition to the amount you paid for the property to determine your tax basis when selling. The higher the basis, the lower your taxable profit. Any property income-expense statements prepared by the seller that typically show operating expense of around 30% or less is called the “Liar’s Statement”. An income property’s expense usually runs at 40% to 45% depending upon the age of the property. Many property buyers tend to ignore or overlook expenses such as vacancy, collection loss, managing the property (time that it takes you to manage the property has to have a value attached to it of about 6%), eviction fees, attorney cost replacement of capital such as ( water heaters, repairs, roofs), and other non common expenses. Utilize 40% to 45% as the percentage to use for calculating operating expenses, regardless of what the seller gives. Another option is to employ the percentage used by lenders in your area since it will probably be more accurate than the figures issued by the seller.

Inspection

Although property inspections are often thought of as being for owner-occupant purchasers of single-family homes, there is no reason not to use a home inspector, as well as other specialized inspectors, in the purchase of investment properties of all types. Such inspection will give you a better understanding of your potential investment. You should request a non biased third party to thoroughly inspect the property as part of your offer to purchase.

Conclusion

Determining whether a property is giving you a cash flow or not depends on several factors. The seller of a particular property is not going to give you something for nothing, Investigate your options and be ready for a great ride. Most investors use appreciation to get most of the return on an investment. However, this is not the whole picture. A positive cash flow remains a priority when investing in an income producing property. Sustaining a negative cash flow for an undetermined period of time is neither safe nor smart. If investors are willing to accept a negative cash flow, then they must have better reasons to justify the negative cash. Most properties that are purchased without proper analysis will have the exact opposite effect on your cash flow and your cash will be held hostage while trying to feed that rental property. Negative cash flow properties require constant support or else will turn on you quickly. Whether you can afford the financial drain of your well earned cash depends on your ability to generate cash somewhere else. If depreciation of asset is your need to acquire the asset please note that assets depreciation is not to avoid paying taxes but a merely a deferment of the tax obligation. Upon the liquidation of your assets, all appreciation will be added back to your capital gain tax bill. Even in this depressed economy, investors stand to make good buys and profit if they are armed with the knowledge of what it takes.

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Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

How To Profit From Your Rental Properties

How To Profit From Your Rental Properties

There are lots of people who believe that harvesting huge profits from rental properties is one of the easiest businesses they can do for enjoying a luxurious life. The reason which at first instance, seems to be responsible for this myth be no tension of establishing a personal office or factory, no tension of appointing huge staff for getting different tasks accomplished on time, no concern about the sinking of funds on etc. In simple words it can be said that lots of people think that earning rent from the property given on rent doesn’t require any huge investment.

But, is it really so as it seems to be or earning profits from rental properties is complex and requires the proper involvement of the person investing his funds in the property for giving on rent. This in-fact is the matter of debate which is mainly because of the discussions which they have from their known ones who have given their property on rent. Although, this can be true, but that is possible in the case if you have rented the portion of your house to only one or two tenants. But, in case if you have two to three properties which you want to give on rent then looking after those properties could be quite messy for you, especially at the time when your tenant calls you at some odd timings.

Moreover, if you some properties for rent located in another corner of your city or is some other city then looking after those properties could be quite daunting for you. Because looking after all the properties at the same time won’t be possible for you, anyhow, even if you succeed in managing it, you might have to struggle with your tenants for rent and other issues. Anyhow, even if someone assumes that investing in property is one of the easiest methods of earning, then they do not know that it is like hitting the bullseye. So, how a novice can get rid of various issues arising from Rental Properties Adelaide for earning expected profits from his property.

An answer to this question in simple words can be hiring the services of the rental property management group which is constituted by the group of mavens having vast experience in looking after the various aspects associated with rental properties.

Why you should hire the services of rental property experts:

As referred above that most of the people consider earning money from rental properties as an easy task, agreed that it is. But, do you know how to search for the prospective tenants, how to interview the tenants and get their documents verified, what are the legal documents required to be prepared before giving any property on rent or what to do in case if your tenant refuses to pay rent on time or tries to exhibit his ownership on your property? All these questions are just illustrations of the problems which as a newbie, you might face while investing your funds in property, there might be various other issues about which you might have even not imagined could disturb you once you have given your property on the rent.

Anyhow, if you are aware about all these problems and know how to get through them, then undoubtedly nobody can stop you from becoming rich in a few years. But in case if you do not wish to face all these issues, then it would be better to at-least will think of hiring the services of the property management experts to avoid any type of critical situation in the future.

These experts will work for you and take care of your property as their own property on your behalf and will look after all issues arising from the property, starting from the hunting of the tenants to sorting out different issues which might face because of your tenants. Let us, for instance, say that, you have not allowed your tenants to park their vehicle inside your garage during your absence, but still if they do so and argue with you that as they are paying rent for your house, they are liable to use the garage also. At that time if they did not stop parking their vehicle inside the garage at that time the only option left with you will be getting your house vacated from the tenants quite early before the expiry of their agreement.

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Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

Investment Criteria of a Beginning Real Estate Investor

Investment-Criteria-of-a-Beginning-Real-Estate-Investor

Focusing on property features alone is a quick way to the grave of your real estate career. I think this is an easy concept to grasp, but it does come up, so I wanted to share how I feel about what variables an investor should focus on to make solid buying decisions. Mistakes are made all the time by investors paying too much for a piece of real estate, but I would bet there are even more mistakes made when it comes to NOT buying a property they should. The old saying is, “the only real estate deals I regretted are the ones I didn’t do.” I am not sure I totally agree, but I understand the concept.

If you limit your criteria to property features, you will miss out on fantastic buying opportunities.

When I go to networking events, I often hear investors ask each other about their investment criteria. I cringe when I hear something like, “I am looking for 3 beds, 2 baths that will rent for $1,400 a month.” If I get an answer like that I will likely respond with, “What is wrong with something that is only 2 bedrooms that will rent for $1,500?” The normal response is a look of confusion or no response at all. Obviously there is a lot more to it than the bedrooms and bathrooms and even the price. What about location, HOAs fees, or deferred maintenance? What about the investor’s risk tolerance, potential for appreciation or potential to redevelop in the future?

When looking for deals, there are two points you might want to consider.

FOCUS ON PRICE AND VALUE

If you focus on property features you might miss a neighborhood that produces the financial outcome you are aiming for. I would much rather hear an investor explain their criteria as a return on investment, price to property value, or even a value play in a certain area. This is the criteria that focus on the financials. A skill as an investor should be to be good at coming up with a value (that could be based on resell value, cash flow, or other potential) and then deciding what you are willing to pay for that value. A fix and flip is a great example and is easy to analyze because there are very few factors. Rentals can be a bit more challenging because variables like; location, potential tenants, future vacancies, maintenance, future price changes, your short term and long term financing, management, and rent amounts all play a role in your decision. There are risks with all real estate deals, so you will want to understand those as you work towards the price you are willing to pay.

CONFORM TO AREA

This is not always necessary, but in most cases you will want to conform to the neighborhood. If you are looking for a condo in a building full of 2 bedroom condos, then buying a 2 bedroom condo would make since. If you are only considering buying 3 bedrooms, but you are looking in a 2 bedroom neighborhood, you will severely limit opportunities. In many cases bedrooms add little to no resell value, but that is not always true. A big opportunity exists if you can find a 1 or 2 bedroom house in a 3 bedroom neighborhood. By converting the house with fewer bedrooms to conform to the area, you should see a big upside. You should also see upsides when adding bedrooms to rental property, because it should increase cash flow. All of these opportunities could be missed if you are not open to looking at them. A strategy that I see some investors successfully implement is to first understand a certain neighborhood and get comfortable with the values and then search for discounted properties in that neighborhood. In this case, you will be searching for price to value not property features.

With all this said, a house that does not conform to the area could still be a good investment. Remember, all real estate has value and all real estate is a good buy for the right price.

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Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

The Importance of Hiring a Property Management Company

The-Importance-of-Hiring-a-Property-Management-Company

In this age of independence and mindset that one can manage on his own, it is inevitable that a property owner would think he will do fine on his own. Sure, you got tenants who at first, pay on time until gradually they won’t, some will breach the contract and lease terms, then they cause problems with the neighbors and other tenants, then slowly you will notice you are losing money and when you decide to evict the tenant, next thing you know, you have a lawsuit at your doorstep.

The reality is if you use the services of a professional property management company, not only do you have peace of mind, your investment is protected and the consistent cash flow you receive through rent can assist you to buy additional investment properties.

This is why you need the assistance of a property management company, but before that, we will determine the pointers on why it is important to hire one.

Determining the Worth of Your Property

The problem with inexperienced owners is that sometimes they get overwhelmed on how they price their property to the market: oversell and you have to deal with the high vacancy rate with no profit, undersell and you will realize you are slowly losing profit. This is where a property management company comes in, they will help you determine a balanced meal where you gain tenants and continue to rake in profit.

A property management company is also well-versed in marketing your property and placing ads where it will attract tenants. They will answer any inquiry and they know what entices a prospective tenant, therefore will help you point out some cosmetic improvements so that the tenants will feel that renting your property is worthy of their money.

Avoiding Major Problems with Tenants

Screening tenants would not be one of your problems anymore because the property management company will take care of it. They know too well how to check the background of the interested tenants, their criminal records, their relationship with previous property owners and if they have ever caused problems before. Think of it as helping you weed out the bad ones for a healthy and bountiful crop.

Collecting rents is the most common problem in renting out your property. When left to your own devices, having your tenants pay you on time will become a child’s play of hiding and seek between them and you as the property owner, certainly some tenants will tug at your heartstrings and gain your sympathy with the hope that you will let them get away with it. A property management company, however, will become the middleman who will ensure that the tenants abide by the lease terms and should understand that they are just doing their job for you, keeping your cash flow consistent.

Maintenance

When a tenant has reached the end of the contract, the grueling process of turnover will usually keep you busy as a property owner, but with a property management company by your side, that is another pile of stress that will be taken care of. Any deductions from the security deposit will be made and returned to the tenant, and the restoration process of repairing any damages, repainting, changing locks and cleaning the property would be done without getting your own hands dirty.

As a property management company, expect that they know the right people to contact should there be any problems with leaks, wiring, and plumbing experienced by the tenants and their dilemmas will be addressed promptly.

Saving Time and Money

A successful businessman knows that delegating tasks is key for a successful business so that one can have more time to deal with other business ventures. With almost everything being taken care of, it seems like the only thing left to do is to visit your property at a certain time interval and continue to rake in profit while having more time to spend it with your family, social life, other priorities, and investments.

IN CONCLUSION

Hiring a property management company takes care of the burden for you, especially if you are well aware that marketing, confronting tenants with late payments and handling maintenance are not your strongest points especially if managing your property is not the only priority you have in your busy life. Therefore delegating this task to a reliable property management company may just be one of the best decisions you have ever made.

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Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

Memphis Real Estate

memphis

A montage of lively communities, Memphis is no longer the laid-back port town it used to be. The downtown Memphis area is where the life of the city really is. Here one can find antique shops, restaurants, art galleries and coffee shops just a walk away. The downtown area is home to more than 23,000 residents – a number that is steadily growing with the building of houses, apartments and condos in the area. Downtown Memphis is home to Beale Street, the celebrated “Home of the Blues.” Beale Street features a number of bars and cubs that cater to jazz, blues and rock and roll music. Then there is the Pinch District, which is home to cafes and bars that are frequented by local residents and tourists that are attending events at the nearby Pyramid.

Midtown Memphis has some of the city’s most pristine neighborhoods. Tree-lined avenues are flanked by grand bungalows and apartments. Overton Park, located in the center of midtown, is one of the United States’ biggest urban parks. Some of the city’s numerous attractions are the Memphis College of Art, Memphis Zoo and the Overton Park Shell. Several universities and colleges augment Midtown Memphis’ diverse atmosphere. The neighborhoods include Vollintine-Evergreen, Cooper-Young, Overton Square and Central Gardens.

Most of Memphis’ high-status housing areas, shopping and office centers are situated in East Memphis. The Memphis Botanic Garden, Audubon Park, Lichterman Nature Center and other public parks and gardens give a unique appeal to East Memphis. Chickasaw Gardens, for one, is full of elegant houses. The Pink Palace Museum and Planetarium lie adjacent to that neighborhood. Then there is Cordova, which is a rapidly growing community in the Metro area.

Shelby County, outside of the main city, boasts of a number of beautifully integrated cities and towns. These include Arlington, Bartlett, Collierville Germantown, Lakeland and Millington.

Neighboring areas that surround the city include Fayette County, Tennessee; Tipton County, Tennessee; Crittenden County, Arkansas; DeSoto County, Mississippi; Tunica County, Mississippi; Tate County, Mississippi; and Marshall County, Mississippi.

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Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

Tennessee Real Estate: Music to the Ears

Tennessee-Real-Estate

Tennessee is the state of prairies, towering mountains and country music. Inexpensive Tennessee real estate will also put a jump in your step.

Tennessee

Tennessee is a state with a little bit of everything. Parts of the states are comprised of lush, rolling fields with horse farms and agricultural. In other sections, you can find the Appalachian Mountains, which need no introduction. Of course, no mention of Tennessee would be complete without discussing the music scene. With cities such as Memphis, Tennessee is a mecca of music and, of course, the home of Elvis.

Memphis

If original music and an active nightlife are your things, Memphis is the city for you. The city is the home to vibrant blues, soul, country and rock scenes as well as numerous record labels. Historically, the economy of the city was tied to the cotton industry, but this is no longer the case in modern times. Instead, Memphis has become a modern city while maintaining its historic charm. If you are an avid Elvis fan, this is the place you will find Graceland.

Knoxville

Surrounded by no less than three mountain ranges, Knoxville is a picturesque city with a quiet atmosphere. Well, quiet so long as you don’t live next to the University of Tennessee, which is located in Knoxville. With a huge student population, the town rallies around the football team by filling Neyland Stadium with over 100,000 people per game. You have to see it to believe it.

Nashville

When you think about Nashville, you think about country music. Over five million people Nashville each year to immerse themselves in it. Home to the Grand Ole Opry, Nashville is best experience by hitting the nightlife. If you love country music, Nashville may be a great relocation spot. If you don’t, you should probably look for other locations.

Tennessee Real Estate

Despite being a physically appealing location with a hot nightlife, Tennessee real estate is very cheap. Single family homes in Memphis or Knoxville run in the $180,000 range, while the same home in Nashville is roughly $210,000.

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Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

Buying Property to Grow Wealth

Buying-Property-to-Grow-Wealth

When you think of a lot of people who have a great deal of money, you probably know that one common factor among them includes investing in property to increase their wealth. Buying property is a great way to grow wealth and something that anyone who wants to have a better lifestyle should consider doing. One of these options for buying property would be to buy a condo. Condos can provide a great way to earn extra income on rent every month when you do this properly. With any new condo launch, like the upcoming launches of Forest Woods, Trilive, and Stars of Kovan, you need to get in quick to get one of these stylish new offerings.

These new condo developments are located in the heart of everything, allowing you easy access to the most popular locations in the area. They are luxury condos with top-of-the-line amenities, which will create a valuable asset for you to rent out as a way to earn additional income. Now that you know information about these new condo developments, you may be wondering if this is a wise investment for you to make.

One great reason to invest in a condo to rent is because the property maintenance, repairs to the exterior, and plumbing are typically included in your condo fees. That takes some of the responsibility of renting out your property off of your shoulders. Plus, you are going to end up getting a pretty nice return on your investment every month, especially if you choose a condo in a desirable location. Location is everything and you want to make sure that you pick a condo that is right in the thick of things. If you have a condo that is centrally located around some of the more popular locations in the area as well as the popular highways, you are going to have a better chance renting out your property for a nice profit. This profit will increase if you choose a condo that is luxurious. People love living in the lap of luxury and you will get a great return if you get a condo that is furnished and screams luxury. These are all things that make a condo a desirable one to purchase which means that they are going to be just as desirable to rent.

Whether you are just trying to earn extra income so you are not struggling or if you are trying to grow your wealth to move up in the world, investing in a condo can be an excellent idea. You do need to do your research though because if you get a condo that is not desirable to renters, you are going to have a difficult time unloading the property. Pick something that is centrally located and has amenities that renters will love. You also should check the math to ensure that you are going to make a decent profit. If done well you may get a 10% profit each month from the property, which is a really decent amount of profits.

Article Source: http://EzineArticles.com/9610527

Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com