Investing For Cash Flow and Financial Independence

Cashflow

Financial Planners will always tell you to diversify. That’s a good idea except that diversification is usually exercised by most people solely through the purchase of many different mutual funds. It is still investing in mutual funds or the stock market. There are ways to obtain wealth (and financial security) that you may not currently be exploring, ways that go beyond buying mutual funds.

Instead of planning for retirement, plan to reach Financial Independence instead. True Financial Independence is an easily measurable known target, and is a goal that can actually be reached within a short period of time. How? Through passive income. Generate positive cash flow from hard assets such as real estate income property. Rental income is passive income for the most part, especially if you have a solid property manager taking care of the details.

The principles of creating a long-term, on-going cash flow can be applied to most kinds of real estate investments. Mobile home lots, apartments, garage/storage units, and houses all make excellent income producing assets. Houses, in particular, low-end houses, make an excellent vehicle for creating long-term cash flow for a multitude of reasons.

While appreciation is often the most significant form of profit for real estate investors, investing for cash flow is easier to determine and with lower risk. So how do you achieve positive cash flow ethically in the real world? You need to buy in the rare market where high capitalization rates (15%+) are the norm. Such markets are usually depressed like Rochester or Memphis and have a large pool of renters. The reason tenants are willing to pay more to rent than they would have to pay to own in such markets is that they believe property values are falling or level in which case not owning is a good idea in spite of the high rent. Positive cash flow is so rare and so desirable that it eventually attracts out-of-town investors. Their coming into Rochester or Memphis or wherever causes property values to climb so that high cap rates are no longer available.

There are the three primary ways that an investor makes money in real estate: 1. from cash flow, 2. property appreciation and 3. paying down of the mortgage thereby increasing their cash flow and equity. Only if you buy on a bargain basis can you get positive cash flow from a rental property.

Why low-end houses make the ideal Cash-Flow vehicle

First, houses are abundant. Every city, town, and neighborhood has houses. Houses are probably the easiest to buy because they are the most common. Houses are also probably the easiest to buy at a discount, since there are so many sellers who own them in some sort of crisis ownership position: Vacancy, disrepairs, judgments/liens, back taxes, etc.

Houses are the easiest to manage, with the possible exception of storage/garage unit rentals, since these are occupied with stuff and not people, thereby making evictions easy. Well-maintained houses will often keep tenants for a 3-5 year cycle, sometimes longer. Most of the other vehicles have shorter-term occupancy.

Houses are by far the easiest to sell because of the naturally large demand for places for people to live. In most cases the property will sell without holding paper, but many smart investors will sell their houses on some sort of payment contract and be able to charge a 10-15% price premium to the buyer without using a Realtor.

The so-called low-end house can be very desirable from an investor’s standpoint. First, lower-end housing doesn’t mean becoming a slum lord. It means basic, starter homes that are located in good, but not necessarily great locations. These marginal areas typically are more of a buyer’s market, thereby, tilting the negotiation in favor of a hard-cash buyer or a buyer seeking owner financing. Actually, owner financing is easier, much easier in these slightly marginal areas.

Next, these lower level houses can frequently be purchased at various distress auction (tax, foreclosure, estate) sales. In many areas of the US, these houses are bought for prices anywhere from as low as $5,000 to $25,000, without a lot of difficulty (after you know the many inside strategies and secrets).

These homes can typically generate rents of $600 – $900 per month, which based on the low purchase price makes an outstanding return on investment. Returns of 25% – 35% per year are common. It’s not uncommon for smart investors to receive income for 20 years or better from their houses. After this period of ownership many owners will find a stable buyer and sell the house with a vendor take back mortgage (payment contract) and receive another 10 to 15 years of “mortgage” payments.

Here’s an example:

Purchase price: $ 20,000

Rehab: $ 15,000

Cash Investment: $ 35,000

Gross annual Income: $ 9,600 $800 month

Ordinary Expenses: $ 4,320 45%

Positive Cash Flow: $ 5,280 yr. $440 month

After Repaired Market Value: $50,000

Equity Created: $15,000 30%

Cash on Cash Gross Return: 26%

Cash on Cash Net Return: 15%

To put things into a little more perspective, if you were a risk averse investor, how much money would you need to invest in order to earn $5,280 per year in interest income, not accounting for taxes. Assuming the current 5 year GIC rate of 3.5%, you would have to invest $150,857. Based on the example above, you could buy 4 houses with that money and have an income of $21,120 a year. In addition, you would not have to worry about stock market fluctuations or running out of capital if you were withdrawing an income from your portfolio.

Finally, when investing in rental properties you need to keep your eye on the long-term goals rather than shortsighted goals. Property rental is a marathon rather than a sprint with the greatest profits coming at the end. You will want to pay the property off as quickly as possible in order to realize the maximum profit potential and acquire new properties. The real money when renting properties as a real estate investment isn’t in renting out one or two units but twenty or thirty. The more rental properties you own the more money you stand to make from owning them.

In summary, investing in real estate is always a good idea, no matter what the economic environment is. Investing in income producing property is even better as positive cash flow properties provides inflation protected real cash for your retirement.

Article Source: http://EzineArticles.com/4425895


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 12 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

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Understanding Turn Key Sales When Building a Home

Understanding-Turn-Key-Sales-When-Building-a-Home

You would think that understanding real estate terms might be a bit easier than prepping for the country’s largest spelling bee. Yet seemingly basic realty terms can have widely diverse meanings depending on geographic location and even within the housing industry itself.

The language of turnkey

Take the term, turnkey, as applied to owning, selling, or building a home. In general realty terms, turnkey usually means “move-in ready”. But there is move-in ready, and there is move-in ready. In the eastern part of the United States a home may be described as turnkey if it requires no significant or immediate repair work. Some real estate ads will declare that a home is, “turnkey ready!” if all the electrical outlets and water sources function properly. Or it has a fresh coat of paint.

One eastern area realtor describes a turnkey home as one that is ready for the new owner to turn the key in the front door, walk in, and unpack the clothes and toothbrush: everything else – including furnishings, appliances, even linens – is already in place. All the new owner needs to do is plug in the recharge base for the toothbrush.

An agent in the southeastern United States defined turnkey as, “… investment properties that are already rented with property management in place.”

Owning, buying, building turnkey

Some people purchase a second home for use as a turnkey property, usually rented on a short-term basis such as for vacations. Turnkey in this context often means that the owner’s furnishings and items remain in place. This usage provides income and convenience to the home owner and vacation usability for both owner and renter. Either way, the house remains ready to use.

The building aspect of turnkey has its own variations. A home buyer may contract with a builder to have a home built to specification, including all finishing details of flooring, lighting, cabinets, hardware, etc. Some buyers will even work with the contractor and design team to completely furnish the new home down to the tea pot and flatware. This might be considered the ultimate in turnkey ready.

Building within a new housing development also offers opportunity for turnkey readiness, minus (usually) the furnishings. Construction begins within the development when the individual house is purchased – prior to building. The owner will meet with the sales/developer team to select colors, flooring, and all finishing details.

Not to be left out of building to turnkey level housing are prefabricated or manufactured houses. Pre-fab and manufactured homes are no longer code words for double-wide mobile homes. Modern manufactured homes are opportunities for buyers who want more control over the construction and details of a home, often to be situated on a property of choice. Turnkey can refer to the basics of finished interior/exterior, or can include fully customized and furnished homes.

When in doubt, ask to talk “turnkey”

If you are unsure about what turnkey means, ASK! Don’t assume your understanding of the term will be the same as the agent’s. Get a clear understanding from the realtor, developer, or other representing agent what is meant when the property or building is described as turnkey.

And if that person’s definition of turnkey wasn’t included in any of the descriptions mentioned above, add the new definition to the list.

Article Source: http://EzineArticles.com/8546501


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 a Real Estate Property That Will Generate Positive Cash Flow

Buying-a-Real-Estate-Property-That-Will-Generate-Positive-Cash-Flow

When looking at real estate properties as financial investments, you will have to decide whether an appreciated value or positive cash flow is your main goal for getting properties. There are some things you need to consider before you make that decision.

Since you would more than likely be looking at single family homes and multifamily homes, there is a difference between the two.

With the former, the value of the property usually increases in value quicker. However, since more expenses are attached, you may not be looking at the kind of positive cash flow that you want.

On the other hand, multifamily units (i.e., duplexes) can generate more positive cash flow. However, they may not appreciate quickly like single-family homes do. Also, not as many expenses are attached to the latter.

Since most real estate investors look to create wealth, they will choose having a positive cash flow. In this case, you will need a reliable real estate agent that is willing to help you find real estate properties that will produce the positive cash flow you want.

Look at the balance sheets and see what you will look forward to as far as repairs, maintenance, fees and other miscellaneous expenses.

In order to maintain a steady stream of positive cash flow, you need to have the right tenants, so take your time. There are some people who will spend lots of money on real estate courses that don’t teach much of anything.

They end up being back at square one. Find a good real estate agent that is willing to genuinely help you. Sometimes, you may be fortunate enough to find one that is also an investor on the side.

Calculating Your Cash Flow

As a real estate investor, you need to be able to calculate all of the cash flow that comes from your properties. You want to make sure that you are making a profit. You will also be able to make decisions on real estate investments that you may purchase in the future.

In order to calculate your cash flow, you will need to add up how much rent you will get from your tenants. If you have more than one unit, take into consideration any vacancies you may have. Depending on how your property looks, include a small percentage of the vacancy rate into the equation.

With the total rental amount, get a figure for your losses. You will have to include property expenses, mortgage loan interest and property depreciation.

Deduct the expenses from your total rental income in order to get your losses or savings for taxes. With that, you will either add or deduct that from your expected amount from your tenants. Take your operating expenses and monthly mortgage payment(s) and deduct them for a second time. The result will be your cash flow.

When you come up with a cash flow amount, you will be able to figure out how much you will charge for rent if you decide to purchase future real estate properties. It’s important that whatever money you make, that you don’t squander it. Put it away because eventually you will need it for other things relating to your investment properties.

Changing Negative Cash Flow To Positive Cash Flow

When you have negative cash flow, you are not making a profit. You are paying out more in expenses than you are taking in as profit. That’s not how you want to operate when you’re investing in real estate properties.

Here are some ways that you can chance the negative cash flow to a positive one:

  • Implement a rent increase. Only increase it to the amount of the current market. Don’t overdo it, other wise you may not have any tenants.
  • Make the tenants pay the utilities. This would relieve a burden from you. Besides, since they are living in your property, they will be using utilities every day.
  • Go over your property taxes to see if you can find anything that may have been missed before. Who knows-you may find out that you were charged more in taxes than you should have been charged.
  • Contact your insurance company and see about paying more for your deductible. Then make inquiries about getting a better deal for coverage on the property.
Article Source: http://EzineArticles.com/1984942

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

Finding the Best Locations for Buying Rental Property That Nets the Highest Returns

Turnkey-Rental-Property

You have heard it before. T, the first three rules of real estate are Location, Location, Location, and this is no different when buying rental property. If you are in the market to purchase rental property real estate, you need to know your market. Below is a series of steps you can take to fundamentally understand your real estate market and determine the best areas in which to purchase your buy and hold properties.

Establish Where the Rental Markets Are

Here is a systematic way to figure out which rental markets in your area will have the highest potential returns.

  1. Have a realtor put together a list of properties that have sold in your area. You are going to want to find sales data on “bread and butter” rental properties – properties with 3 bedrooms, 1 bathroom, 800sq ft – 1200sq ft with a basement and a garage.
  2. Take the list of properties and sort them by sales price.
  3. Once you have the properties sorted by price, break them up into 3 groups – the lower third by price, the middle third by price, and the upper third by price.
  4. Next, take a map and start to plot out the three groups of properties. For each group use a different color marker on the map.

Once you have the map populated with, you should start to see trends on the map. The properties priced in the lower third will likely have the potential to generate the highest return. These are the areas you are going to want to investigate further. If you have lived in the area, you probably have a general idea about these areas, but you need to set that aside for now because to truly know the market you need to complete the next steps.

Drive the Targeted Market

Once you have established a few areas, you are going to want to get in your car and drive through the neighborhoods. When you do this, you need to take note of the things listed below. Please keep in mind that you should be looking for trends in the area. You may see one house that is particularly good or bad, but you are really trying to look at the neighborhood in general, so look for trends.

What is the condition of the homes in the area?

Do you see solid homes, with good roofs and freshly painted trim, or do you see you see old dilapidated homes with broken windows?

Are the properties kept up?

An easy way to tell this is by looking at the condition of the landscaping. Do you see mowed lawns with flowers planted all around, or do you see long grass and overgrown weeds? The condition of the landscaping can provide a great deal of insight about the people living in that neighborhood.

What does the neighborhood look like?

Look at the streets, are they clean, or is there trash strewn around. Look for sidewalks. If you are driving around outside of school hours are kids playing in the streets? Or in contrast does the neighborhood give you the creeps. You are really looking to answer the question “Do my tenants want to live here?”

Talk to People in the Neighborhood

It is really a good idea to speak with people in the neighborhood. If you see someone walking down the street, stop and let them know you are looking to buy real estate in the area and ask them about the neighborhood. Or, you can stop in a local business like a market or a gas station and talk to the guy behind the counter about the area.

Once you have established your target markets, and driven the areas, you should be able to quickly see which markets you want to invest in, and which markets you do not. To document this you can easily take a map and highlight the streets where you will consider investing.

Determine the Returns

The next step is to look at the potential returns you will generate. This is a very simple thing to do, and you can follow these steps.

  1. Speak with a local property management company about the rental rates for a 3 bedroom, 1 bath home with a garage and a basement in the area you have selected. The property management company should be able to give you a very good idea of the rental rates and also give you some more feedback about the area in general. You should also inquire with them about their rates for property management.
  2. Look up the taxes on a few properties to establish what you can expect to pay in taxes for properties in the area you have selected.
  3. Speak to an insurance agent about the cost of insurance for a property in your target market.
  4. Calculate your net income. To do this, simply take your rental income expected for the year and subtract the taxes, insurance, and property management expense.
  5. Calculate your return. To do this simply divide the net income you calculated in step 4 by the price you will be paying for the property.

With this information you should be able to see what kinds of returns you can generate for your targeted area. An interesting exercise to perform is to also calculate your return on areas where homes are selling at a higher price. What you will find is that the neighborhoods may be a bit nicer, but your returns are going to drop quickly.

 


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 Analyze a Rental Income Property

How to Analyze a Rental Income Property

It has been said that more millionaires have been created through investing in real-estate than any other type of investment. However, for the unprepared and uninitiated, the potential for catastrophic financial decisions is always present. In this next article in our series, we’ll look at some of the key location factors that influence the value of residential investment property.

The single most important factor influencing the value of your residential investment property is consistent and strong demand from your potential renters and buyers. So it stands to reason that you should be buying rental properties in same places that people want to live. Although this sounds simple, too many new investors fail to consider the long term potential of the area when getting started with real-estate.

State Level:

State regulation and fiscal policy has a great deal of influence on a residential investment property. State business and personal income tax, as well as goods and services sales tax can have a huge impact on the in-migration of people and business. More regulation and taxes means fewer businesses and jobs. Fewer jobs means fewer people, fewer people means less demand for your property (i.e. lower rents, lower property appreciation and lower return on investment from your rental property). When investing in real-estate, consider States with strong, pro-business policies.

City Level:

As your geographic location begins to narrow, the location factors affecting your residential investment property start to become more specific. Although a city’s policies on attracting and retaining business is still very important to the long term outlook for jobs, immigration and in-migration, more local factors like large regional employers and a diversified industries become increasingly important. When buying rental properties and considering specific cities, look for an unemployment rate that is less than the national and state average. Also look for higher than average household income (national and state). Strong local employment and higher than average incomes means the area is growing and this will ultimately attract more people.

Neighborhood Level:

As you begin to narrow down the neighborhoods within your selected city, there are several factors that will impact your real-estate return-on-investment. Proximity to schools, shopping, business and transportation should all play a role when buying rental properties. Consider the city’s expansion plans for any light rail public transportation. Historically, investing in real-estate near (but not too near) the future site of a transit station has produced properties that have appreciated at a much greater rate than average. From the household shopping to the daily work commute, relative location and access to transportation are some of the most significant factors people consider when choosing where to live and should be a major factor in your decision when buying residential investment property.


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

Why You Should Never See Your Investment Property

Why-You-Should-Never-See-Your-Investment-PropertyWhenever I give this piece of advice, I often get blank stares. It is a very different approach to what most property investors take. But it is actually a smart strategy when you start to understand the reasons why.

But so what if you visit your investment properties?

Sure, if you’re okay with getting the results most investors get, feel free to ignore my advice and do what most investors do. But if you want to go further than most investors, I strongly recommend you stick to this rule.

Never see or inspect your own investment property.

A good investor never visits their property, as a general rule. In fact, you don’t even need to live in the same state as your property.*

* Side note: this is actually very exciting as it means you are FREE to invest anywhere in the country, opening up way more options for awesome locations. But that’s another topic entirely.

Why You Should Never Inspect Your Property

  • Before you finalize your purchase of the property, you’ll get a good building inspector to check it. They’ll do a far better job than you could ever manage, so checking the property yourself is a waste of your precious time.
  • Once the property is in your hands, you’ll get a good rental manager. It is their job to routinely inspect the property. As a professional, they will do a far better job than you could.
  • You should have full confidence in the professionals you hire to take care of your property for you. If not, you have the wrong people.
  • Inspecting the property in person will result in emotional attachment, which is bad for financial-based decision making.
  • Your time is worth more than that.
  • The real money is made in capital growth, something which you can’t see at an inspection.

So get the professionals in and get them to do it. It’s their job! Stay emotionally detached from the property and focus on making money – YOUR job as the investor.

Just because you shouldn’t visit the property in person, doesn’t mean you should ignore it. You should be looking ahead to see what the market is doing and anticipating what your capital growth is likely to do in the future. This will help you with growing your portfolio, which is how you really make money.

The exciting part is that you can do all of this online.

How to Inspect for Capital Growth

  • Check online sources for evidence of infrastructure projects and investment in the area
  • Is the population growth trending upwards?
  • Are more jobs being created?
  • What notable changes are happening in the area that might attract more people?

Inspecting Your Property is a Waste of Time

And sure, you could stop by your property and have a look. But what are you going to see? A house? Yep.

If you actually happen to notice any problems while you are there, you’re very unlikely to be able to solve them, unless you’re a qualified builder. And because you lack the qualifications and experience of a rental manager, you probably won’t understand the laws that govern how you should deal with your tenants. It’s best to avoid wasting your time and effort and let the professionals handle it.

Even though it sounds counterintuitive at first, it makes sense to never inspect your own property.

If you feel that you need to inspect your property, something isn’t right.

Perhaps you’re in a situation where things aren’t going as smoothly as they should. Or perhaps your team aren’t doing their jobs right.

If you’re struggling to find a good building inspector or rental manager, or your properties are causing you problems that you feel need your personal attention, find a good property investment coach to help you solve these problems as soon as possible.


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

Finding Real Estate Investment Property – Hidden Gems

finding-real-estate-investment-property

Investing in Real estate can be a satisfying and profitable endeavor even for those who are just starting out if they know what to look for. The key is finding property that has real potential that others have overlooked without laying out too much cash in the beginning. Although there are lots of books, websites and seminars to guide you, sticking to some basics is still essential.

Maximize your information sources by using all available options. The Internet has hundreds of sites advertising real estate for sale, many of them by-passing realtors in order to save cash for both the buyer and seller. Google Base, Ebay, CraigsList and numerous others have houses listed For Sale by Owner (FSBO, a term you’ll quickly become familiar with). Don’t neglect property listed with realtors, though. Get to know realtors and let them know you’re seeking those hard to sell properties that need some work – they will often lower their commission to sell a house that’s been hanging around for a while.

Always, always visit the property yourself to evaluate it. No amount of pictures can substitute for walking the property yourself and seeing the rooms, fixtures and neighborhood up close. If you can, visit on two days – once during bad weather so you can check the basement, eaves and roof for signs of potential problems. Introduce yourself to the neighbors and get a feel for what the area is like – is it mostly retirees, or families with young children? This information will be invaluable down the line when you begin remodeling if you decide to purchase the house.

If you find problems like older pipes and wiring while checking out the property, you’ve given yourself some real bargaining power when it comes time to make an offer on the real estate. These are often the properties that can turn into a great profit margin. By pointing out potential problems (“I’ll need to upgrade all the wiring, and those pipes have had it.”), you may get the price reduced even further, or you can negotiate to have that work done at the owner’s expense before you’ll close on the house.

A complete home inspection is always a must – the report the inspector provides can point out other problems you, as a lay person, may have missed. This can mean the difference between purchasing a basically solid house that you can turn into a real gem and buying a house that looks sound but will end up being a money pit of repairs and major reconstruction! The report will cover details from leaks, carpet and floor damage to problems with the foundation or heating system. Be sure to determine what things are deal-breakers – talk to an expert about whether flaws are worth repairing, or are too major to be dealt with.

Some repairs should always be done by an expert, such as heating and air conditioning problems, repairing chimneys and flues and anything to do with the foundation of the house. Others, however, you can do yourself if you are handy yourself or are willing to learn. Fixing leaky faucets, repairing minor leaks, patching drywall, even refinishing floors can be done yourself at a greatly reduced cost – and can give you real bargaining power on the price when negotiating with the seller (after all, he/she doesn’t need to know you’re going to do it yourself!). Keeping these tips in mind will help you keep things realistic and maintain focus as you look for that hidden gem that you can turn into a showplace.

Article Source: http://EzineArticles.com/275627

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