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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Property Management Fees: A Necessary Investment To Cater Problems

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Giving house or a portion of the house on rent is one of the common practices followed by mankind from the years. It can also be said that giving property on rent is the source of earning extra income by sitting at home. Going through this practice lots of people either extend the portion of their existing house or construct extra houses forgiving on rent. All these activities in the beginning seem quite simple to them and they exhibit their properties proudly in front of their known ones, but their happiness is not less than a bubble that vanishes in the span of few seconds.

From vanishing I do not mean that their property vanishes or collapses, but I mean the problems which they face before and after giving property on rent smashes their dreams of earning substantial earnings from property within the short period. This is mainly because of complications related to the property giving on rent, because giving property on rent is not stagnated to allowing someone to stay in your house and pay you the asked rent to you. There are lots of formalities which being as a landlord is expected to be followed by you, with this you also have a plethora of responsibilities towards your tenants to which are expected to be accomplished by you on demand.

Anyhow, all these problems can be realized only by the person who has constructed additional property only for the purpose of giving it on rent, because generally if someone has given a portion of his house for rent he can easily look after the matters related to tenancy. But, if a person has developed some additional property, then there are chances that he will definitely realize that managing a property giving on rent is everybody’s cup of coffee.

So how to get rid of this problem is the matter of concern among such landlords or property owners. Interestingly, with an objective to provide remedy to such landlords for their problems today there are various property management firms which look after towards all the matters related to giving property on rent. These groups or firms are mainly constituted by the group of experts having knowledge in dealing with the issues related to the property given on rent.

Types of Property Management Fees: Although property management fees refer to the amount charged for looking after the property given on rent, but depending upon their requirements the property management firms charge the fees in different formats. Some of them are referred below:

1. Monthly Management Fees: It is self understanding term and refers to the payment made to property management firm every month for the services rendered by it. This payment is made for the varied services offered by the group, including receiving rent from the tenants, regular inspection of property, property maintenance, attaining the complaints received from the tenants during odd hours, etc. The amount of this fee mainly varies from 7% to 10% of the monthly rent received from the tenants.

2. Leasing Fees: This fee refers to the investment made for advertising the property, showing the property to your prospective tenants, screening tenants and checking their previous credit score, getting all the legal documents prepared accordingly and various other tasks. This is generally one time fees and mainly varies from 75% to 100% of the rent for the first month.

3. Maintenance Fee: It mainly refers to investment made by the company for maintaining the condition of your property. As a general practice this type of fee is mainly charged on terms and conditions determined between the property management company and the landlord. If the landlord takes the responsibility of looking after the maintenance of property no fees is paid to the group, but in case if the responsibility is handed on the shoulders to the group. Then, depending upon the terms, conditions and maintenance fee is paid to the group.

4. Late Fee: If the tenant is not able to pay the rent on the determined date, in that scenario the management firm might opt for collecting the full portion of rent or certain percentage of rent depending upon the mutually agreed conditions.

5. Eviction Fee: There might be circumstances when the landlord might wish to get his house vacated before the end of the contract. In that scenario the management company can help him in getting the tenants evicted from the house either through mutual agreement or via court. Depending upon the efforts and time, the property management company can charge the necessary fees for the same.

In return for their service the payment which they charge in simple words is known as property management fees. By charging these fees these experts agree to take full care of your property on your behalf and look after all matters starting from searching of tenants for renewal of their rent contract to solving their complaints and getting the property vacated from them after accomplishment of the contract.

Article Source: http://EzineArticles.com/9759003


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 Good Real Estate Deals

Finding-the-Good-Real-Estate-Deals

There are many ways to find good deals. Some of the best ways are quite simple. Remember, though, that the key to success in anything is persistence, and perseverance. The best way to start looking for good deals is right in your local newspaper. Look for properties that are for sale in the area that you have chosen to work in. Also look in the price range that is ideal for an investment. The best market is usually middle class, or slightly lower, or slightly higher. If you work in the high end market, those types of houses do not usually make good rentals. And if you work in the lower end, those properties may be difficult to sell, and are not the best neighborhoods to work in.

You can find out a lot about a property or an area just by reading the newspaper. The next step of course is to call and ask about the property. Always be prepared with a pen and paper. Some questions to ask would be:

  1. Where is the property located?
  2. What type of construction is the building?
  3. What is the area zoned for?
  4. How many bedrooms and baths are there?
  5. Is there a basement or attic?
  6. Is there a garage or a shed?
  7. How many units does the building consist of?
  8. If it is more than one unit, are the utilities separate, and who pays, the landlord or the tenant?
  9. What type of flooring is inside?
  10. How old is the roof?
  11. What is the property size?
  12. What is the square footage of the house?
  13. What are the annual property taxes?
  14. What condition is the house in?

Some ads in the paper or on the internet will be houses that are listed with a real estate agent. These are good ads to call on because you can learn a lot from a real estate agent, and they will have other houses to show you. That is the next best place to find good deals, through a good real estate agent. Try to find an agent who is familiar with investment property. If you find a good real estate agent who understands what you are looking for, it can be very profitable. There are a number of good reasons why you want to have a real estate agent as part of your success team. Experienced real estate agents generally have a lot of education and experience. One of the keys to success is to use other people’s experience, and other people’s education.

Agents are also good at negotiating. They are good to have as a buffer between you and the seller. They are knowledgeable about the neighborhood, and can help guide you with regards to pricing whether it be when submitting an offer or listing a property. They are usually on the cutting edge when it comes to market information. They can help you obtain valuable information you need when it comes to active, pending, and closed sales. They can give you valuable information such as how many days a property has been on the market, or how many bedrooms or bathrooms may be in a particular house. Agents are always networking, and sometimes an agent may find out about a house before it hits the general market. Real estate agents have access to the multiple listing service (MLS). This service has a world of information on properties that are currently active on the market, pending, or sold. This is all valuable information you will come to appreciate. A good real estate agent has capable negotiating skills, which will come in handy when submitting your offer.

Article Source: http://EzineArticles.com/9208794

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

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.

Article Source: http://EzineArticles.com/9638865


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

What to Ask When Looking for a Good Property Manager

What-to-Ask-When-Looking-for-a-Good-Property-Manager

If you’ve ever searched for a good property manager before, then you know how difficult it can be to find a good one for your rental property. There are several property managers out there, probably more than what you really need to bring your property into the market.

With so many choices available, you may find it difficult to choose one for your unit. But don’t worry – if you ask the right questions while shopping around for property managers, you’ll get a better idea of who would make the best fit for your property. Ask them these questions when discussing your property to see if they’re the right property manager for you:

1. What type of properties have you managed?

Experience counts for a lot in property management, and it can separate the good ones from the ones you should steer away from. Experience in this field, however, isn’t just about the number of years worked in the field; it’s also about what type of properties they’ve managed. Depending on what type of property you have, you can either go with someone who specialises in managing properties like yours or someone who has more varied experience managing different types of properties.

2. How do you screen potential tenants?

Screening potential tenants is one of the most important steps to property management, so the way they do this often reflects their level of service to your property. Ask them how they’ll match tenants to your property and what their process is like for finding tenants. This will give you a better idea of how they operate and what lengths they’ll go to find the right match for your property.

3. How do you handle late payments by tenants?

Finding tenants is just one phase of property management; the longer phase involves managing the tenancy itself. Asking them this question will show you what their management style is like and how they’ll deal with critical rental issues like these. See if their process aligns with what you expect them to do and how you want your property to be managed.

4. How do you respond to complaints?

Similar to the previous question, this question allows you to gauge how well a potential property manager will handle the landlord-tenant relationship. Remember that a property manager will act as the mediator between you and your tenant, so it’s important that you’re comfortable with their process for dealing with any complaints or issues.

5. How often do you do inspections?

Routine inspections are important to any tenancy agreement, and the number of times it’s done per year will help give you better peace of mind as the landlord or owner. This question will also show you how well the property manager will look after your property even after the start of the tenancy.

6. What’s the right rental price for my property?

If you’ve done your research beforehand, this question will let you assess how well a potential property manager knows the market and what they can offer you. It also allows you to get a better idea of what your property is worth in the current market. Compare their answer with different property managers to see what they offer and to better understand where your property stands in the market.

7. What are the things I can do to improve my listing?

Asking them this question won’t just reveal their expertise in property management, but it’ll also help you put your property in the best position in the market. Note their suggestions, assess how relevant they are, and decide whether or not they can get your property where you want it to be.

8. What are the full costs and fees for managing my property?

Some have small sign-up fees but a variety of hidden fees once you sign on and let them manage your property. Avoid getting surprised by such fees, and ask them to indicate all management and service fees included in their service. The more complicated their fee structure is, the bigger the headache (and expense) it will likely be.

9. What can you do that others can’t?

This is where prospective property managers will try to sell you on what they offer and how well they set themselves apart from the competition. It’s also the part where you assess the intangibles in any working relationship, giving you a better idea of how well they meet your standards. Listen well, take notes, and assess if they provide what you’re looking for.

With so many choices available today, finding the right property management company can be difficult. But by asking the right questions and doing your research beforehand, you’ll find that all the hard work you put into finding the right manager will be worth it. Once you find the right one, your property (and wallet) will surely thank you.

Article Source: http://EzineArticles.com/9685653

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 a Down Payment for Your Real Estate Investment

Finding-a-Down-Payment-for-Your-Real-Estate-Investment

In order to meet their loan to value ratios (LTVs), nearly all lenders require borrowers to have some “skin in the game” or equity in each fix and flip project. How does a real estate investor who is just starting in the business or is tied up in another project obtain the down payment necessary to qualify for a hard money loan?

Friends and Family: A Logical Start

Friends and family are a great place to start when looking for help with money down. You know them, have a track record with them, may have worked with them before on other types of projects, and you have access to them to propose your deal.

Laying out your Proposal: Risks and Rewards

Before you approach friends and family, prepare a detailed analysis about the specific investment opportunity. Research the project thoroughly, and be very clear and honest about the pros, cons, and associated risks fix and flip success.

Next, devise a business plan that clearly articulates the time line, projected milestones, and budget of the project as well as the terms of the proposed partnership, joint venture or investor relationship you wish to enter into with them. Approach the entire process like the business relationship that it is.

Real estate partnerships offer your chosen family and friends the chance to invest money into your fix and flip project(s) in exchange for a designated ownership percentage. As equity partners or investors, your family and friends will have an opportunity to receive money that the property generates at closing. So, while they will be taking an investment risk, they will also be in a position to benefit from the sale of the property.

Partnership Considerations

  • Legalize your arrangement. This is a business partnership and should be structured as such. The most common way to structure these partnerships are as general partnerships, limited liability companies (LLC), limited partnerships or corporations. Consulting with an attorney who specializes in real estate partnerships can provide valuable information about the process and the best type of agreement for your situation.
  • Clearly establish the role of each partner or investor. For example, your friend or family member might contribute the cash needed to make the initial down payment and closing costs, while you will be responsible for securing the remaining funding, buying the property, and managing all of the construction. Alternatively, your partner may want to take a more active role in the day to day operations of the renovation. Spell this out clearly ahead of time.
  • If you choose to set up a partnership, determine the aspects of the deal that will be included in the partnership and split. As partners, your family and friends will be able to participate in all aspects of real estate property ownership. This will allow them to receive a designated ROI percentage that might include: property appreciation, loan paydown, cash flow, and monies from the sale of the property. Remember that the addition of your partner’s funds reduces the amount of your construction loans so that should be taken into account as well when determining what is included in the profit split.
  • Decide how the NET (profit or loss) will be split. Remember to include all costs when determining the profit (or loss): fees, refinancing costs and any appreciation. There are many different ways to split the profits, and not one right way. It all depends on how much money each party brings to the deal, how the work is divided, who takes the most risk, etc. Splits range from 50/50 to 80/20 based on the above factors and what the two parties agree to. The key is to decide and formalize the split ahead of time.
  • Outline terms for reporting the income (or loss) for tax purposes for each party.

Following the steps above gives your partnership the highest chance of success, which can be a foundation for many future successful real estate deals.

Article Source: http://EzineArticles.com/9621762

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