Six Ways Investing in Real Estate Can Save You Money

There are many investment vehicles. Stocks, bonds, art, coins, postage stamps, toys, commodities and real estate, among others.

Some economists even suggest that as long as you are disciplined and can comfortably pay for it, you should buy any investment you can. If you can finance the purchase, even better.

However, real estate is probably the only one against which you can borrow and have the asset pay itself off through rental income, EVEN as it pays YOU.

In fact, I have spoken to property owners who have managed to leverage a property two, even three times in their lifetime, by borrowing against the property they now own free and clear, to buy another.

What’s more, the income from the new property (let’s call it property B), paid with borrowed funds from say, property A, plus the income they still generate from that newly leveraged property A, can over time, pay back the loan on A from rent collections on A and B, while proving the owner with a boost in passive income. In other words, party money.

Even if you can purchase property in cash, many recommend you consider financing after the fact. Leveraging allows you to possibly, acquire two or more properties, update or fix them up and let themselves carry the burden of paying down the loans with rental income.

Over time, you would have the ability to acquire even more properties and eventually, when you are at the right stage in your life, own them all free and clear while enjoying all that income in retirement. The ultimate 401K or IRA.

Of course, you must buy right and be disciplined throughout. With every payment received in rents, you must set aside a portion every month to pay for licenses, taxes, insurance maintenance and miscellaneous repairs, improvements, etc. In short, you must budget as you would with any business.

Below, we examine some of the advantages for owning investment property and in particular, multi-family property.

1. Economies of Scale

When you buy a single family house or condo unit, small investors often feel they’re easy to manage. That may be true to some extend. On the other hand, consider that with a multi-family building, you only deal with one roof and/or one yard to mow, you are the board that approves tenants or how many times a year you rent your property and in one single trip, you can fumigate, inspect and have a punch list ready for your handyman, plumber and/or electrician to take care of, minimizing headaches.

2. Lower Taxes

There are several tax incentives for real estate investors. If you are employed, deductions from real estate investments may be used to offset wage income. In addition, there are a number of tax breaks for real estate investment which often allow property owners to turn a loss into a profit. Deductions can include any actual costs involved in financing, managing and operating the property, to include maintenance, repairs, property management fees, travel, advertising, and utilities. In addition, the IRS allows a depreciation deduction that accounts for a portion of the building (not the land portion of the property) over time, usually some 27 years.

3. Cash Flow

A property can generate negative or positive cash flow. Cash flow simply refers to the amount of money that flows in and out in pursuit of maintaining a property. Rents are an example of cash flowing in while taxes and insurance must be paid out, typically from a portion of the rents received. When the amount of income received exceeds the payments, it is said you have a positive cash flow. There are times when the amount of payments exceed your income and in these cases, you are said to have a negative cash flow. Regardless, when it comes to real estate investment, there are two more important concepts involved: pre-tax and after-tax. A pre-tax positive cash flow for instance, may also be said to occur when income received is greater than expenses before taxes are paid. However, even if your are experiencing a negative cash flow, you may end up with an after-tax positive income when your expenses are more than your collected income, but the tax breaks bring you back in the black. Depreciation can often help turn a negative into a positive.

4. Use Leverage

An old rule of thumb in real estate is to never spend a dime on your real estate investment unless you have to and/or unless it will save you money. Leverage is an important aspect of saving money through real estate investment because a real estate investor uses leverage to increase their assets without spending their own money. By taking advantage of your equity, you also improve your return on equity and it provides you with tax-free funds to help fund your next deal or improve the value of your existing property by making updates, upgrades or repairs that entice tenants (to come in or stay) and should allow you to raise rents and improve your bottom line.

5. Equity Growth

The best way to save money and earn money, is to build up equity from real estate investments. That way, with high equity you are able to save on your mortgage while earning a nice chunk of profit. However, idle equity is like idle funds in the bank. Ideally, you are always utilizing your equity to improve the value of the property and/or pursuing and acquiring new opportunities. Often, selling is a great way to take advantage of existing equity, which would allow you to reposition yourself in a potentially better property with better opportunities. For instance, you may own a building sitting on prime land which may allow you to build a much larger structure for more potential. However, you are not a builder and you’re not in the mood to start. Even if that property is making money, selling it may bring enough to allow you to purchase a more suitable property or properties.

6. The Benefits of Inflation

Generally speaking, inflation can help you save money on your real estate investment because as rent increases, your mortgage costs will remain static (assuming it is a fix-rate loan), which means you will improve your position with the increased cash flow from the rent and equity growth. Although inflation is quite low these days, there is a typical amount of appreciation properties experience as a result of even low inflation, which adds to your equity without a single penny out of pocket.

Of course, it is not all rosey with real estate investing. There are a LOT of factors that deter people from getting involved. It is scary, you could lose a lot if you engage from an emotional standpoint and there are headaches and horror stories borne from bad tenant situations to fill a few books.

Regardless, I reiterate that if you buy properly, budget properly and stay involved, you may never have to worry about money when it counts – throughout the live of the property and during your retirement. What could be more beautiful than that?

Most real estate professionals can help a buyer or seller make the right buy or sell decisions. Obviously, as you would listen to a quality attorney, doctor or accountant, listening to a quality real estate professional’s valuable information will go a long way in helping you achieve your buying or selling goal. Budgeting however, is a function of habit and here again, you must proactively seek qualified, quality, professional advise.

15 Ways to Prep Your Multi-Family Building Exterior for the Spring Market

Spring is the season for rain, sun, flowers and humidity buildup. It is also the season buyers and sellers traditionally come out of hibernation. It is a time when folks turn to spring cleaning, regardless of whether they are selling their property or not.

However, if you are in fact, looking to sell, you will definitely want to pay close attention and properly prepare. This article will hopefully, help you get started and get you to a fast closing that nets you the most money in your pocket, ready to enjoy, retire other debt or reinvest.

As I flip channels and sometimes watch a particular product they may be selling, particularly jewelry, I notice that ‘shine’ is critical. I also notice the effect I feel when I walk up to a car dealership that keeps its cars sparkling clean versus when I walk up to a car that seems poorly maintained.

Similarly, I notice what I feel when I approach a property. As I walk through it, I notice the big and little things that say WOW. The question is, what follows that “wow”? Is it, wow this is great or is it, wow this needs a lot of work!

As rents climb or stabilize, buyers are watching for opportunities. Your job as a seller is now to convey the message to the buyer that your property has been well taken care of and that it will provide a handsome return and that it is therefore, worth their investment.

The tips below will cost little money and could go a long way to convey the right perception that attracts buyers to make an offer. Even if you are a distressed seller, the more appealing your property looks, the higher the perceived value and the more money you could net.

With this in mind, here’s how to get the exterior of your building shipshape so it tell buyers, “yes, this is a good investment”:

1. Clean the glass covers of all light fixtures and make sure to remove all bugs. Also, replace any broken or missing glass covers. Make sure they all match. If not, replace them all to match and improve the look of the fixtures.

2. Replace missing or burnt bulbs. Consider replacing every bulb with bright white energy efficient bulbs. They brighten up the common areas making it more appealing and saves energy while helping deter crime.

3. Clean or replace mailboxes. Busted mailboxes often convey a sense of neglect.

4. Clean or paint all doors and frames and replace or polish their hardware so they all match throughout.

5. Make sure the building address number and each unit number are clearly visible and neat.  You may also want to consider replacing them for a clean look.

6. Make sure all stairs, hallways and stair guardrails are clean and/or painted as needed.

7. Wash all windows and seal them right to avoid water leaks while improving energy efficiency. See that tenants cooperate by keeping old tape used during a prior hurricane watch or warning and even odd window coverings, off windows.

8. Make sure to pressure clean parking areas and that they are swept clean. If necessary, cover driveway and parking areas with a fresh coat of tar. Check that all parking stoppers are painted and if appropriate, labeled.

9. Rake the lawn and ensure all green areas are trimmed.  Use fresh mulch or stones accordingly to cover patches, driveways and other areas. Plant fresh flowers or plants if possible. These are often inexpensive and greatly ‘green-up’ common areas.

10. Clean all debris from gutters and drain spouts and repair or replace them as needed.

11. If there is a community barbeque, be sure to clean it thoroughly and wash down the lid if there is one.  Replace a worn cover if needed.

12. If there is a community swimming pool, make sure it sparkles. Treat or repair any surrounding pool ground area that isn’t perfect.

13. If there is patio or pool-area furniture, make sure it is clean. Remove or replace any broken pieces.

14. Check your roof and make sure to repair or replace any missing or damaged shingles or tiles. Make sure to apply a sealant to flat roofs. Even if it does not seem necessary, this is a small expense compared to what a poor roof inspection result may represent.

15. Paint. Although this could be the costlier of the cosmetic preparations, I can’t say enough about this, especially if the building has not been painted for 3+ years. When it comes to selling, remember, ‘sparkle’ is key and nothing sparkles more than a fresh coat of neutral color paint. Make sure it is properly done and that cosmetic cracks are patched prior to application.

Now, go ahead and comment on any of the above or add your own to the list.

As a buyer, what items do you look for when you walk through the exterior of a building you are considering?

Also, as a buyer, HOW is your offer price affected by either a positive or negative impression you experience while walking the exterior of a property? How much more or less would you offer be as a result of your experience?

It is neither a Buyers Market, nor a Seller’s Market. So, what is it?

For a while, during the boom, we were on a Seller’s market – a time when sellers have the upper hand and dictate the price and terms of sale. Mostly. Well…pretty much they did. For a while.

Then, BUST! Everything stopped. Like when you’re in the back seat of a taxi and the cabbie decides he can’t hear you very well so, HE SLAMS THE BRAKES and makes you eat the dividing wall…almost getting you to sit right next to him in one swoop.

During this time, Buyers went (RAN) away and sellers were left waving signs as if to say…”Wait!…I’ll drop the price $1,000…! $10,000…! COME BAAAAAACK….! sniff” :-[

Finally, came the buyer’s market. But…which buyers? Not the first-time buyers. Not the new-home buyers. Not even buyers who could still get financing.

Banks may have been saying “we lend” – when in reality, they were just filling out applications and figuring things out. Those with cash…bought and BOUGHT CHEAP. At prices not seen since the early nineties.

Now…though many still approach me asking for those “deals” they missed, and prices remain relatively cheap, those deals are mostly gone – mostly, gone to the bulk buyer part of a REIT or some fund scooping up hundreds, if not thousands of properties direct from Fannie or Freddie or your neighborhood bank, trying to get back on their feet.

Most “regular” sellers were shunning away from that market with the typical…”I’ll wait. My property is worth more than those measly $200,000! HEC…here…take a look at this $600,000 offer I received in 2006!!!

Yet, not even low, low…super low, interest rates have been able to quite turn this market around. Without government guarantees from Fannie, Freddie, FHA or VA, most banks would not touch most borrower – not even with someone else’s 10-foot pole.

More recently, in the last 12 months or so (and escalating), buyers have been waking up. Sellers have been waking up. Lenders have been waking up. Even real estate agents who had been (though many, many are still) slumbering, are beginning to wake up.

The tables are turning. Deals are being made. Offers are being committed to writing, lenders are slowly (though still holding on tight to the check before releasing it), beginning to lend and sellers are beginning to shrug their shoulders as if to say, “what the hec…if I wait any longer, I wont be able to buy this cheap in my remaining lifetime”.

However, we still can’t call it a Buyer’s market, and we certainly can’t call it a Seller’s market.  Not even a lender’s market. So, what is it?

What name would you give to this strange, interim market we now face?