Monthly Archives: December 2016

17 SIGNS A PROPERTY IS A GOOD BUY


Hi All,
Merry Christmas and a wonderful 2017!. It is my prayer that 2017 will produce for us all, and we will start the year with plans of success and diligence. To start the planning, I bring you a great compendium of real estate investment ‘MUST KNOWS’ for any investor.

This piece is a contribution from an authority in REI- Bill Manassero.

Let me take sometime to introduce Bill….

Bill Manassero is the founder/top dog at “Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.

Please enjoy this piece and apply these tips in making your REI choices in the new year!

You’ve spent a considerable amount of time learning how to invest in real estate, and you’re ready to make your first purchase. How do you know if a property is a good buy?

There are no guarantees when it comes to real estate, but if you analyze the property upfront using these guidelines, you’ll have a pretty clear indication whether you should buy a property or keep looking.

  1. It meets your predetermined criteria.

Before you start investing, know what you want. Do you want to be a landlord? How involved do you want to be? What types of properties do you want to invest in: single-family residences, apartments, commercial, etc.? Is there a specific neighborhood you want to invest in?

The list goes on and on. The key is to have your criteria well defined, in writing and that you stick to it. If you want to buy properties that cash flow at least $300 a month, don’t get distracted by a “good deal” that cash flows less.

2. It’s not on the market.

The best deals usually get snatched before they end up on the MLS or LoopNet, the commercial real estate marketplace, so if you’re considering a property through a mainstream listing service, there’s probably a reason why it’s there.

Partner with experienced real estate investors, commercial brokers or agents to find off-market deals, or create your own deals by reaching out to those who are behind on their mortgages, in foreclosure, or absentee owners. You can also find great deals on properties in probate.

3.  It’s priced to sell.

You always want to purchase a property that is priced under market value, so you have built-in equity. I generally shoot for 20 to 30 percent.

As you calculate that percentage, take into account rehab costs. If you purchase a $100,000 home for $70,000 but have to invest an additional $20,000 to get it rent ready, you actually paid $90,000 for it and have only 10 percent equity.

4. The seller is motivated.

Motivated sellers are usually willing to negotiate. They may be willing to accept less than market value or make concessions that can benefit you in other ways such as allowing you to show the house to potential tenants while the house is under contract.

To get these favorable deals, you’ll need to ask questions. Find out why they are selling and what problems they’re facing. Then, come to the table with solutions. (Maybe, they’ve lived in the house for 40 years, and you can offer to dispose of whatever furniture they don’t want to move.)

5. It has a favorable cap rate.

The capitalization rate (cap rate) measures whether you are getting a good price based on the income a property will generate. Basically, the cap rate is determined by subtracting the annual rent minus annual expenses (such as property taxes, utilities you pay, and repair costs) to get the net income. Then, you divide that income by the price of the property.

You want the cap rate to be at least 5 percent, however, I personally prefer 10% or greater. To be valid, your calculation must include rehab costs in the purchase price, and if you guestimate and use garbage numbers, you’re cap rate calculation will be meaningless.

6. You’ll receive a good cash-on-cash return.

Cash-on-cash return looks at how much money you will make in relation to how much money you are investing. In other words, unlike the cap rate, which doesn’t take your mortgage payment into account, the cash-on-cash return does.

To determine the cash-on-cash return, take your annual income (annual rent minus annual expenses, including the mortgage) and divide that by how much you paid. Again, how much you paid would include rehab costs and you want your final calculation to be at least 5 percent, but again, my preference is double digit numbers or above

7. It has a healthy cash flow.

You’re in this to earn monthly income from your properties, so good cash flow is essential. To calculate your cash flow, determine what you can charge for rent each month (check rentometer.com, Craigslist, Trulia, Zillow, Realtor.com or ask your real estate agent or broker) and subtract monthly expenses including property taxes, insurance, mortgage, property management fees, and HOA fees (I personally never buy properties that have HOAs).

The more accurate these numbers are the better picture you’ll have of what the property will cash flow. Look on Zillow for an estimate for property taxes, look at the current insurance policy or get an insurance quote, and ask the seller what the HOA fee is. You’ll also want to budget 5 to 10 percent of the monthly rental rate for vacancies and, at least, 5 percent for repairs.

8. It follows the 1 percent rule.

A quick way to evaluate whether a property is a good buy is to apply the 1 percent rule. You should be able to charge 1 percent of the purchase price (plus repairs) in monthly rent. In other words, if you purchase a property for $135,000, you should be able to charge $1,350 in rent. Some take it a step further and say the percentage should be 2 percent.

9. Rent is less than a mortgage payment.

There are many reasons why a person might choose to rent over purchasing a home, but if your property is located in an area where a mortgage payment is less than the rent for a comparable house, you’re going to have a hard time finding tenants.

Also, if houses and apartments rent at similar rents, and there are plenty of houses for rent, you may have difficulty finding tenants for your apartment.

10. It requires minimal repairs.

You may be able to find a screaming deal on a property that needs some TLC, but unless you want to invest the time and money to get it rent ready, you’re better off going with one that requires minimal repairs. That’s because repair and renovation costs can quickly add up and you can quickly go from black to red.

Before you purchase a property, make sure to get an inspection and get an estimate on any suggested repairs as well as anticipated renovations. Then, put the 70 percent rule into play—the purchase price plus the cost to get it rent ready should not exceed 70 percent of market value.

11. It’s in the path of progress.

You’ve heard it before—real estate is all about location, location, location. Any property you’re considering should be in a market that is growing. You want to see companies relocating to the area, factories being built, and communities investing in infrastructure, such as highways or schools. You’ll want to know that the local population is growing, that there are plenty of jobs or that jobs are increasing and that the economy is robust.

Local real estate agents or brokers should have a good sense of the area’s economic picture and should be able to tell you about upcoming projects, like a new shopping mall or large manufacturing facility, that could have a tremendous impact. You can also find out about these projects online at the city’s planning commission’s website.

12. It’s close to key services.

A property that is close to grocery stores, employers, bus lines, and other key services will be much more attractive to tenants than one that is much more remote. Just how much of an impact can proximity to key services have? A University of Chicago study indicates it can have a significant one, finding that a Wal-Mart was within one mile of a property raised its value by 1 to 2 percent.

13. It’s walkable.

Depending on where the property is located, proximity to services may not be enough. Tenants may expect to be able to walk to a grocery store, school, bus stop, and entertainment, and even if the distance is short, a drive just won’t cut it. Check the walkability score of the property you are considering at WalkScore.com.

Walkability is more of an issue in densely populated cities and urban neighborhoods versus smaller cities and suburban neighborhoods. If you’re unfamiliar with the area, ask your local real estate agent or broker if walkability is a factor.

14. It’s in a good neighborhood.

Even the best markets can have bad neighborhoods. You want to make sure that the property you buy is in a neighborhood where people maintain their homes, the parks are clean, and there isn’t a lot of crime, including vandalism. (You can learn about crime in the area by checking CrimeReports.com.)

That doesn’t mean you have to look for a property in an HOA, but you want to find a property in a desirable neighborhood. If you are unsure about a neighborhood, ask local experts who know the area well.

15. It’s in a good school district.

Good neighborhoods and good school districts generally go hand-in-hand, but I want to emphasize how important schools can be. Parents want their kids to have the best education possible, and many will move to a specific neighborhood just to be in that school district. Once there, families usually stay put.

You can find out about the local school district at GreatSchools.org. Don’t rule out great charter and private schools. They can be draws to a neighborhood as well.

16. There’s good traffic flow.

Avoid properties on busy streets or where traffic might be an issue, especially during rush hour. The exception would be in downtown areas where public transportation is easily accessible.

The property should also be easy to get to (not down a dirt road) and one that most GPS systems route to correctly. (You’ll have a difficult time renting the property if people can’t find it.)

17. It won’t require a lot of time to manage.

Assuming you are going to hire a property management company, you don’t have to worry as much about this, but if you plan to manage your properties yourself, consider how much time you’ll have to devote to the property you’re considering buying.

Some properties are more likely to be hands-off while others, like one in a less-than-desirable neighborhood, may have vacancies, vandalism, and other issues. You want a nice, boring property that will attract someone who wants to stay put.

Best Areas in KC for Rental Real Estate

I love Kansas City and I make no apologies for that!. This is a city I feel welcomed each time I visit. Real Estate entry point is relatively affordable compared to other competing cities and rents are great.

There are a few markets in the U.S. that are booming in terms of rental real estate opportunities and acquisitions. Currently, Kansas City is at the top of that list. The growing population, strong local economy, and diverse housing inventory are just a few of the factors that make it one of the best areas for investment. I’ve posted before about the city as a whole and the investment opportunities within it, but now I want to dive a little deeper and go over some specific locations within the KC metro that investors should target. Here are a few of the areas in Kansas City where you should be focusing your search for great rental properties:

Waldo – Waldo is one of Kansas City’s most beloved neighborhoods, with its diverse mix of housing, shops, restaurants, and recreational opportunities. Close to the heart of the city, Waldo has great walkability and is conveniently located to public transportation and highways. The community is very close-knit and bills itself as “a family neighborhood on the edge of a big city.”

Real estate opportunities abound here, and you can find a number of properties ranging from Class A to Class C. There are single family homes in abundance, but multi-family units such as duplexes, fourplexes, and even apartments can be found as well. Whatever your investment goals and strategy are, Waldo is virtually guaranteed to have a property suited to your unique needs and attract quality renters that will keep your profit margins up.

Grandview – Located immediately south of Kansas City, Grandview is a diverse suburb of approximately 25,000 people. With convenient access to KC but still very much a family-friendly suburb, Grandview caters to people who want the best of both worlds. The city is also the fastest-growing community in Jackson County, thanks to the dramatic rebound in population and economic growth in the last few years.

The city’s newly revitalized areas are attracting people from all the over the metro and beyond, making it an ideal location for investors to score excellent cash-flowing properties. Homes range widely in type (single and multi-family), class, condition, and price, so there really is something for everyone.

Raytown – If you head slightly northeast from Grandview, you’ll find yourself in Raytown, MO. The city boasts a population of nearly 30,000 people and covers approximately 10 square miles. Like Grandview, Raytown is another working class city that’s in a period of growth and change, with revitalization projects happening throughout the community.

The average home price in Raytown stands at $105,000, with an inventory that usually sits at over 100 homes. This means there are a lot of options for investors, whether you’re into flipping homes or using a buy-and-hold strategy. Raytown also has lots of opportunities for residents in terms of available jobs, city amenities, and a convenient location in the KC metro, which makes it an attractive area for potential renters.

These are only three of the localized areas within Kansas City that are ideal for property investors. There are plenty others as well, such as Independence, Raymore, and neighborhoods like Brookside and Ruskin Heights that are in KC proper. Finding a great cash-flowing property in the Kansas City area isn’t difficult, thanks to the huge variety of housing options and the amazing growth the city is currently experiencing. My advice to investors is to find a specific community (or two or three or more) that’s positioned for growth well into the future, and make your move sooner rather than later.

Do you have your head in the sand about retirement plans?

Hi All,

I have been on a brief french leave digesting the potential implications of Trump presidency on REI. I will spend sometime on this in my subseqent posts but for now, enjoy this little piece from my friend Edna.

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You’re not alone!

26% of Saskatchewan and Manitoba residents say they are confused about investment and retirement options.

Nearly two in five Canadians (39 per cent) feel they will have to cut back on their current lifestyle sometime over the next 10 years, while about seven out of 10 have no retirement plan, according to a new study by Mackenzie Investments, as reported by Regina’s LeaderPost.

Do you have a financial plan in place to ensure that you won’t have to cut back on your current lifestyle when you retire? Are you prepared to give up the things you love because you haven’t made a solid plan to replace your current income?

So many middle-aged Canadians are unsure about what to do with their money and haven’t even thought about retirement – and we get it! It’s tough! You likely just got the kids out of the house and off to university. Maybe you are finally feeling free and enjoying that excess, disposable income. Maybe you are finally treating yourself to exotic trips, a new vehicle, a little extra shopping and maybe those hot new shoes you could just never justify before.

We don’t want you to stop being able to do that – exactly the opposite! We want to encourage you to have a plan in place so that you continue to do and buy the things that you love, far into your retirement. The plan I always recommend involves real estate.

Why do I recommend this? Because there are so many ways to invest in real estate that won’t interfere with your monthly income or nest egg.

Did you know that you can invest in real estate by using your credit only – no cash?

How would you like to be an investor, earning a monthly cash flow and passive income – without actually putting out the cash?

Sounds great right?

Well it is – and that’s exactly one of the investment types that I am very active in.

According to Mackenzie Investments, One in three residents in Manitoba and Saskatchewan believe they will not be able to afford the same lifestyle in 10 years — a drop from a decade ago, when 37 per cent answered the same. Like other Canadians, Manitobans and Saskatchewanians lack confidence in their investment options, the survey said.

The last thing you want is to find out at retirement age that you have to cut back your lifestyle, cancel your dream plans and live on a modest pension.

“People who worry about their financial future but don’t have a plan are like people who worry about getting lost but don’t use a map. Both a plan and a map are easily available, both reduce a lot of stress, and both typically help you reach your desired destination,” added Bezaire. 

I hope this was helpful, and look forward to connecting with you.

Sincerely,

Edna Keep