Real Estate Investing: The Lottery Backup Plan

Real Estate Investing: The Lottery Backup Plan – just in case you didn’t win!

I know we were all a little surprised last week when we didn’t win the billion dollar lottery.  The great news is we have other options for building our wealth that don’t have Real Estate Investor to include luck and unachievable odds. Since I get to talk a lot about real estate investing I thought I could share a few of those ideas with you…

If we could all win the lottery the reality is we probably would not be in the market for investment real estate. However, since the odds of winning the lottery are incredibly low, it would be good to have a backup plan if you are not planning on working your day job for the rest of your life. But before you get started, you need to realize that being a landlord can be financially rewarding, but you will need to invest time, money and energy to get the results you are looking for.

Asking the right Questions

  • Why do you want to be a landlord?
  • What type of landlord do you want to be?
  • Why do you want to make more cash?
  • What are you going to do with the cash?
  • Do you want more cash now or in the future?
  • Do you want monthly income or a large future payout?
  • How does your real estate investment compliment your larger investment portfolio?
  • How do you plan to create a balanced investment portfolio?
  • How long do you plan on being a landlord?
  • How much time can you routinely dedicate to your rental properties?
  • What geographic area do you want to be in and why?
  • What type of properties do you want to buy and why?
  • Would you be interested in living in the same property as your rental?
  • Do you have a backup plan if you move away from your rental?
  • How much of your cash savings are you willing to invest?
  • How much of your other investments are you interested in transitioning?
  • What type of rental return are you looking for?
  • What is your risk tolerance?
  • Can you afford to loose money in the short or long term?
  • Is your spouse /partner in agreement with this investment?
  • Have you considered investing with a partner?
  • What is your exit plan?

Cash flow

Cash is ultimately king and whether you are trying to make the money today or tomorrow everyone enters an investment to make cash in the end. When you buy a stocCorporate Housing Rentalsk it is easier to calculate how much cash you made on your investment because you know exactly what you bought it for and what you sold it for and there really aren’t variables in the middle that make a difference. The opposite is true when you invest in real estate because there are lots of ways to count cash, profit and expenses and the way you calculate cash may also be different from the way Uncle Sam will want to count cash at the end of the year for taxes or capital gains.

When life gets complicated it is always best to go back to the basics so lets take a minute to talk about the P & L or the Profit and Loss Statement.

LINGO  A Profit and Loss Statement is an important tool used by appraisers and other real estate professionals who are interested in determining value of property used for income purposes.

Again, keeping it simple, to figure out how much cash you are going to make you need a simple formula based on cash flow.

            Total Income (Gross Income) – Total Expenses = $$ Profit (or Loss)

Yes, we told you the math was going to be simple, but understanding how to find all the income and all the expenses can be a challenge if you don’t own the property and haven’t been paying the bills. If you start with a general Profit and Loss form and fill in all the blanks for each of the investment property your are looking at, you will be able to best compare each investment property to another. By examining the numerous costs connected with the property and understanding the dollar value of each expense, you will be able to calculate the total expenses. And once you understand the income and expenses connected with a property you can better understand what you are willing to pay to buy the property.

TIP  Take advantage of your accounting software to develop a budget for your investment property and create a sample Profit and Loss statement.

LINGO  Net income is what the property will earn in a given year. It is calculated before adding accounting items like depreciation.

 Gross Income = Total Income.

Net Income = Total Income – Expenses

When setting up and reviewing your profit and loss statement both monthly and annually you will need to know the following:

  • Gross income is the total amount of rent collected.
  • Gross expense is the total of all monthly expenses associated with the property
  • Gross debt service is the amount you will on mortgage payments associated with the purchase price of the property.
  • Gain or loss is how much cash you can expect from the property.

Leverage  When thinking about leverage the idea is you are using the bank’s money to make money, yeah. But you need to understand what the bank’s money will actually cost you so make sure you don’t end up just making the bank money. When starting to look at financing your rental investment take a minute to ask the following questions:

  • How much of a first mortgage can I take and should take to ensure my investment produces the cash I expect.
  • Should I take a second mortgage?
  • How much money should I put down?

The bottom line is will the property make you successful and are there ways to manage the money you get from the bank to make you more successful. For example you may want to keep your first mortgage under a certain value to get a lower interest rate or you may want to utilize a second mortgage to minimize the amount of cash you will need to put down. There are lots of different ways people choose to finance their investments and you will need to think about what works best for you and this specific investment. Often investors will choose to finance multiple investments in different ways based on a number of factors including how long they plan on keeping the property and what they believe the economic outlook is for the next few years. Ask your accountant, your CPA, your real estate agent and even your friends to find out what they suggest.

Property Expenses

Mortgage:           

Taxes:           

Insurance:           

Home Owner’s Association:           

Electric:           

Heat:           

Water:           

Sewer:           

Gas:           

Oil:           

Propane:           

Wood:           

Snow:           

Trash:           

Cable:           

Phone:           

Internet:           

Maintenance:           

Landscaping:           

Supplies:           

Vacancy:           

Non-Payment of Rent:           

Management:           

Advertising:           

Legal:           

Accounting:           

Reserves:           

Learn more about Real Estate Investing.

Trends: Real Estate and Corporate Housing

Top Real Estate and Corporate Housing Predications for 2015

What are your goals for 2015? Looking for the right investment? Wanting to increase your revenue? Want to save for a rainy day? These are all noble new year’s resolutions. So what does that actually mean and what does it look like and how are we going to get there?

Corporate Housing Real Estate investmentReal Estate Investing: Houston looks like the best bet for investors this year with San Francisco, Denver and Dallas-Fort Worth a close second.

Predictions: According to CHBO Real Estate Corporate Housing Survey respondents, the outlook for 2015 is the best yet! In fact, the number of respondents who say the future looks “much better than last year” rose to 23%, up an incredible 7%.

More good news… 47% say they predict that 2015 will be either much better or a little better than 2014 – up 11% from the previous year.

Only 4% say they believe 2015 will be less profitable – down from 6% of respondents who believed that 2014 would be less profitable.

Those who say they are “not sure” about the future also dropped to all time low of 11%. It appears those “not sure” about 2014 have become very positive about 2015.

Get started with the basics:
Idiot’s Guide – Making Money with Rental Properties

Profit: 2014 was the most profitable year yet for Real Estate Corporate Housing Landlords! Successful real estate corporate housing property owners tell us this CHBO Annual Report provides useful industry information, trends and new ideas that allows them to increase the annual returns they get from their rental properties.

If you are new to corporate housing rentals, you may want to know what other corporate housing property owners think about profitability. Great news, 93% of respondents report their properties are profitable or breakeven.

Continuing an encouraging trend, positive responses are on the rise with a drop of 7% of those respondents reporting that they only broke-even. In fact, over the last 4 years, there has been a huge 18% drop in property owners who say they just breakeven with their rentals and 5% drop in unprofitable rentals.

First Time Buyers: Best 5 markets in 2015 according to Stan Humphries the chief economist of Zillow, will be Pittsburgh, Hartford, CT, Chicago, Las Vegas and Atlanta.

What are your Investment Goals: Is your goal to build equity in your rental property?  Create a positive monthly cash flow?  Create a large tax deduction?  Have a property you can use from time to time when you want to get out of town?  Or rent it for a while and just sell it for a profit?

Now is the best time to become an educated real estate investor and to learn how to maximize your investment portfolio with a real estate corporate housing rental. CHBO can help guide you on best practices. Give us a shout!

Own investment real estate in your IRA?

You bet! If your New Year’s resolution is to take control of your financial future and invest in residential real estate that can net you a monthly payment for the rest of your life THEN don’t let the lack of down payment get in your way!

real estate iraDid you know you can move your IRA into a self managed account through which you can purchase investment real estate and incur no taxes on the transfer and no taxes on your rental income until you decide you want to pay yourself some of that cash?

Now I am certainly not an expert on this topic but at my property management company AvenueWest Managed Corporate Housing we do have some of these properties in our management program so I have seen how it works and the property owners feel more empowered by their ownership of real estate than they did when they just owned stock.

In the new book Idiots Guide: Making money with Rental Properties  we also talk about owning real estate in an IRA.  If this is something you are interested in you will need to find a company that can help you through the process. Companies like Equity Trust can help and also have educational conferences to help with the learning curve.

I can see it now 2014 is your year to buy some great investment real estate!