I haven’t been posting much. But teaching about real estate investing is keeping me very busy these days. Currently, I’m putting together a video series discussing the do’s and don’ts of real estate investing. It has turned out to be quite a project. Some of the topics we have been covering are;
- What is your criteria?
- Rates of Return
- How to calculate rates of return.
- Income & Expenses
- Property Management
- Buy & Hold Real Estate Investing
It’s my hope to get these all released by the end of May. We may start dripping some in the near future to get some feedback. I’d love to know what you think.
The great news is that housing for investment purposes is still strolling along at many price points. But I want to point out that the mistakes learned in our last real estate recession are still affecting our loan parameters today. And that’s generally a good thing.
But seriously, if you are buying $944,000 worth of real estate and you are putting down 55% of the value AND paying all the closing costs out of pocket, how is it possible to be a credit risk?
The scenario above has 5 duplexes with, of course, 10 units. 9 of the 10 are rented. The other one could easily be rented before closing. No sweat. Cap rate? Debt coverage ratio? All within the parameters that the mortgage banker has set.
And yet, someone has decided, arbitrarily mind you, that they can only write four loans, not five. So now we have to go find another lender. Ok, fine. But really, who loses here?
I realize this may sound like I’m griping for griping’s sake. But at what point do people start examining each situation instead of coming up with rules to hide behind? Not just in the lending business. But in everything we are involved in.
It’s crazy how limited the inventory for multi-family housing in Kansas City is right now. Just sayin’.
I suspect we are going to have another rise in property values as the market here in KC keeps getting a little stronger each year since 2010. I don’t expect a 2004-2006 sort of rise but the inventories are limited and the demand is up. Especially in Johnson County, Kansas.
Instead of making resolutions you may never intend to keep, may I suggest setting your 2014 goals for your real estate investing ventures? How many properties do you own? How many would you like to own? Here are some things to think about as you are setting 2014 goals;
- Should you sell or exchange in 2014?
- Should you buy?
- Should rents be moved up or down?
- Is it time to change who manages the property?
- Is this the year to catch up on deferred maintenance?
- Have a good tenant? Maybe it’s time to send them a “thank you” letter.
- Any value-added improvements that could be done?
Hopefully those few things can get you started on your planning for next year.
Real estate investing isn’t supposed to be all that complicated. But so many times I really believe that real estate investing is for dummies. And I don’t mean that in a complimentary way. The shear gullibility of so many would-be investors and/or the shear lack of understanding of the very basics of the numbers cracks me up. I have to laugh because maybe I should cry.
I recently had someone who wanted me to sell properties for them down in the Murder Factory part of Kansas City. These homes should never have been purchased by a new investors, let alone a new investor from out of state with little knowledge of the area. Why they were sold to him I cannot understand unless the moral compass of the agent is a little off. There is simply no way I want to be involved with trying to recoup the losses from bad purchases in the middle of bad rehabs in the middle of a bad part of town, economically speaking.
I recently had someone decide to not work with me because I am “defensive” about charging an additional commission for my years of expertise. Apparently these two new, first time investors who both have professional situations, seem to think that their realtor who can guide them to good properties shouldn’t earn much of a living. They want me to do breakdown analysis for them, identify properties for them and walk them through the contract and buying process and make less than $600 – $800 because they only want to buy $40,000 (or so) properties.
Now, I’m not mad. Just amazed. Astonished, really. I’ve helped people buy and sell investment property in Kansas City for quite a while now. I’ve helped people grow and grow their investments and have more positive references than you could positively want. Over the years I’ve had so many people who didn’t listen to me on the “buy” call me and ask me to help them out with their “sell” because the property turned out to be a mess.
No, I’m not mad. Just astonished that people keep making the same mistakes over and over. I wish people could learn from the experience of others. I wish people could believe a guy that lives on commission when he’s telling them not to buy something. But I guess human nature being what it is, I’ll still be doing this five years ago and having the same thoughts. :)
Most real estate investors eventually ask me “How do I know the value of my income properties?”
All income – All expenses = Net Operating Income
Net Operating Income / Cash Invested = Cap Rate
If you are an investment market driven by cap rates that should get you what you need to know. But if you are a cash investor you may be better suited to value your property based on the formula for Cash on Cash;
Cash Flow Before Taxes / Cash Invested = Return of Cash on Cash
Knowing the different formulations and when to use them is a big part of the work in being a rental property owner.