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Real Estate Investing - Inside the Mind of a Real Estate Investor and Entrepreneur
By Carla L. Davis - Realtytimes.com
The Southwest United States has seen a rapid increase in population -- due to out-migration of residents from nearby, and much pricier, states. Statistics show that Las Vegas alone takes in up to 6,000 new residents a month (32 percent coming from California). That's right -- 6,000 a month...... PMI, the largest private mortgage insurer in the U.S has released its Fall Real Estate and Economic Trends. To read the publication click here.
This is a great article to read if you have some time. In summary, the top 10 riskiest markets to invest in according to this report are: Boston-Quincy, MA San Diego-Carlsbad-San Marcos, CA Nassau-Suffolk, NY Santa Ana-Anaheim-Irvine, CA Oakland-Fremont-Hayward, CA San Jose-Sunnyvale-Santa Clara, CA Riverside-San Bernardino-Ontario, CA Providence-New Bedford-Fall River, RI-MA Los Angeles-Long Beach-Glendale, CA Sacramento-Arden-Arcade-Roseville, CA Some snippets from the report: ...Home price appreciation rates in Southern California and Las Vegas remain well above the national average, but after reaching a peak in third quarter 2004, they are starting to decelerate. Riverside, CA has moved up three spots to reach seventh position with its Risk Index value escalating from 422 to 466....The labor market continues to expand, but the rate of expansion has slowed considerably in recent months. Las Vegas has also seen skyrocketing increases in home prices. Price acceleration that reached 11.7% the previous quarter has dropped to -1.3% this quarter, signaling that the once-explosive market is decelerating. .....homes in Florida and the coastal South Atlantic Census Region including Washington D.C., Baltimore, MD, and Virginia Beach, VA, are still experiencing price acceleration as strong labor markets continue to back robust gains in home prices. Declining affordability, however, is elevating their houseprice risk. Fort Lauderdale and Miami, FL, on the eastern Florida coast, as well as Tampa, FL, on the western coast have all moved up the ranking by two spots. Washington D.C. also continues to climb up the Risk Index ranking and is now ranked No. 17 as home affordability has reached the low 90s. Baltimore and Virginia Beach are more affordable and are ranked No. 25 and No. 26. Employment growth in Virginia Beach, however, has slowed since mid-2004 with a reduction in military contracting and limited growth in service sectors. Home prices in Northern California have bounced back to grow at nearly the same pace as homes in Southern California. With strong price acceleration, San Jose has moved down our risk ranking by two spots and seen its Risk Index score drop by 41 to 472....San Jose remains weak in generating new jobs, and the economy has not yet recovered the more than 200,000 jobs it has lost since late 2000, but conditions are improving....... Link to Report (PDF) Robert J Bruss, a brilliant writer for Inman News has released his top 10 best real estate books for 2005. Below is his an excerpt from his article:
On December 1, the Federal Housing Enterprise Oversight (OFHEO) released the house-price appreciation for over 265 cities. From MSN Money:
The Pacific Division, which comprises California, Oregon, Washington, Hawaii and Alaska, showed the largest house price increase over the last year: 17.3%. Doesn't the sound of 'Beautiful", "Charming", "Great Location", "Spacious", "Attractive", "Gorgeous", "Fantastic" and "Lovely" make you want to vomit. I see these all of the time in rental ads and homes for sale ads. The fact is, most of these words or adjectives actually negatively affect the final sales or rental price of the home. Why?
According to Steven D. Levitt, the author of "Freakonomics", he suggests that homes that tend to not have many specific attributes worth describing, like those above, correlate to a lower sales price. "'Spacious' homes are often decrepit or impractical. 'Great neighborhood' signals a buyer that, well, this house isn't very nice but others nearby may be." What are some of the words or adjectives that are used to help increase the value of ones home and decrease vacancy rates for rental properties? Here's the breakdown: Granite State-of-the-art Stainless Steel Appliances vaulted Ceilings Maple Gourmet Corian Wood Floors Many of these adjectives are physical descriptions of the house: granite, Corian, vaulted ceilings, wood floors. These terms which are usually not associated with fixer uppers and are straightforward, tend to attract higher quality leads and a higher sales or rental price. Believe it or not, the wording is the least powerful aspect of an ad and grabbing the potential client or tenants attention. The others are location of the ad (what sites are they showing up on) and quality pictures. Let's discuss location of the ad: With all of my investment properties, I hold long term. I never fix and flip. With that said, I have become quite good at knowing what websites to run my property on. Some of them are free and some of them monetize their site with a monthly posting fee. I highly recommend all of these sites if you are to rent out your property: craigslist.com rent.com rentclicks.com apartments.com rentalhouses.com base.google.com Now finally, in my opinion the most important feature of the ad are photos. Below are some photos I used to rent out my Condo. This condo was rented out in 10 days. When I buy properties as investments I always buy in a location and of a quality I would want to live in. Below are photos that explain everything we discussed in the first couple of paragraphs about which words sell or rent homes at a higher price In this case, without me telling you anything, you cab see that this condo has vaulted ceilings, maple cabinets, wood floors, stainless steel appliances, corian countertops, etc. The top words that sell and rent homes are also all in the photos.   When dealing in real estate, I always buy where I would be comfortable living. According to Morgan Quitno Press, who compared violent crime rates in 327 U.S. cities, found the top 10 Safest US Sities are:
CITIES OF 100,000 TO 499,999 POPULATION: (208 cities) 1) Amherst (NY) 2) Thousand Oaks (CA) 3) Cary (NC) 4) Irvine (CA) 5) Sunnyvale (CA) 6) Simi Valley (CA) 7) Coal Springs (FL) 8) Port St Lucie (FL) 9) Glendale (CA) 10) Provo (UT) The top 10 Most Dangerous Cities in the US are: CITIES OF 100,000 TO 499,999 POPULATION: (208 cities) 1) St Louis (MO) 2) Flint (MI) 3) Richmond (VA) 4) Atlanta (GA) 5) New Orleans (LA) 6) Gary (IN) 7) Birmingham (AL) 8) Richmond (CA) 9) Cleveland (OH) 10) Dayton (OH) For more information visit http://www.morganquitno.com/ There are many horror stories with real estate investors getting sued when someone falls or gets hurt on their property. Although it is unlikely you will get sued, it is always best to be safe rather than sorry.
This post is not to scare you but rather to educate you on how to protect yourself and your assets. I am not a lawyer and do not offer legal advice. Please contact a lawyer before setting up LLCs or anything else you feel needs legal assistance. Recently I put each of my properties into a LLC. This way, if someone was to sue me because of something that occurred on property A, they can only take that property that is under the LLC. They cannot get to the other properties or asset's under the other LLCs. What did I do: 1) Form a LLC for each property (total cost for CO is $50 Per Property) other states vary
[date] [lender address] Re: [loan # and property address] Dear ________: I am writing to request your consent to the transfer of the above-referenced investment property to a limited liability company for liability protection and estate planning purposes. Of course, I would remain personally liable for payment of the loan. Please let me know the procedure for obtaining your consent to the transfer. Very truly yours, It could be argued that there are many HOT real estate markets right now and one could even say some of them have been completely saturated. Yes, it is the case that during the past 5 years in some markets like New York and California the rate of appreciation has been through the roof but I do not see a bubble happening in the near future. You see, unlike the stock market, it is much harder for people to just get out and sell their home. For one, they are attached to the home and moving is a hell of a lot harder than clicking a button to sell shares like people did during the dot bomb. Also, the price of homes are determined by supply and demand. Currently, there is much more demand then there is supply and land. Yes, you could sell your million dollar home in California and move to a less expensive area like Oregon, Texas or Denver, but this is not what many people want to do because of their job, family, friends, etc.
I feel that within the next 5 - 10 years the below market will have growth equivalent to today's "California" market. Denver Colorado and the surrounding cities. Why? Stay tuned for my next post. I will supply more detail and numbers to why I feel Denver is the next "California" I have been asked many times how I started in real estate investing. Many people thought I fell into a lot of money and was able to put 20% down on everything. Actually, I got started when I was 22 years old with a negative net worth and purchased my first property with Zero down and brought Zero to closing. I proceeded to buy my second property as well with no money down, upgrades included and no money brought to closing. How did I do it and what should you look for?
My first property was a condo where they were converting apartments and they had started the process of selling each unit individually. When this happens, there is usually a sales office on site. I like this strategy because there are usually preferred lenders that work with these types of properties. As an incentive to use the preferred lenders, the sales office will take off a substantial amount off the asking price, throw in upgrades, pay for closing, or anything else to get you to purchase the property. The reason they use the preferred lenders is to ensure closing goes as smooth as possible. It saves everyone time, money and head aches. I was able to negotiate the price down, throw in closing costs and get a 100 percent loan at a 5.5% interest rate. This was my first property and I learned quite a bit. Here are some of the things I would have done differently, and did do on my second no money down property. 1) Get a 80 / 20 loan ------ Anytime one lender gives you 100% of the value of the property, they will also ask for mortgage insurance. Each month this could add 100 - 200 dollars on your payment. This is referred to as PMI or Private Mortgage Insurance. Once you have 20% equity in the property, the PMI will be eliminated. What would I do differently? In retrospect, I would have gone through a broker to help me get a 80 / 20 loan. This means I would carry a 1st Mortgage at 80% value of the property and a second Mortgage from a different bank for the remaining 20 % value of the property. This second loan usually carries a higher interest rate but monthly payments are much less then the insurance and you can write off the interest during tax season 2) Roll in Upgrades into the Loan ------ For every $10,000 dollars you add on to a 30 year loan, you add about $60 dollars extra a month on to your mortgage. I regret not adding upgrades to the property since these upgrades yeild higher monthly rent. Some upgrades that attract renters and yield higher rents are: Marble or Corian counter tops, wood floors, tile, new paint, new carpet, new cabnets, stainless steel appliances, walk in closets, central heat and air, etc... 3) Extra Parking ----- I wish I would have opted into receiving an extra parking space for the property. I have learned that renters love more space and are willing to pay extra for it. This is especially important in areas where parking is limited. It is better to own an extra spot since you can sell or rent this out at a later date. I received a letter today from the Dry Creek Condos alerting me that my condo should be ready within 8 - 9 months. Five months ago I purchased a 1,450 Sq Ft Condo for $345,000. It has 2 bedrooms, 2 1/2 baths and has a loft that opens up to a 150 sq ft private roof top deck. A month ago, they sold the same floor plan for $395,000. That is a total of 14.4% appreciation within 4 months. All I needed to do was put down $5,000 in earnest money to lock in the sales price until the project is complete. That is it, nothing else out of my pocket. I am anticipating this appreciation to continue and once the condo is completed in 8 -9 months I plan to flip it for a healthy profit.
2) Take advantage of the historical low Interest rates
3) Build equity
Overall, I love investing in preconstruction when they meet all of my criteria. The worst thing that can happen is I cut my loss and lose the $5,000 I put down. I have always had a fascination with REITs. You know, the Real Estate Investment Trusts that you can buy shares of. This is an excellent way to diversify your real estate investment portfolio without doing all the work of real estate investing.
To be a REIT, a company must distribute at least 90% of its taxable income to shareholders annually in the form of dividends. These dividend growth rates have outpast inflation within the last decade. In addition to yearly dividends, the shares you acquire will also yeild long term capital appreciation. The total compound annual returns for REITs from 1973 -2003 have been 14.18% according to the national association of real estate trusts. I have been thinking of starting my own REIT and here is some information I found on www.nareit.com.
As I sit here writing down my thoughts on virtual paper, I wonder how many people will actually read these words. I have never thought of myself as a writer, in fact many of my papers in college were written by my former girl friends. I figured if I don’t at least try to make this knowledge I have available about real estate investing to the world, well then, I am sure the world will be just fine. In any case, at least I have the attention of one individual who is curious to learn more about a passion I have, and I hope these words will inspire her as well. Just like the numerous books, tapes, seminars and blogs have inspired me. Enjoy the future, enjoy the present and remember the past. It is a lot easier to have your money work for you. After all, your most precious commodity will inevitably be gone. What is that you say? Time. Time is worth all the money in the world. Be sure to spend it wisely for it is impossible to get back. Work to get more of this precious time not less. Love your family. Love your friends and spend this commodity on them. Happy investing. A friend once asked why real estate investing is so powerful. I told him to read my book. No, really I sat him down and showed him the below example. I also told him this is just the tip of the iceberg. "The most powerful force in the universe is compound interest" What exactly did the brightest mathematician in the World mean by this? Well, would you believe me if I told you your 200,000 dollar home would be worth more than $864,388.48 in 30 years. Why is this, well this is the beauty of compounding. For example, after the first year, assuming a 5% appreciation rate the home would be worth $210,000. The best part of compounding is the next year you add 5% on to the $210,000 and continue to do this for ever. This would look something like this:
And so on……. In addition to compounding and appreciation (the increase in the value of a property due to changes in market conditions, inflation, or other causes) there is something called depreciation. You see, on any rental property you have, the government assumes this 'business asset' will depreciate over time even though this asset actually appreciates. What does this mean for the investor? Well, in addition to getting the appreciation of the property and compunding of that each year, the goverment will give you yearly tax breaks for the next 27 1/2 years. Income tax laws assumes that your buildings, their contents and various on-site improvements wear over time. It is April 28th, 2005 and I am currently in the process of finishing up my Real Estate Investment Book entitled "The Catalyst of Financial Success". It is hard to find time to do these types of things but when you have enough passion for something, you seem to find time to make it happen.
This is my first time writing a book and to be honest, I have no idea what I am doing. Oh well, all I want to do is share my experiences and learning's with the world. If they would like to learn all they can about real estate investing then this is definitely a start. The concept behind the book is real estate, as an investment, can stimulate financial thinking. It allows for the entrepreneurial spirit within an individual to thrive. In my experience, there is a positive correlation with real estate investors and financial success. Of course one would assume that the more properties one has the greater the net worth. That is correct in a sense but the true secret to financial success is utilizing resources and OPM (Other Peoples Money) to make you rich and applying this to other forms of investing. Once we allow money to work for us, we can then focus on the more important things in life like our family and friends. The traditional mind may say well, isn't it a catch 22. I want to spend more time with my family but I need to spend most of my time working to support them. This sentence is why so many people and families are caught in the rat race. They work for money and they don't allow money to work for them. The book will allow people to think differently about money and will give them the tools and resources to start investing in the best investment vehicle ever, investing in real estate. Today, April 26th 2005 I feel overwhelmed and need to take a break from my daily activities. Have you ever had a day where you just wanted to stop everything and give up? That is the easy thing to do isn't it? Well, when this happens to me, like today, I think about what inspires me. What is that drive deep inside me that allows me to push even harder?
I am inspired by many things. In real estate and investing, the inspiration comes from being financially independent, helping others emotionally and financially, empowering others to better their financial lives, indirectly and directly changing the world 1 person at a time. Outside of real estate and investing, one of the most influential and inspiring people I have ever had the pleasure to hear speak was Eric Weinhenmayer, the blind rock climber who climbed Mt. Everest. "People have the inner resources to become anything they want to be. Challenge (in a person's life) just becomes the vehicle for tapping into those inner resources," begins Eric Weinhenmayer. "Life isn't meant to be easy. It is meant to be exciting and challenging. But you've got to understand that it's never going to be easy." He then adds: "A lot of the time it's people's perceptions that seem to be the barriers, and I don't like that, I don't like to have doors slammed in my face. I've had a few slammed in my face, and from time to time you have to smash your head right through one to get anywhere." |
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