Intro Investment Homeowners

Considering Real Estate Investment? You’re in Good Company 3/25/2014

What comes to your mind when you think of real estate investment properties? Elegant seaside cottages, cozy mountainside cabins, or posh luxury high-rise condominiums? Without a doubt, those investments are out there, but the profile of a typical investment property today is actually much different. In fact, the vast majority of investment properties are average single-family homes in ordinary neighborhoods throughout the country.

The following are a few statistics from the National Association of REALTORS 2013 Investment and Vacation Home Buyers Survey that represent the average investment property:

73% of investment properties are in small towns and rural or suburban areas

50% of investment properties are within 20 miles of the investor's primary residence

58% of investment properties are single-family, detached homes

93% are not resort properties

As you can see, the majority of investment properties are more modest and purchased in areas near the investor’s home. The reality is, there are deals in every market, you just need to know what makes a good deal.

For most real estate investors, the primary consideration should be a property’s ability to generate monthly cash flow, or the amount of income (in the form of rent payments) remaining after expenses and mortgage are paid. By investing for cash flow, you earn consistent and secure income month after month, even when the property isn’t appreciating. Additionally, you maintain control over how the cash is used, and you can increase cash flow by cutting expenses or raising rent.

Several factors influence a property’s cash flow potential. For any given area, average sales prices, appreciation trends, rent rates, vacancy rates, property taxes, and more should all be considered when assessing a property.

If you’re considering investing in real estate, begin by narrowing down the area in which you would like to invest. You should focus on areas you’re familiar with that have sales prices that fit within your budget.

Once you’ve selected a few areas, contact a real estate agent who specializes in working with investors, such as Certified Investor Agent Specialist^® (CIAS) designated agents. These agents have the tools and knowledge to assess properties based on your specific needs and wants, and can help you find the property that’s right for you.

Finding the right property takes time and diligence. But if you invest for cash flow and select the right property, investing in real estate is stable and lucrative!

Why Real Estate Should Be A Crucial Part of Your Retirement Plan 6/1/2013

Many people believe that to build wealth one must invest in the stock market. The underlying concept is straightforward enough: You purchase stock in a company and they in turn work to increase their profits, which increases the value of your stock. If you're lucky, they may even send you a dividend, but it's not likely. If they do, it won't be much. For serious investors, what's missing from this process is control. The truth is that those who invest in stocks are at the mercy of the companies they've invested in to generate profits and increase stock value.

For those who prefer a more active, hands-on approach, real estate has proven to be a lucrative alternative. Many are choosing investment properties with great cash flow with the help of an expert agent experienced in real estate for investment. Once they have acquired a property, these investors have control over a variety of elements affecting the size of their returns, including property condition, rent charged and tenant screening. These decisions have a direct impact on creating a steady stream of cash flow while building equity, both of which will work to build wealth over time.

But it's not just control that makes real estate investing attractive. One of the biggest benefits of real estate investing is the fact that you can purchase so much more with your money. The reason? You can use the same available cash you would have used to purchase shares of stock or a mutual fund, and use it as a down payment for a property that is ultimately worth much more than the cash you had available. It's called "leverage" and it's a powerful tool when used properly.

Certainly, investment properties will have expenses associated with them, such as insurance and maintenance; however, working with a knowledgeable agent to find the right property and do the math ahead of time can help mitigate risk and help ensure cash flow. Partnering with a Certified Investor Agent Specialist (CIAS) is essential in identifying and negotiating your purchases to ensure a great investment from the outset.

In the long run, there are many great options available to help you plan for your retirement. The point isn't to take one option over the other and ignore all the others. In fact, opening up to the entire spectrum of investment options could end up providing you access to options that you didn't know you had.

It's a college payment plan you may not have considered, but more and more people are finding real estate investing to be the perfect solution.

The idea is to purchase a house as an investment property when a child is born or very young. Ideally, a 15-year fixed rate mortgage is used for a property that cash flows in the first year. By the time the child has reached college age the property is paid for and the parents can sell the asset and use the gain to fund college. Not only has the equity in the property grown over 18 years, but they've benefitted from the yearly cash flow as well.

Let's say our fictional parents purchase a $100,000 house with $20,000 as a down payment. They take out a 15-year mortgage for the balance at 6.75 percent interest. Their mortgage payments are roughly $8,945 for the year (or $708 per month).

If they rent the house out for $1,200 a month and have around $325 per month in expenses (taxes, insurance, repairs), they should see about $2,005 in cash per year from rental income for the first 15 years. From years 16-18, the expense of the mortgage is eliminated, yielding them $10,500 in cash flow annually. Over 18 years the total cash flow equates to $61,575. Note that this conservative estimate does not include potential rent increases that will increase cash flow and will help offset additional property taxes. Nor does it include interest earned if the parents decide to reinvest cash flow.

In 18 years the property will have appreciated, too. If we use a 3 percent rate of appreciation, which is less than the 5 percent appreciation real estate has averaged over the past 40 years, the $100,000 property they bought would be worth $170,243 at the time of sale.

The initial $20,000 investment would have earned $150,243 over 18 years - a return of over 13%. Including cash flow, the return is 15%!

While it is difficult to determine what future tuition will be-increases in tuition have spiked dramatically in recent years-a $230,000 ($170,000 sales price + $60,000 in cash flow) cushion should be enough to soften the tuition blow.

Investors aren't limited to purchasing real estate to fund college; many choose to purchase property during the college years to provide their children with a home and save on room and board.

San Francisco-based parents Katie and Dale have purchased a house with multiple bedrooms for their children, leasing the other bedrooms to other students. Because of the high demand, the rent helps pay the mortgage on the property and the parents plan to sell when their children no longer need the house.

In the long run, these savvy parents are saving money and helping to provide their children with a stable place to live during their college careers.

CENTURY 21 Alliance is a member of the largest multiple listings service in New Jersey. Let me and my associates help you find the home of your dreams. CENTURY 21 Alliance also specializes in worldwide relocation. Contact me for all of your Real Estate needs. Each CENTURY 21 office is independently owned and operated. All rights reserved. CENTURY 21 Real Estate LLC and its parent company, Realogy Corp, fully support the principles of the Fair Housing Act.