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Thursday, December 4, 2014
December Market Update
Thursday, November 13, 2014
Rent It or Flip It?
Real Estate: Flip or Rent?
I would like to give you a brief
overview on the two major concepts of making money on investment property, and
why it is a perfect time to acquire and hold an investment property.
Fix & Flip
I am sure many of you have heard of
the term “fix & flip”. This is a good money making technique when the real
estate market is steady and the volatility is predictable. The concept is to
buy a property that is undervalued compared to the other homes in the area and
fix it up. The typical targeted repairs are items like new floors, carpet,
paint, window treatments, landscaping, kitchen & bathrooms cabinets, etc..
Ideally, these repairs take only 1–3 months, and then you list the property for
sale at a much higher price. The goal is to make enough to cover your repair
costs, the temporary mortgage payments, and walk away with $20K – $60K profit
on that property. The key to success is to have the right property and to turn
the property as quickly as possible.
Obviously, this doesn’t always work
as planned, and sometimes you lose money on the deal. Factors that contribute
to losing money on a Fix & Flip property are the repair costs being too
high, the repairs taking way too long, or the property not selling quickly. Sadly,
some Fix & Flippers got stuck with property over a year ago when the market
turned, and either took a loss selling it below cost or turned it into a rental
property. This is not the ideal strategy to own rental property, because most
of these people are still taking a monthly loss renting these properties today.
I feel that I am an authority on this topic, because I own one of these types
of properties myself.
Cash Flow
This is the concept used to identify property that will
make good rentals. The word “cash flow” refers to the amount of cash a rental
home generates and uses on a monthly basis. Cash flow can be used as an
indication of a rental home’s financial strength. When it comes to renting out
your investment property you would prefer it to have a positive cash flow, whereas you are making a
profit on a monthly basis. Due to the high price of housing in some Metro areas
it is more difficult to find homes with a positive cash flow, but it is not
impossible. Here are some of the factors we look at to determine a property’s
cash flow.
You should first calculate the monthly cost of the
property (sometimes called the nut). You need to
consider all costs associated with the property including the Mortgage Payment
(Principal, Interest, Taxes & Insurance), Property Management Fees, HOA
Dues, Pool Service, Home Warranty, Etc. This monthly cost will not only be
covered by your renters, but will also have to be covered by you during times
when the property is not rented. Also, take into account if you need immediate
repairs to the home to make it ready for renters.
Next, you have to calculate how much you can rent the home
for. I highly suggest using a seasoned property manager to
help you in this analysis. Not only can this person help you identify the right
rental rate, but can also help identify the current occupancy of rentals within
the area. That should give you an idea of how long it will take to rent your
property.
When you subtract the monthly cost
(nut) from your potential rent you will get that property’s monthly cash flow
number. Most people will gravitate towards properties with a positive cash flow
– but some people will also consider properties that simply “break even” with
the intent of selling them in a few years at an appreciated value.
Why is this a Good Time to Buy??
One of the biggest factors in finding
property with good cash flow will be in the price of the home. Being that the
mortgage payment on the property will constitute the largest portion of your
cost, you want to find rentable property at a low purchase price. This sounds
like common sense (Duh!), but a cheap list price doesn’t always mean it’s a
good deal.
Today’s housing market has a record number of short sales,
foreclosures, pre-foreclosures, distressed, and bank owned property!. This could
easily mark the low price point for home sales
for the next few years. When you see the following scenario you might think
that those properties are not really available. To that I can honestly
say,… have you really looked? Because, you only need
to find one property that works!
Example:
Here is a single family home
(3bd/2ba) in Boise near Boise State University. It is bank owned and they are
asking $150K (appraises at $205K) and they will pay all of your closing costs
with a full price offer. The property is basically move in ready and needs a
little paint. You pay 20% down ($30,000) & finance 80% ($120,000) on a 30
year fixed (4.75%).
The principal & interest payment is $778/mo + $50/mo
home owners ins. + $92/mo property taxes = total PITI = $920/month. You also
decide to have a property manager (a good idea) for $65/month, and you find no
other monthly costs. Your net cost is $985/mo.
Your realtor does their research, and informs you that
rent on a 3 bedroom within 2.5 miles of BSU should rent for $1,130/mo. And if
you get it listed before August 20th, you should be
able to rent in within 2 weeks.
$1,130 rent – ($985) cost = $145/
month in positive cash flow. This seems to be a pretty good scenario worth
exploring. Here are the positives:
§ You have the
potential to make $145/month cash flow.
§ You have a 30 year
fixed loan, so every month your principal balance goes down.
§ You have an great
source of Tax deductions at the end of the year
§ You have just
acquired a property with $55,000 of equity in it.
The above example is simply one basic
scenario out of thousands that exist. Investors can find the same scenario in
most college towns. There are going to be plenty of properties that have a
negative cash flow after thorough analysis. But, the key to finding the right
cash flow property begins in the act of building a team and looking for them.
Conclusion
Investment property is not
everybody’s cup of tea. However, if you have thought about it in the past,
today’s housing market provides great opportunities to buy properties that
“cash flow”. If you are waiting for the housing market to reduce inventory and
“tighten up” to buy an investment property – you are missing the boat.
There are many other concepts and
techniques that I did not touch on today that I will be happy to share with you
if you have interest
§ Buy investment
property as a primary residence (2% – 5% down)
§ Buy investment
property as a second home (5%-10% down)
§ Buy a multiplex (2
– 4 units)
§ 8 creative ways to
find your 20% down payment
§ Purchase an investment
property that needs rehab for 10% down
§ Buy a new home and
use your current home as a rental
Thursday, November 6, 2014
What Will $150,000 Buy You?
11048 W. Ramrod Boise, ID
$149,900
3 Bedroom/2 Bathroom/ 1304 Sq.Ft./.20 Acres
Great single level home close to shopping & schools. Lots of updates have already been made! Enjoy the 2 living spaces, one with a fireplace and brand new carpet throughout. Open kitchen with breakfast bar, tile counters & tons of cabinet space. Each bedroom has a ceiling fan and large closets. You will love the back yard that features a deck, garden area & adorable playhouse that stays! 2 mature trees provide privacy and shade for those hot summer days. This is a great home for the price!
1220 Willowcreek Dr. Nampa, ID
$149,900
4 Bedroom/3 Bathroom/1882 Sq. Ft./.19 Acres
Well maintained and can close quickly, New Paint Outside! Located in a nice subdivision with excellent access to shopping, entertainment and the interstate. Features include living room AND family room with fireplace, 4th bedroom and bath on the main level make excellent guest quarters or office. Kitchen is open to nook and sunken family room. Nice over-sized garage and a quite subdivision with private park for the kids to play in.
2227 N. Zircon Meridian, ID
3 Bedroom/2 Bathroom/1320 Sq. Ft./.17 Acres
$149,900
364 W, Waterbury Meridian, ID
3 Bedroom/2 Bathroom/1306 Sq. Ft./.19 Acres
$149,000
Immaculate single level home with coveted split bedroom design plus bonus/office. Interior: light, bright, clean home featuring new paint and carpet. Single Level, with main living space featuring two family rooms for optimum use and fun. Large open kitchen, master bedroom has privacy, w door to patio area. Exterior: new paint, meticulously maintained creating beautiful curb appeal. Home backs to a large common area, so no back yard neighbors! Back yard mature trees, garden space create park like setting.
8903 W. Shellie Lane, Boise ID
$150,000
3 Bedroom/2 Bathroom/1325 Sq. Ft./.31 Acres
Great opportunity to have a little piece of the country in town. This home is on nearly a third of an acre with an individual well for inexpensive irrigation and domestic water! The home features a side entry garage, an open floor plan with hardwood floors and a two-way wood burning fireplace between the breakfast nook and the family room. Property is fully fenced, has a sprinkler system, 2 sheds, a covered patio, and a huge garden area! The roof & furnace are about 6 years old, AC was replaced last summer.
Tuesday, October 28, 2014
Market Updates!
In the last few weeks the market has achieved a relative stasis point in terms of sales to inventory. However, inventory is sufficiently low to keep us in the sellers market. If the market heats up watch for prices to increase. Right now prices are at a plataue.
Inventory:
Has been lightening lately and the Market Action Index is up. Even with days-on-the-market increasing!
These are all mildly positive indications for the market.
1. Close vents in unheated basements, but keep attic vents open.
2. Adjust your thermostats for energy efficiency. If you have more than one--adjust according to which rooms you use the most.
3. Make sure all electrical cords are not covered by rugs or heavy curtains, they can over heat and cause a fire.
4. Clear pathways and stoops to make snow shoveling easier.
5. Inspect supports, railings, and stairs.
Featured Listings!
3 Bedroom/2.5 Bath S. Nampa $133,900
3 Bedroom/ 2 Bath Eagle $299,900 
3 Bedroom/ 2 Bath Weiser $110,000 
4 Bedroom/ 3 Bath Caldwell $165,000 
3 Bedroom/ 2.5 Bath Boise $305,000 Tuesday, October 21, 2014
Radon Myths
Radon myths can be very dangerous. What have you been told?
MYTH:
I'm safe because I don't spend much time in my basement.FACT:
If your furnace or duct runs are located in your basement or crawlspace, anytime the furnace fan runs for either heat or air conditioning, the radon level on the first floor is often the same as it is in the basement or crawlspace. Staying out of the basement doesn’t matter if your furnace fan is running even occasionally.
MYTH:
Radon is naturally occurring so it must be safe.FACT:
Radon IS naturally occurring and so are earthquakes, tornadoes, floods, hurricanes, tsunamis, lightning, volcanoes, avalanches and mudslides. On average, radon kills more people every year than all of those combined. Dirt is natural too, but you don't want to be under six feet of it.MYTH:
I already have a radon monitor in my home and it says I'm safe.
FACT:
Some people mistakenly think that carbon monoxide monitors or smoke detectors measure radon. Every home should have both but they can't detect radon. On average, residential fires kill 2,800 Americans every year. Carbon monoxide deaths in the home average 235 per year. Radon, still at 21,000 deaths a year.MYTH:
My home is new so I can’t have a radon problem.
FACT:
Many newer homes have higher radon levels than older ones because they now design homes to have better porosity in the soil around the house. This is done for moisture control but the result is easier flow for the radon gas to be drawn in. It doesn’t matter how old your home is, if there is the right amount of radium in the soil, you may have a serious problem.MYTH:
My neighbors home tested fine so I must be safe.FACT:
You can never rely on your neighbor’s radon results as a comparison to yours. Even identical homes in the same development, next door to each other, built at the same time by the same builder can be 100 times higher or lower than your house. There can even be a huge difference in just one side of a duplex or attached townhome. That is why every residence in America needs to be tested.MYTH:
I live in an area that doesn’t have any radon problems.
FACT:
Some areas of the country have been shown to have lower radon levels on average than others, but serious problems have been found in every State and in many areas that used to be considered low risk.MYTH:
My home is a ________________ (walk-out, ranch, 2 story, split level, slab on grade, etc.) so I won’t have a problem.FACT:
The style of the home has very little to do with radon entry. All structures have negative pressures in the lower half of the building no matter how they are built or how they are designed. No particular style of home is more or less likely to have a radon problem including homes of all types: old homes, new homes, drafty homes, insulated homes, homes with basements, and homes without basements.The only way to know you have a problem, is to test.MYTH:
Low-level exposure to radon is harmless.
FACT:
There is no level of exposure to radiation that is harmless. Human exposure to radiation should be avoided whenever possible. The U.S. Environmental Protection Agency (EPA) and every other health agency state that any home with radon levels of 4 pCi/L or greater should be fixed. Period. If your home is between 2 and 4 pCi/L, you should seriously consider fixing it.MYTH:
Homes with radon problems can’t be fixed.FACT:
Hundreds of thousands of homeowners have already had their radon problems fixed and more and more families are doing it every day. Any home can be fixed and the higher the radon level, the faster you should have it fixed.
MYTH:
I’ve lived in my home for so long, it doesn’t make sense to take action now.FACT:
If you discovered that your family car had been recalled because the wheels could fall off at anytime, would you keep driving it? Of course not. You will reduce your risk of cancer as soon as you reduce your radon levels, even if you’ve lived with a radon problem for a long time. Reducing your radon levels now can help to greatly reduce the effects from past exposure.MYTH:
If radon is such a big deal, why aren't our government health officials doing something about it?
FACT:
They’ve already spent millions and millions of dollars trying. They’re not sure what to do next with the budget they have. Just look at all of the publications, brochures, posters, videos, radio and T.V. commercials they’ve already produced at a huge expense to us, the tax payers. No one is listening because of "The Basic Principals Of Advertising” which state that unless the message is repeated over and over and over again, no one will pay attention. A limited budget doesn’t buy advertising during the Super Bowl. Another reason is that our country is based on old English law, “A Man’s Home Is His Castle”. You can live in a home with as much radon as you’d like, the government isn’t going to force you to test or fix your home. That’s up to you.MYTH:
If radon is such a big deal, why don’t we see or hear more about it?FACT:
The media reports the news and radon isn’t news anymore. If a family of four dies in a house fire, it is indeed very sad and will be mentioned at the top of the broadcast, but they can’t start every news show by saying “And this just in…Over 50 people died today after being exposed to radon” (21,000 / 365 days = 57.53 people a day in America). Radon isn’t new any more. We’re supposed to already know.MYTH:
Everything causes cancer so why worry.
FACT:
Not everything causes cancer, but it seems like that sometimes on the news reports. Cooking a hamburger on the grill everyday for an entire lifetime apparently causes cancer but statistically only effects about one person a year. Same with cell phones, sugar substitutes and all the other cancer scares we hear about. Unfortunately, all of those less significant risks distract us from the major causes of cancer like smoking and radon. 12% of ALL cancer deaths have been linked to radon and not just one person but over 21,000 Americans die every year from radon. In other words, it doesn't make much sense to worry about the splinter in your finger when there's a tree about to fall on you. Quit smoking, fix your radon problem, then maybe go ahead and relax, call a friend, fire up the grill and enjoy a diet soda.MYTH:
If it’s not one thing, it’s another.
FACT:
True, we’re all going to die from something, but most people would prefer old age rather than cancer. Some people die while doing something they enjoy like skydiving, swimming, grilling hamburgers, etc. They weigh the risks and decide that the risks are worth the enjoyment, but nobody gets enjoyment from radon. It’s a huge risk with no benefit.MYTH:
Do-It-Yourself radon test kits are not accurate.FACT:
If you follow the instructions, D.I.Y. test kits are just as accurate as the extremely expensive professional radon monitors. If you are testing your own home and not in the process of a real estate transfer, the D.I.Y. test kits are recommended.MYTH:
Long-term test kits are more accurate than short-term test kits.FACT:
They are both as accurate and each will show you what the average radon concentration was during the time period tested. However, radon levels do vary dependent upon weather conditions and other factors. Long term testing will show the average results over a longer period of time and will average all of those changing conditions together for your final result. Radon levels within the home are usually lower in the spring and fall, while being higher in the winter and summer. Partially because our houses are more closed up, but mainly because the pressures within our houses that draw in the radon are greater whenever the temperature differences are more extreme. Although radon levels can vary widely throughout the year, short term tests are still recommended as the first step just in case your radon levels are extremely high. If you'd like to run a follow up test and average the two over different seasons, or take a longer test for a longer average, that's up to you, but results from short term testing has been shown to have the same bearing on mitigation decisions 94% of the time.MYTH:
If radon is so important, someone, somewhere will remind me to test later.
FACT:
Some things are so important that we shouldn’t need to be reminded. If you haven’t tested, you need to do it as soon as possible. Your health and your family’s health are important right now. Radon is a major cause of cancer but is also suspected in contributing to a variety of other illnesses including Leukemia, Multiple Sclerosis, Alzheimers and Parkinson's Disease. Why take a chance? Please don't wait.MYTH:
I’m sure my friends, neighbors and loved ones already know about radon so I won’t worry about them.
FACT:
The majority of families in the United States still don’t know how serious radon is. They’ve heard about it, seen some news about it and still don’t know the facts. Please help spread the word by telling everyone you can about radon. Knowledge is power and with knowledge comes responsibility. Please, make sure they know as much as you do.
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