Real Estate Genius Investment Software Blog

By James Orr

When investing in real estate, you might encounter negative cash flow in your market. Why?

When the mortgage payments you have on a property for the amount you are putting down are higher than what you could collect for rent on the property, you have negative cash flow.

Some people include taxes, insurance, management, maintenance and other expenses for their property when calculating their cash flow, but for the sake of this discussion we will use a comparison of rent and mortgage payment.

So, what can you do when you find yourself in a real estate market, like the one we have here in Colorado, where the rents are not nearly enough to cover the mortgage payment on a reasonably low sized down payment?

Well, one solution is to offer the house on a rent-to-own.

By finding someone who is willing to purchase the house and not rent it, you can have them pay you an amount that is more like a mortgage payment and less like a rent amount.

They would also be responsible for taxes, insurance, maintenance and any other housing related costs like HOA.

This, combined with purchasing the property below market, can give you a positive cash flow where you would have a negative cash flow in that market with a straight rental.

For example, you may buy a house for $180,000 (at a $20,000 discount) with an interest rate of 6.5% and sell the house to a tenant-buyer on a rent-to-own for $200,000 (its actual full market value) with a payment that is the equivalent of a 7.5% interest rate.

You now are collecting payments on $200,000 at 7.5% when you are only paying payments on $180,000 at 6.5%.

Is charging someone who can not get a traditional loan one percentage point higher than the rate someone like you with good credit can get unfair? No, I think one percent is actually a good difference for them. Check the rates for good credit and poor credit at your lender to see what a fair difference would be in the current credit market.

Take a few minutes, on your own, to calculate out what the payments would be for buying a median priced home in your market at a 10% discount and selling it for full price on a rent-to-own with a 1% difference in interest rate and see how that changes the cash flow on that property.

James Orr is a professional real estate investor, marketing expert and founder of the LearnToBeRich.com on-line investment game.

You can get a free real estate course and fully analyzed real estate deals and his blog by e-mailing him at freerecourse@learntoberich.com or visit the Learn To Be Rich Blog for more great articles and information.

Article Source: http://EzineArticles.com/?expert=James_Orr
http://EzineArticles.com/?How-To-Eliminate-Negative-Cash-Flow&id=1015112

By Jonathon Hardcastle

Investment in property is seen as one of the best ways to earn money from your existing capital, with stable yields year on year. But why is it that property is such a worthwhile investment, and isn’t investing in property tying you down and your money up in bricks and mortar? In this article we will look at exactly why property is considered to be a wise investment, and the factors to consider when investing your money.

Investing in property can be a very beneficial endeavor. Working around basic accounting principles, the property you acquire is a capital asset, thus hopefully increasing your overall net worth. This doesn’t seem the case when you consider the amount of money you can plough into property with no immediate return. However, property usually appreciates in value, rather than depreciating, year on year, which slowly increases the value of your total assets for when you eventually sell. Furthermore, this overall gain doesn’t fall within the parameters of income for tax purposes, and so can escape this burden to a large extent in your annual tax returns.

Investing in property also has the added bonus of allowing you to grant charges and standard securities against borrowing, over a property that isn’t your home. That means you can raise finance from your property without risking your home, so even if you default on the loan repayments, you’ll still have a roof over your head. Furthermore, if you negotiate a lease with a tenant for your property, you can expect a return of 8% of the value of the property each year in rental income, which would certainly be sufficient to pay off any mortgage and leave some nice profits to play with. Just remember to let the taxman know, because he has a claim on that as extra income.

A potential way to secure property investment is to act through an incorporated company, to raise finance from investors and institutional lenders alike. Of course, this has the great advantage of limited personal liability, although you may still find yourself granting personal securities over money you borrow. Whether or not you choose this vehicle, it is certainly one of the most popular for large scale property investments the world over.

Investing in property isn’t a guaranteed return on investment, but you’re almost as good as it gets. Property has the potential for high earnings and big profits, but with all this big money floating around, remember the scale of risk involved.

Jonathon Hardcastle writes articles on many topics including Investing, Finance, and Business.

Article Source: http://EzineArticles.com/?expert=Jonathon_Hardcastle
http://EzineArticles.com/?Property-Investment&id=898459

By L. Winslow

Consumer Confidence has literally tanked due to the fall-out in real estate and the credit crunch. These hard times in real estate are affecting the stock market, retail sales and small business. However, in chaos there is always opportunity - Always! So where is the opportunity in real estate, how can you make money on this bubble bursted collapse?

Well, it just so happens that the other day I was streamlining my library and chucked some books into a box going to the Goodwill, then I grabbed one, and thought well maybe I should re-read a few chapters in this one, scan the material once more. Interesting indeed, the book in question:

“A Fortune at Your Feet - How you can get rich, stay rich, and enjoy being rich with Creative Real Estate” by A.D. Kessler - 1981.

Do you have what it takes to make money in real estate, using A.D. Kessler’s creative methods? We all know A.D. Kessler as a real estate guru, late night infomercial hype guys and this book is an extension of that type of methodology. Secure real estate with no money down, make deals, find foreclosures, make negotiations and build wealth. A.D. Kessler was one of the first real estate guys of this type and had a very successful magazine on creative real estate, and trained many real estate professionals to use his system and methods to achieve wealth.

With the real estate market crashed and foreclosures running ramped his books and advice are now becoming very popular once again. How do you find the best properties to buy? How do you find tax lien sales, how do you find properties that are distress sales? A.D. Kessler’s book discusses all this and more. If you are ready to do a little homework, you might find yourself in a position of opportunity during this drastic time of chaos in the real estate markets.

L. Winslow is an Economic, Political and Technology Advisor to the Online Think Tank, a Futurist and retired entrepreneur http://www.worldthinktank.net Currently Mr. Winslow is planning a bicycle ride from Canada to Mexico and in Spring across the US from San Diego to Virginia Beach to raise money for charity. Previously he was a track star athlete, private pilot, involved in politics, community volunteerism and a Franchising Founder. Mr. Winslow has chosen 100 titles of Books he wishes to write and has completed ten thus far. The subjects include; Community Planning, Future Tech, Franchising, Small Business, and Third World Issues.

Article Source: http://EzineArticles.com/?expert=L._Winslow
http://EzineArticles.com/?Chaos-Begets-Opportunity—Even-in-Real-Estate&id=813119

By Alexander Tran

Through every cycle, many real estate investors forget why they invested in real estate in the first place.  When the market appreciates, we all come to expect that real estate prices will rise forever.  Why not pay full asking price for a property when it will appreciate 20% in one year?

If you put 10% down on a $200,000 house, for example, you could earn 200% return on your money.  Never mind that the house could only rent for $900 a month.  Assuming a 7% interest rate, the interest only payment is $1050 per month.  Add taxes and insurance into the mix, and you’re looking at a negative cash flow of $250 a month.  Ouch!

The logic of the last few years was that the appreciation would wipe out all negative cash flow sins.  The reality of today is very different as many wannabe real estate investors are experiencing.

Ask any grizzled real estate investor and he would tell you that positive cash flow from a single family rental house is an elusive beast.

But what about all those other investors who live off their income properties?  First of all, notice how it’s always “other investors” who are finding success?  Those “other investors” paid down their mortgage to the point where their payments are less than their rental income.  So if they own a house that is worth $200,000 but they only owe $50,000 to the bank, their payment would be $333 a month, fully amortized.  Since we assumed that the rental rate is $900 per month, their net income is $900 - $333 = $567.

That’s positive cash flow, is it not?

The answer is yes, but at what price?  If they only owe $50,000 to the bank, they have $150,000 of their money in the property.  What is their return on investment?

Let’s work it out.  $567 per month in net profit equals $6,804 per year.  Divide $6,804 by $150,000 and you’ll get 4.54%.  That’s right folks.  The “other investor” is getting a whopping 4.54% return on their investment.  Can you think of another investment vehicle that can beat 4.54% returns?  Stop when you get to 100.

Did I mention that being a landlord is hard work, yet?  You’ve heard of collecting rents and clogged toilets, haven’t you?  Nuff said.

So why the heck would anyone want to invest in real estate?

That’s a really good question.  In fact, it should be the first question that any wannabe real estate investor should ask.  The second question should also be the same as the first question.  Wannabes should ask themselves this question at least three times.

If they pass this preliminary screening process, they will see that the true answer to why they or anyone else would invest in anything is…cash flow.

What?!?

We all invest for cash flow.  I don’t care if it’s a stream of cash flows or one big cash flow (cash chunk?) in the end when we sell; we all invest for the cash flow.  And this cash flow has a price.  Find the right price and the cash flow becomes that much sweeter.

For example, let’s say that we bought the rental house mentioned above for $110,000 instead of $200,000.  Our interest payment would be $578 per month based on 10% down.  Add taxes, insurance and property management fees, and we’ll be looking at $853 per month.  All of a sudden, we’d be looking at $900 - $853 = $47 per month.  Yippee!!

Not only that, but our return on investment is ($47 x 12) / $11,000 = 5.13%.  The number is not stellar but it took a lot less money to earn that return.  By the way, $97 a month in positive cash flow on a single family house based on 10% down is nirvana in real estate investing land.  Don’t believe me?  Go ask your local grizzled investor.

All right, so how do you find the $110,000 house?  That is a question for another article.

Like I said, “Positive cash flow in real estate is an elusive beast.”

Alex Tran is the publisher of http://www.ezsuggestions.com/blog
For many years, Alex worked very hard so that he could become a lazy bum some day. Then he realized — why wait until he turns 65 to become a lazy bum? Why not find ways to invest for time today? That question was the genesis for http://www.EZSuggestions.com, where Alex shares ways to invest and not have to work so hard.  Go read his often irreverent, but insightful, writing on how to invest for time instead of money. After all, what good is money if you haven’t got the time to spend it?

Article Source: http://EzineArticles.com/?expert=Alexander_Tran http://EzineArticles.com/?Positive-Cash-Flow-is-The-Elusive-Beast-in-Real-Estate&id=618190

If you’ve ever wondered How to analyze a real estate investment, jump over to this page which gives you a 3-minute overview of the financial concepts involved. It’s important that you have a good handle on the cash flow and investing principles which determine your profit.

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So what if the real estate bubble exists only in your mind? That’s the thought examined by Roger Lowenstein in a really thought-provoking piece in the New York Times called Pop Psychology. It’s become really pretty trendy to accept the obviousness of the real estate bubble which has swelled up in the US, and to accept the inevitability of it ‘popping’. So it’s really pretty contrarian to suggest that there might be no bubble- especially when those words aren’t coming from a wild-eyed risk-seeking investment maniac, or a glad-handed realtor trying to upsell you.

Lowenstein points out that for most homeowners, houses have appreciate at a much lower rate than the stock market in past years. It’s only in certain hot markets where things seem to have gotten out of hand.

So then, how have so many people made so much money in real estate?

The answer lies in leverage. The typical home buyer only puts up 10-20% of the value of the house purchased. The rest is borrowed from the bank. Leverage lets you play with other people’s money. The more leverage, the more you can accelerate your potential earnings (or losses).

Unlike with the stock market, in real estate you can borrow a much higher percent of your investment, and you also don’t have to worry about margin calls. Values may plunge, but as long as you can keep up your monthly payments, the bank isn’t going to come knocking for more equity from you.

A brief example of the leverage effect. Let’s say you buy a house for $100,000, and sell it a year later for $105,000. Ridiculous example, but we’ll keep it simple. Your return is 5%. That’s pretty paltry.

However, if you bought the house with a $10,000 downpayment, then your actual ROI is 50%! (You put in 10, you get back 105 - 90 = 15). Not too shabby a return.

It’s an interesting article with some points well worth reading, check it out. And if you want to run some numbers on some potential deals, check out the Real Estate Genius investment property calculator, which will break out your actual economic return on any potential real estate investment.

The terms and conditions of loan are varied, codified according to the specific company. The insurance quote is provided by the multitude of insurance service providers for the customers. There are a lot of free insurance quotes which can be searched out via different web directories. The bank charges of different banks are varied according to the amount of the money which is given as loan. Now the customers are facilitated to get online credit card from all reliable companies. The debt is owed according to the value of the properties of the customers. The loan corporation has introduced the variety of credit cards, having different kinds of packages.

By Parsa Sepahi

1. Location: Your real estate investment’s location is arguably the most important component of your real estate investment portfolio. A good location, in terms of demographics, local economy and wealth distribution among other factors is critical for a success.

2. Value: the value of the property in terms of equity and growth is also critical to the overall investment portfolio. The property value needs to increase as time passes on and you always need to have a liquidation option that will minimize your risk potential of loss.

The general formula for calculating value is the Cap Rate. The higher the rate the better the investment, the formula is as follows:

Yearly Net Income of the Subject Property / Current Price of the Property

3. Financing: last but not least important factor in your real estate investment efforts is financing, a right investment loan will exponentially grow your wealth. The right leverage will allow you to acquire more properties and after one or two successful investments you can save your cash and grow your portfolio by using the right financial products.

The general formula for financing feasibility is the Debt Service Ration (DSR), which is simply:

Yearly income from rent collection - (Mortgage payments + other related property expenses)

These principles apply to both residential and commercial properties. Although there are several strategies to invest in real estate such as short term flipping or long term holding, these 3 mentioned components remain the same no matter which investment strategy you use.

Parsa Sepahi is the Co-Founder of INVESLOAN a Real Estate Investment Financing company. In the past several years he has helped many people use real estate investments to their best advantage and grow their wealth.

Article Source: http://EzineArticles.com/?expert=Parsa_Sepahi
http://EzineArticles.com/?Real-Estate-Investment-Financing&id=423706

The loan of various kinds is offered by the different money lenders and banks for the potential customers. For the growth of business investment, there is a need of adopting such useful strategies for flourishing the business. The cheap insurance leads are available by the different insurance companies. The creditcard is very valuable way of payment in the modern age. With the advent of internet age, the people are facilitated to work from home. The policies of debt are different from place to place and company to company. The pet insurance provides full security to the pets of the pet owners

By Steven Gillman

Large profits can be made quickly when you buy low and sell high. However, it is easy to make mistakes valuing a property, and transaction costs can eat up your profits if you are a little bit off in your assumptions.

This is the most obvious way to make money with anything, right? Of course selling high is the more problematic part of the formula. But then again, if you buy low enough, you can even sell low and still make money. So the big question then, is how to buy for less.

There are many ways to pay less. What is the simplest way? Offer less. This is the oldest and simplest negotiating ploy of real estate investing. Everybody knows this technique, at least in it’s crudest versions, but most are afraid to use it. Why? Well, it can be embarrassing, and it can be a waste of time if you don’t do it right. On the other hand, do you really mind being a bit embarrassed if it saves you $20,000?

The first piece of real estate I ever bought was a small lot for which the seller was asking $4,500 (now that’s cheap real estate). Fortunately for me, in my ignorance, I didn’t know then that offering 22% less than the asking price was considered insulting. Looking back on it, I now understand why the realtor didn’t want to present the offer. In any case, the seller accepted my offer of $3,500, because he was anxious to sell his last property before moving.

A friend bought a home on a lake for perhaps $40,000 less than it was worth. How? He made the offer. He was always making low offers as he shopped for a home, and of course this meant he had most of his offers rejected. I might have even hinted to him that he was wasting his time. Good thing he didn’t listen. Would you be willing to have a dozen offers rejected if it meant buying a home for a savings of $40,000?

Then there is the investor from California who routinely made dozens of offers at a time on houses - without even look at them. He wrote the offers for 25% less than the asking price, and included an inspection contingency and other clauses to protect himself. Most sellers said no, of course. Most did, but not all. He occasionally got some very cheap real estate this way.

Cheap Real Estate - Lowering Expectations

During a seminar, a real estate investor once told me,”If you aren’t embarrassed by your offer, it isn’t low enough.” Considering that he’s made millions in real estate, he may be worth listening to. You need to understand, however, that a truly low offer will almost never be accepted. Is it a waste of time then? Not at all, because there will often be counter-offers, and a low initial offer is just a way to alter expectations.

Let’s suppose you think your home is worth $300,000. You mention to a friend that you are considering selling it, and he says, “You should be able to get $250,000, right?” You ask another friend what he thinks the home is worth, and he tells you $260,000. How confident would you be about your $300,000 estimate of value now? You might lower your expectations, right?

This is one of the primary functions of a low offer; to alter expectations. When a seller is asking $300,000, and you offer $250,000, will he accept your offer? Probably not. He’ll almost certainly reject it. Getting cheap real estate isn’t going to be that easy. He may counter-offer, however. Suppose you go back and forth, and finally agree to $182,000. He might not have considered selling this low before, but maybe now it even seems like victory to him after starting at $160,000.

You’ll lose a lot of potential properties this way. Sellers sometimes won’t even take subsequent offers seriously once you have offended them with your extreme offer. You might avoid this by assuring the seller that his property may indeed be worth what he is asking, but that it only works for your purposes at a lower price. On the other hand, so what if you have a lot of rejected offers. Isn’t a bit of rejection worth it to get really cheap real estate?

Note: remember that if your plan is to simply buy for a low price and immediately sell the property, you should carefully consider the transaction costs and holding costs. Transaction costs include all the costs of buying the property, as well as all the costs of selling it, and can easily top 10% of the sales price if you pay a full sales commission.

The holding costs include property taxes, insurance, utilities, and any other ongoing costs while you own the property. Estimate the monthly costs of these and multiply that figure by an estimate of how many months it will take to sell the property to arrive at your total holding costs. Leave lots of margin for error if you want a safe investment.

Copyright Steve Gillman. For a Free Real Estate Investing Course, and to see a photo of the home we bought for $17,500, visit: http://www.HousesUnderFiftyThousand.com

Article Source: http://EzineArticles.com/?expert=Steven_Gillman
http://EzineArticles.com/?How-To-Buy-Low-And-Sell-High&id=428017

You’ve been on the hunt for an investment property, and have finally found the right now. It looks right, and the deal ’smells’ right to you. The location seems like a sure bet.

So why bother spending all that time crunching the numbers? There are a few reasons, actually:

1. The analysis process forces you to think things through, and reduces the risks that you’ll overlook some key factors. It forces you to remove yourself from the emotional ‘heat of the deal,’ where you just might rush into something that ’seemed like a good idea at the time.’
2. Discount cash flow analysis gives you a number projecting how much you can expect to pull out of an investment. You can quantify ‘great deal’ in dollars and cents.
3. Detailed financial projections are the hallmark of a professional, and my aid you in attracting loans and financing for your deal.
4. Forcing yourself to generate best- and worst-case scenarios will create a range of projected results. The one thing that you know for sure is– you can’t foresee the future. However, you can attempt to determine the maximum and minimum amounts you stand to gain or lose, as well as the most-likely amounts. This is critical, since you should never pursue an investment where you aren’t comfortable with the risks. Nor should you pursue investments where the best-case scenario doesn’t meet your minimum return.

Best of all, financial analysis doesn’t even need to take up much of your time. The Real Estate Genius investment property calculator runs the numbers instantly– you just need to gather the facts, and plug in your assumptions.

Don’t leap before you look. Run the numbers and be prepared.

Got a great question from a client the other day. In summary, “What exactly is depreciation?”

I suspect that this is a concept not well understood by the non-accountants out there. Speaking for myself, a non-accountant, I had a rough time with it until one fateful night in business school when I finally saw the light. So here’s a primer in a nutshell…

An old asset is, generally speaking, not worth as much as a new asset. Things wear out. For example, I think of my first car, a styling Plymouth Volare handed down from my grandpa. At one point in time, it was a new car and worth 100% of its purchase price. By the time I got it, well, it was worth somewhat less than that. And then by the time I had passed it off to my brother, who passed it off to a cousin, who abandoned it somewhere in the swamps of Jersey… well, it wasn’t worth much at all by that point.

When the asset is originally purchased, it is placed on the balance sheet at its purchase price. ‘Depreciation’ is the means by which you continually adjust the value of the asset downwards, so that the asset value more closely reflects reality. Uncle Sam is glad to lend a helping hand, by decreeing the rate at which you are allowed to depreciate a given item. Why does Uncle Sam care? Because every time you depreciate an asset, you write off part of its value as an expense, which reduces your income and therefore reduces your tax burden. Thus, it is in your interest to depreciate as fast as possible, while it is in the IRS’ interest to make you depreciate as slow as possible.

Depreciation is entirely a ‘paper’ rather than a ‘real’ transaction. No cash ever changes hands. For this reason, depreciation does not affect cash flow. That’s why when you look at a cash flow statement, you’ll see that depreciation is added back to net income (since it was deducted from revenue on the income statement, it needs to be added back).

In the case of real estate, there is an extra twist thrown in- when you buy a building, you are generally buying both the building as well as the land it sits on. Buildings wear out, but land doesn’t. As a result, you can only depreciate the portion of the purchase price attributed to the building. That’s why when you analyze a property in Real Estate Genius, you are requested to estimate ‘% of purchase price allocated to building’. So if you plan to buy a property for $100,000, and 80% of the value reflects the building, you will start depreciating from $80,000.

If you’d like to learn more, check out this more thorough explanation of the process which I came across online:
http://www.dignitymortgage.com/Investing/Investment_Property_Tax_Adv3-DeductingDepreciation.htm

I hope this gives you better picture of depreciation!