Posted in Real Estate Sales Tips

First-Time Homebuyer Course and Checklist

Hi Folks:

It occurred to me this morning that I have not shared a post about my resource for new homebuyers. A few years back I created a Udemy course and pdf checklist that educates and guides new homebuyers about the process. Check out the course here.

If you have any specific questions, comment below or contact me @ (786) 327-6326. I hope this helps! Happy house hunting!




Posted in Real Estate Investing

How To Calculate True ROI for a SFR Rental Investment

Are you thinking about getting into the real life game of Monopoly? If so, you probably have a few questions you want answered before committing yourself to your first investment purchase, such as:

  1. What is the property worth?
  2. How do you calculate return on investment? (ROI)?
  3. How much equity will I earn through appreciation?
  4. What are my tax burdens going to be?

The answers to these questions vary with every property as no two transactions are ever identical. That notwithstanding, let’s take a look at the basics and figure out how to analyze a property to determine whether or not it is a good deal for you.


Q1. What is the Property Worth?

The answer to this question depends on whether the property is a single-family residence, a 2 to 4 unit property, or a 5+ unit multi-family property. Generally speaking, the market dictates the value of 1 to 4 unit residences using a valuation model called the sales comparison approach. The sales price/rent price of comparable properties that recently closed within the immediate area of the subject property are analyzed to determine an opinion of value.

For commercial real estate, 2 to 4 unit properties, or 5+ multi-family properties, the income approach to valuation is widely used by real estate agents, appraisers and lenders. This approach requires determining an annual market capitalization rate (based on the income of comparable sales) and a property-specific cap rate, based on projected annual income of the subject property (a pro forma statement of rents), using a gross rent multiplier, divided by the current value of the property.

Example: If a 1 unit condo costs $120,000 to purchase and the expected rental income is $1,200 per month, then the expected annual income is: $14,400 divided by $120,000 (cost to purchase), equals a cap rate of 12%.

The cap rate Is helpful for comparison purposes, but for a closer look at your potential investment, you’ll need to consider inflation and deduct for it using a discounted cash flow model. You’ll also need to factor in the costs of a mortgage, known as annual debt service, property taxes, property insurance, and other miscellaneous expenses such as water, electricity, landscaping, security, reserves for replacement, preventative maintenance, etc.

Q2. How Do You Calculate ROI?

When comparing investment options, properties with a higher ROI will help you make the best choice with regard to the greatest return on investment. To calculate your ROI, divide your profits by your investment cost. For ROI to be meaningful, you must input the most realistic expenses that can be expected for the subject property. Otherwise, any costs that are manipulated or omitted, which would reduce the ROI, will paint a picture that is unrealistic, increasing your opportunity cost (that is, The cost of not investing in other investment options), and may burden you with additional operating costs every month during the holding period.

You should also consider the option of using a mortgage to acquire the property, versus paying cash, and consider the annual debt service, which are the mortgage payments, and how they impact your monthly and annual cash flows. Additionally, the upside of leverage (buying an asset using other peoples money, or OPM), may significantly increase your ROI.

Note: Don’t forget to factor in your closing costs, real estate commissions, etc. into your purchase price and sale price of the subject property; these are acquisition and disposition costs.

Before we examine ROI on a financed property let’s look at the ROI for a subject property purchased as a cash transaction.

As you can see in the case study the overall rate and a five year period for rental ROI is 8.8%. The overall rate (OAR) on value appreciation is 29.6% for the five-year period or 5.92% per year. Added with the rental income the total annual ROI per year is 14.72%!

Now, let’s take a look at the same investment property but, in this case, let’s use a mortgage to purchase a property.

As you can see in the second example the ROI on rental income is an overall rate of 16.9%! Wow! the ROI on the appreciation is 134%! Combined together, this property produces an annual ROI of 43.7% per year!

Q3. How Much Equity Will I Earn Through Appreciation?

It depends. The market dictates the sales price, and, as we all know, that fluctuates based on a variety of variables, such as political, social, cultural, “acts of God,” (such as hurricanes and tornadoes), and economical and business changes in the immediate environment (such as the installation of an Amazon distribution center or an Apple research park coming to Your Town, USA. That said, on average, real estate doubles in value every 10 years. Put another way, a property owner can estimate a 10% per year appreciation in a healthy market in the growth stage of its economic life.

The Four Stages of the Economic Life of a New Home Development: Growth, Stability, Decline, and Revitalization.

Given the science behind the economic life of a property and its community, the best time to purchase a home is when it is first built. Thus, the best time to sell would be at the end of the first 15 years of its growth or shortly into the stability phase. As a rule of thumb, a rental investment is less risky when the property was built within the last 10 years and the holding period should be no more than 10 years. Buying an investment property within these parameters will give you the best opportunity, external factors aside, to realize a 10% per year gain of appreciation in value.

Q4. What Are My Tax Burdens Going To Be?

That’s a tough question to answer because no two investors are examining their tax situation from the same position. If you lived in the home to out of the past five years prior to the sale, then you could be exempt from capital gains tax on the sale of the property buy up to $250,000 for a single person or up to $500,000 for a married couple. However, assuming the property was rented for all five years of the holding period, then you would report your profit as capital gains, which that amount would depend on adjustments such as depreciation and other taxable income which would shift your tax bracket up or down.

Note, however, that a 1031 exchange Allows the seller to roll over the profit into another investment property of equal or higher value without incurring any capital gains taxes. Another note worth mentioning is that if the owner sells the property due to divorce or death and unmarried widow or divorce may count any time that their former spouse lived in the subject property under the exceptions to the “time and use” test. If that sounds like your situation, you should consult a real estate attorney in your market with expertise in real estate law.

Disclaimer: The author of this article is a non-licensed attorney. The information provided herein is for educational purposes only and is not intended to be used as legal advice.

Key Takeaways:

  • Return on investment (ROI) Can be used to calculate the value of an investment based on its monthly cash flow’s, as well as during the entire holding period.
  • To see the true ROI, consider the return with appreciation over an extended holding period, such as five years.
  • ROI tends to be much higher when buying an investment using other peoples money, or OPM, with a five year holding.

Are You Ready to Take the Next Step to Invest?

Posted in Quotes/Motivation

How Do You Start Your Days?

Years ago, I adopted Dr. Steven Covey’s 7 Habits of Highly Successful People, then I learned Tom Hopkin’s “golden twelve”words. In the past couple months I added Brendan Burchard’s 6 High Performance Habits. Here’s my adaptation of HP2…

HP2. Generate Energy: Release stress and tension, then get intentional; bring the joy & positive energy; and optimize health. I intend to start my next activity stress-free, positive, eager, alert, flexible, and thankful for the gift of life today. I intend to ”be proactive” in building success in my business. I will bring more joy into my life by observing my daily blessings. I will raise my energy by exercising 5 times weekly, getting 7-8 hours of sleep nightly, eating healthy, and maintaining positive emotions!

Posted in Quotes/Motivation

Get Fit Now! Exercise Reduces Stress, Elevates Mood, and Improves Learning!

Too many times we put off what is good for us, including proper nutrition (healthy eating), adequate sleep (7-8 hours), and regular exercise.

The consequences for such failure are fatigue, neuroticism, and memory apathy.

…if the demands of your job or life require you to learn fast, deal with stress, be alert, pay attention, remember important things, and keep a positive mood, then you must take exercise more seriously. –Brendon Burchard

We all have two choices when it comes down to having a healthy lifestyle: (a) we fit fitness into our daily schedule, or (b) we make excuses why we didn’t. Today is a new day and the first day of the rest of your life. How do you want it to go? Will you choose something fit for you or will you make another excuse?

🥁Here’s a tip: start with a 5 minute stretch today. Tomorrow, make it ten. Slow and steady win the race. But you’ll never win if you never begin. 🏆

#motivation #fitness #alwaysbepositive

Posted in Recommended Reading

High Performance Habits by Brendon Burchard

The eloquence of this book, High Performance Habits, is repetitively evident in how well-articulated and brilliant the content is espoused, that it begs the question, ‘did Brendon Burchard write this himself or did he hire a ghost writer?”

Why am I not surprised at how well these habits sync with Dr. Covey’s Seven Habits of Highly Successful People. If you have not yet read this book, I highly recommend it! I’m only on page 48 and have already taken dozens of notes and pinned the HP6 on a 4 by 6 card to memorize and internalize them.

Thank you, Michael Naughton, for recommending this book! I’ve added the HP6 right next to Dr. Covey’s 7 Habits above my desk so they stay top-of-mind!

#impressive #motivation