Category: Real Estate Investing

Posted in Real Estate Investing

Introduction to Fix & Flip Real Estate Investing 🏘️🏗️💰

Posted on by John W. Tanner, J.D.|M.S.

Real estate has long been hailed as a lucrative investment opportunity, offering diverse avenues for generating wealth. While traditional approaches like buying and holding properties have their merits, there exists a dynamic strategy that has gained considerable traction in recent years: fix and flip real estate investing.

This exciting method involves purchasing distressed properties, renovating them to enhance their value, and swiftly selling them for a profit. In this video, we will delve into the world of fix and flip investing, exploring its benefits, key considerations, and offering insights into how to embark on this adventure.

Understanding Fix & Flip Real Estate Investing

Fix and flip real estate investing is a short-term strategy focused on acquiring properties in need of repair, enhancing their appeal and value through renovations, and subsequently selling them at a higher price point. This approach taps into the potential for significant returns by capitalizing on distressed or undervalued properties, breathing new life into them, and positioning them back on the market for a profitable resale.

Key Benefits

  1. Profit Potential: One of the primary attractions of fix and flip investing is the potential for substantial profits. By purchasing properties below market value, renovating them strategically, and selling them at an optimized price, investors can unlock impressive returns within a relatively short time frame.
  2. Active Involvement: Fix and flip investing is a hands-on endeavor that allows investors to actively participate in the entire process, from property acquisition to renovation and final sale. This level of involvement not only offers a unique sense of accomplishment but also enables investors to exercise creative vision and control over their investment.
  3. Rapid Turnaround: Compared to long-term investment strategies, fix and flip investing allows for a quick turnaround. With careful planning, efficient renovations, and a well-timed sale, investors can swiftly convert a distressed property into a profitable asset, freeing up capital for future projects.

Key Considerations

  1. Market Analysis: Conduct thorough market research to identify neighborhoods with potential for appreciation. Factors such as location, property demand, and local market trends should inform your investment decisions.
  1. Financial Assessment: Assess your financial resources and set a realistic budget for property acquisition, renovations, and carrying costs. Additionally, factor in contingencies and unforeseen expenses to avoid financial strain during the project.
  1. Renovation Expertise: Familiarize yourself with the renovation process or consider partnering with experienced professionals. Having a solid understanding of the necessary repairs and upgrades will enable you to estimate costs accurately and make informed decisions.
  1. Risk Mitigation: Evaluate the potential risks involved in fix and flip investing, such as unexpected repairs, market fluctuations, or extended holding periods.

Develop contingency plans and exit strategies to minimize potential losses and maximize returns.

Getting Started

  1. Build a Network: Connect with professionals in the real estate industry, including contractors, real estate agents, and property inspectors. Their expertise and guidance will prove invaluable during your fix and flip journey.
  2. Financing Options: Explore various financing options, such as traditional bank loans, private lenders, or hard money loans. Assess their terms, interest rates, and repayment schedules to select the most suitable option for your investment goals.
  3. Property Search: Identify distressed properties through multiple channels, including real estate websites, auctions, foreclosure listings, and word-of-mouth referrals. Thoroughly evaluate each potential investment by considering its location, repair costs, and potential for profit.
  4. Due Diligence: Conduct a comprehensive inspection and analysis of any property you intend to purchase. Assess the extent of repairs needed, estimate renovation costs, and determine if the property aligns with your investment criteria.

Conclusion

Fix and flip real estate investing presents an exciting opportunity for individuals looking to make significant profits through active involvement in the real estate market. While it requires careful planning, diligent research, and effective execution, the potential financial rewards can be substantial.

By identifying distressed properties, accurately evaluating costs, implementing smart renovation strategies, and staying attuned to market trends, investors can increase their chances of success in this dynamic sector.

However, it’s important to acknowledge that fix and flip investing carries inherent risks. Unforeseen challenges, such as construction delays, unexpected repairs, or market volatility, can impact profitability.

Therefore, maintaining a contingency plan and conducting thorough due diligence are crucial to mitigate potential setbacks.

For those willing to put in the effort and embrace the challenges, fix and flip investing can be a rewarding and profitable venture. It offers the chance to transform neglected properties into desirable homes while generating substantial returns on investment.

Whether you’re an experienced real estate investor or a newcomer to the industry, exploring the world of fix and flip real estate investing can open doors to exciting opportunities and financial growth.

Remember, success in fix and flip investing lies in a combination of careful analysis, calculated risks, and sound decision-making. By staying informed, adapting to market conditions, and continuously honing your skills, you can navigate this dynamic sector and reap the rewards of a successful fix and flip investment journey.

🤖 Source: Free Research Preview. ChatGPT may produce inaccurate information about people, places, or facts. ChatGPT May 24 Version

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Jacksonville: (904) 698-2014

Miami: (786) 258-8877

Info@ColemanTanner.com

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Posted in Real Estate Investing

How to Underwrite a Real Estate Investment

Posted on by John W. Tanner, J.D.|M.S.

Real estate investing can be a lucrative way to grow your wealth, but it’s not without risks. One of the keys to success in real estate investing is the ability to underwrite investment opportunities effectively.

What is underwriting?

Underwriting is the process of analyzing a real estate investment opportunity to determine whether it is a good fit for your investment goals and risk tolerance. In this tutorial, we’ll explore the 6 steps you can take to underwrite a real estate investment opportunity.

Step 1: Evaluate the Market


Before you can underwrite a real estate investment opportunity, you need to evaluate the market. This involves researching the local real estate market to determine the demand for properties in the area, the current pricing trends, and the overall health of the market. You’ll also want to consider the potential for future growth or decline in the market.

Step 2: Analyze the Property


Once you have a sense of the market, you can start analyzing the property itself. This involves looking at factors such as the property’s location, size, and condition. You’ll also want to consider any potential zoning restrictions or other legal considerations that could impact the property’s value.

Step 3: Determine the Income Potential


Once you have a sense of the property’s value, you need to determine its income potential. This involves analyzing the property’s potential rental income or resale value. You’ll want to consider factors such as the local rental market, the property’s rental history (if applicable), and the potential for future rent increases.

Step 4: Consider the Costs


In addition to the property’s income potential, you’ll also need to consider the costs associated with owning and operating the property. This includes factors such as property taxes, insurance, maintenance and repairs, and any other expenses related to the property.

Step 5: Calculate the Return on Investment

Once you have a clear sense of the property’s income potential and costs, you can calculate the return on investment (ROI). This involves determining the expected annual cash flow from the property, subtracting the operating expenses, and dividing the result by the total investment.

Step 6: Evaluate the Risks


Finally, it’s important to evaluate the risks associated with the investment opportunity. This includes both the risks associated with the property itself (such as potential vacancy or repairs) as well as broader market risks (such as a decline in the local real estate market). You’ll want to consider the likelihood of these risks and the potential impact on your investment.

Conclusion

Underwriting a real estate investment opportunity is a complex process that requires careful analysis and consideration of a wide range of factors. By following these steps, you can improve your chances of making informed investment decisions that align with your goals and risk tolerance. Remember, investing always comes with risks, so make sure to do your due diligence and consult with professionals as needed.

🤖 Source: ChatGPT Mar 23 Version. Free Research Preview. ChatGPT may produce inaccurate information about people, places, or facts

Posted in Real Estate Investing

How to Create a Private Equity Fund to Purchase Commercial Real Estate.

Posted on by John W. Tanner, J.D.|M.S.

Hello, everyone. My name is John Tanner, and I’m here to share with you some information about how to create a private equity fund to purchase commercial real estate.

By the end of this blog post, you’ll have a good understanding of the five key steps involved in setting up a private equity fund for commercial real estate investing, as well as receive some bonus tips for having success in this exciting and rewarding industry.

First of all, let’s define what we mean by a private equity fund. Essentially, a private equity fund is a pool of money that’s managed by a team of experienced investment professionals, who use it to purchase assets such as real estate, with the goal of generating a return for the fund’s investors.

In the case of commercial real estate, this might mean buying office buildings, retail spaces, or industrial properties, and franchises, among other types of real estate.

So, how do you create a private equity fund to purchase commercial real estate?

Here are the five key steps involved:

Step 1: Define your investment strategy

Before you can start raising money for your fund, you need to have a clear idea of what your investment strategy will be.

This might include things like the types of properties you want to invest in, the geographic regions you’re targeting, and the investment timeline you’re working with.

It’s important to do your research and make sure your investment strategy is well thought out and informed by market trends and data.

Step 2: Build your team

Once you have your investment strategy in place, you’ll need to build a team of experienced professionals to help you execute it.

This might include real estate brokers, lawyers, accountants, and other professionals who can provide valuable insights and expertise as you build your fund.

Step 3: Raise capital

With your investment strategy and team in place, it’s time to start raising capital for your fund.

This might involve reaching out to potential investors, pitching your investment strategy, and building relationships with people who are interested in investing in commercial real estate.

Step 4: Identify and purchase properties

Once you have the capital you need, you can start identifying and purchasing properties that fit with your investment strategy.

This might involve working with real estate brokers to find properties that are a good fit, conducting due diligence on potential properties, and negotiating deals with sellers.

Step 5: Manage and grow your portfolio

Finally, once you’ve purchased properties for your fund, you’ll need to manage them effectively to generate returns for your investors.

This might involve things like leasing out properties to tenants, managing maintenance and repairs, and working with property management companies to ensure your properties are well-maintained and profitable.

So, those are the key steps involved in creating a private equity fund to purchase commercial real estate.

Of course, there are many nuances and details involved in each of these steps, and I encourage you to do your own research and seek out expert advice as you embark on this journey.

Before I wrap up, here are a few tips for success in the commercial real estate investing industry:

✅ Be patient and persistent. Real estate investing is a long-term game, and it can take time to see results.

✅ Stay informed about market trends and changes. The commercial real estate market is always evolving, and it’s important to stay up-to-date on the latest trends and shifts in the industry.

✅ Be prepared to adapt your investment strategy as needed. Just because your investment strategy works today doesn’t mean it will work tomorrow, so be prepared to adjust your approach as market conditions change.

👏 Thank you for joining me today, and I wish you all the best in your future commercial real estate investing endeavors.

🤖 Source: ChatGPT Mar 23 Version. Free Research Preview. ChatGPT may produce inaccurate information about people, places, or facts

⛔️ Disclaimer: This information is for educational purposes only. You should consult with an attorney, accountant, and/or financial advisor licensed in your jurisdiction prior to making any investment decisions.

🔎 For more information like this, follow me at 🖥️ http://www.ColemanTanner.com

🤝 Thank you for your time and attention.

Posted in Real Estate Investing

How to Create a Private Equity Fund to Purchase Commercial Real Estate.

Posted on by John W. Tanner, J.D.|M.S.

Hello, everyone. My name is John Tanner, and I’m here to share with you some information about how to create a private equity fund to purchase commercial real estate.

By the end of this blog post, you’ll have a good understanding of the five key steps involved in setting up a private equity fund for commercial real estate investing, as well as receive some bonus tips for having success in this exciting and rewarding industry.

First of all, let’s define what we mean by a private equity fund.

Essentially, a private equity fund is a pool of money that’s managed by a team of experienced investment professionals, who use it to purchase assets such as real estate, with the goal of generating a return for the fund’s investors.

In the case of commercial real estate, this might mean buying office buildings, retail spaces, or industrial properties, and franchises, among other types of real estate.

So, how do you create a private equity fund to purchase commercial real estate?

Here are the five key steps involved:

Step 1: Define your investment strategy

Before you can start raising money for your fund, you need to have a clear idea of what your investment strategy will be.

This might include things like the types of properties you want to invest in, the geographic regions you’re targeting, and the investment timeline you’re working with.

It’s important to do your research and make sure your investment strategy is well thought out and informed by market trends and data.

Step 2: Build your team

Once you have your investment strategy in place, you’ll need to build a team of experienced professionals to help you execute it.

This might include real estate brokers, lawyers, accountants, and other professionals who can provide valuable insights and expertise as you build your fund.

Step 3: Raise capital

With your investment strategy and team in place, it’s time to start raising capital for your fund.

This might involve reaching out to potential investors, pitching your investment strategy, and building relationships with people who are interested in investing in commercial real estate.

Step 4: Identify and purchase properties

Once you have the capital you need, you can start identifying and purchasing properties that fit with your investment strategy.

This might involve working with real estate brokers to find properties that are a good fit, conducting due diligence on potential properties, and negotiating deals with sellers.

Step 5: Manage and grow your portfolio

Finally, once you’ve purchased properties for your fund, you’ll need to manage them effectively to generate returns for your investors.

This might involve things like leasing out properties to tenants, managing maintenance and repairs, and working with property management companies to ensure your properties are well-maintained and profitable.

So, those are the key steps involved in creating a private equity fund to purchase commercial real estate.

Of course, there are many nuances and details involved in each of these steps, and I encourage you to do your own research and seek out expert advice as you embark on this journey.

Before I wrap up, here are a few tips for success in the commercial real estate investing industry:

✅ Be patient and persistent. Real estate investing is a long-term game, and it can take time to see results.

✅ Stay informed about market trends and changes. The commercial real estate market is always evolving, and it’s important to stay up-to-date on the latest trends and shifts in the industry.

✅ Be prepared to adapt your investment strategy as needed. Just because your investment strategy works today doesn’t mean it will work tomorrow, so be prepared to adjust your approach as market conditions change.

👏 Thank you for joining me today, and I wish you all the best in your future commercial real estate investing endeavors.

🤖 Source: ChatGPT Mar 23 Version. Free Research Preview. ChatGPT may produce inaccurate information about people, places, or facts

⛔️ Disclaimer: This information is for educational purposes only. You should consult with an attorney, accountant, and/or financial advisor licensed in your jurisdiction prior to making any investment decisions.

🔎 For more information like this, follow me at 🖥️ http://www.ColemanTanner.com

🤝 Thank you for your time and attention.

Posted in Life Coaching, Real Estate Investing

New Release: The Entrefluential Investor

Posted on by John W. Tanner, J.D.|M.S.

Become a Real Estate Investor, Start Growing Your Real Estate Portfolio

Have you ever dreamed about owning a handful of properties, like playing the game of Monopoly, but in real life? Me too. And with all of the information online, I’m sure you’ve had your share of flipping, wholesaling, and blah, blah, blah advice. Am I right?

Let me give it to you straight, if it were so easy, then everybody would be doing it! The fact is that those investment strategies are oversaturated, you have to have a ton of conversations to get to the one seller who says yes, and you’re probably going to feel like a snake oil salesperson, at best, or a con artist, at worst. You don’t have to join that madness.

The simplest way to get started is to invest in low-cost tax deeds. Some states offer amazing interest rates (18% to 25%) and their bidding sites make it easy to sign up.

My next favorite real estate investment strategy is to acquire short-term rental (STR) properties. This mini business plan introduces you to my strategy for STR Conversions (a book I am writing).

Learn more here.

Posted in Real Estate Investing

Building a Real Estate Investment Portfolio Roadmap

Posted on by John W. Tanner, J.D.|M.S.
Photo by Rut Gardarsdottir from Pexels

Having a Real Estate Portfolio Roadmap Can Help Investors Identify and Visually Communicate Their Vision.

What is a Real Estate Portfolio Roadmap?

A real estate portfolio roadmap (REPF) is a top-down view of your future real estate holdings that you desire to accumulate over the life of your investment career. The roadmap begins as an idea, becomes a plan of action, the steps needed to reach your end goal – the accumulation of real estate – and works as a punch list throughout your journey.

Because of the difficult nature of real estate transactions, namely their many interrelated pieces, the timeframes presented on this type of roadmap are more like aspirational guide posts rather that steadfast directionals or exacting deadlines.

Your REPR is a working, evolving document. It’s goal is to lay the foundation to reverse engineer your investment agenda over the next five, ten, fifteen, or twenty years.

Do I Need a Real Estate Portfolio Roadmap?

Photo by RODNAE Productionsfrom Pexels

For the novice private investor, a REPR outlines a specific growth path to follow which can help move you towards your end goal faster and with less surprises.

Photo by RODNAE Productionsfrom Pexels

For the investment team, such as a REIT, it moves all stakeholders in the same direction, at the same rhythm, helping them achieve their business objectives with more clarity and synchronicity.

Moreover, using a real estate portfolio roadmap does all of the following:

  • Provides clarity
  • Communicates investment impact
  • Guides the investor (or investment team) along the journey
  • Creates the initiative to forecast future income & expenses for each investment project (deal)
  • Assists the project manager in forecasting required resources for specific initiatives
  • Bolsters accountability, and
  • Tracks milestones and progress
Photo by Breakingpic from Pexels

Action Steps

    • Develop a Real Estate Investment Portfolio Vision.
    • Ask yourself, “how much money do I want to net in retirement?”
    • Talk to other investors, bankers, and real estate brokers to learn about income and expenses for any given investment.
    • Create your investor dream team, which includes an accountant, a lawyer, a banker, and a real estate broker.
    • Decide on your internal management team. (Are you a solopreneur or an entrepreneur?)
  2. Create Your First Draft Picks – a ‘Bird’s-Eye’ View of Your Real Estate Investment Portfolio Over the Span of Your Career (the roadmap).
    • The private investor or management team should brainstorm investment options to meet the investment portfolio vision.
    • Identify specific purchase initiatives, cost estimates, and management (holding) expenses.
    • Decide on how to best structure each deal, taking into account the availability of investment and working capital, funding, tax implications, legal, government restrictions, and internal level of priority.
  3. Create an Internal Investment Roadmap.
    • Start with your first purchase objective. Walk through the entire transaction to identify and document all of the potential moving pieces, costs, timing, potential pitfalls, risk reduction strategies, management duties & expenses, and BTCF.
    • Decide who will be the project manager for the first undertaking (and each project thereafter).
    • Hire your ‘dream team’ and ask your real estate broker to “shop the market.”
    • Implement your plan!
  4. Rinse & repeat!

As your portfolio grows, so will your ability to scale up small projects or take on bigger projects. Thus, your roadmap will undoubtedly be edited several times throughout your career.

Remember, not even “…the best laid plans of mice and men” ever happen perfectly. Be flexible. And, above all, enjoy the journey!

In closing, if you want to be (or already are) a real estate investor who has several properties in mind, then you should create a REPR. It will help you to organize, evaluate, prioritize, forecast, track, and communicate your investment initiatives throughout your investment journey.

As a real estate broker, my team and I want to help you understand our markets and identify potential investment opportunities for you. We want to become your ‘go-to’ real estate consultant, “your source for real estate investment solutions!”

ColemanTanner.com

Corporate office:

The Groover-Stewart Building

25 N. Market Street

Jacksonville, Florida 32202

By Appointment Only

(786) 258-8855

Sales@ColemanTanner.com

Posted in Real Estate Investing, Real Estate: Buy, Sell, Lease

Do I Need a Real Estate Consultant?

Posted on by John W. Tanner, J.D.|M.S.
Let’s talk business!

A real estate consultant is an advisor and counselor, one who can clarify your available investment options, as well as provide you with research and analysis to justify your decision-making. If you are feeling cloudy about your real estate holding, it’s probably time for you to get a third party’s perspective from someone who can shed light on your situation.

Q.1. What Does a Real Estate Consultant Do?

Let’s review your options…

To perform well in real estate investing, you need to get some advice from a professional real estate consultant that is highly informed in the purchase and sale of real property, mortgage finance, income analysis, market valuation, tax consequences, legality, contract terms, risk, and feasibility studies of a proposed project.

With this knowledge, a savvy consultant can provide you with skillful guidance on real estate investing to help you amass a fortune. As such, these services are always in demand.

Are you interested in buying, selling, or leasing real property? Do you need assistance in defining your real estate goals and investment plans? Whether for passive income, retirement planning, or legacy succession planning, a real estate consultant can deliver investment options and strategies that a client can rely on to achieve their financial goals.

Q.2. How Much Does a Real Estate Consultant Charge?

This is going to require an investment of…

Fees vary according to the amount of time involved in conducting market research, crafting investment options to choose from, and outlining holding strategies based on the investors wants and needs, as well as other factors, and the level of detail that is requested. The consultant may charge an hourly rate, a flat rate for services to be rendered within the scope of the assignment, or a hybrid of the two. Additionally, if the consultant is also operating as a broker, he or she may also earn a real estate sales commission for such buying, selling, or leasing services associated with a given transaction.

Q.3. How Does One Engage a Real Estate Consultant?

Help Wanted!

The consultant-client engagement usually begins with a request for information or request for proposal (RFP). On such request, the consultant will gather enough preliminary information to assess the prospective client’s real estate needs, then draft a proposal that defines the scope of work to be performed, the costs associated with the assignment, and any appropriate disclaimers and limiting conditions. The prospective client may then request changes to the scope of work to meet their needs and objectives during the consulting process.

After some back-and-forth negotiation on terms and price, the client will sign the final engagement letter and submit a nonrefundable binder deposit (usually 50% of the fee), with the balance due on invoice and submission of the completed assignment.

Coleman Tanner | Real Estate Consulting

John W. Tanner, J.D.|M.S., is the head of our real estate brokerage and consulting practice, as well as the managing broker in Florida. He is based in Miami and oversees all Florida operations.

John has worked across three sectors of the real estate industry, including loan origination and processing, residential and commercial property valuation, and residential real estate sales. He also studied hotel development while in graduate school at Florida International University’s Chaplain School of Hospitality Management.

While attending Florida Coastal School of Law, John took courses in residential and commercial real estate law, trusts and estates planning, and business law. Through a study abroad program, John attended the Universitè Du Auvergne in Clermont-Ferrand, France, where he studied French business law and international contract negotiations.

John has extensive experience in valuing residential and multi-family properties, as well as some experience appraising retail, hotel, and office/warehouse properties. He has worked for various banks and credit unions, private investors, homeowners, landlords and tenants. His team of appraisers completed valuations of over $500 million worth of real estate from 2004-2010.

To book an initial consultation, visit www.Calendly.com/jwtanner

Your Home for Real Estate Solutions!

For more information about Florida properties for sale or lease, visit www.colemantanner.com

Posted in Real Estate Investing

How To Calculate True ROI for a SFR Rental Investment

Posted on by John W. Tanner, J.D.|M.S.

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.

ROI?

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?

Schedule a FREE Consultation

Posted in Real Estate Investing, Uncategorized

Renters for a Weekend or a While: What’s the Best Use of Your Investment Property?

Posted on by John W. Tanner, J.D.|M.S.

August 2018 - Digital Marketing Campaign - Social Media Image

The residential rental market is now the fastest-growing segment of the housing market. In the United States, the demand for single-family rentals, defined as either detached homes or townhouses, has risen 30 percent in the past three years.1And in Canada, rental units now account for nearly one-third of the country’s homes, with particular demand for multi-family units, including apartments and condominiums.2

At the same time, the short-term, or vacation, rental market is also booming. The popularity of online marketplaces like Airbnb, HomeAway, and VRBO has helped the short-term rental market become one of the fastest-growing segments in the travel industry.3

Now, more than ever, there is an abundance of opportunity for real estate investors. But which path is best: leasing your property to a long-term tenant, or renting your property to travelers on a short-term basis?

In this post, we examine the differences between the two investment strategies and the benefits and limitations of each category. 

 

WHY INVEST IN A RENTAL PROPERTY? The Top 5 Reasons

Before we delve into the differences between long-term and short-term rentals, let’s answer the question: “Why invest in a rental property at all?”

There are five key reasons investors choose to buy real estate over other investment vehicles:

I. Appreciation

Appreciation is the increase in your property’s value over time. And history has proven that over an extended period, the cost of real estate continues to rise. Recessions may still occur, but in the vast majority of markets, the value of real estate does grow over the long term.

II. Cash Flow

One of the key benefits of investing in real estate is the ability to generate steady cash flow. Rental income can be used to pay the mortgage and taxes on your investment property, as well as regular maintenance and repairs. If appropriately priced in a solid rental market, there may even be a little extra cash each month to help with your living expenses or to grow your savings.

Even if you only take in enough rent to cover your expenses, a rental property purchase will pay for itself over time. As you pay down the mortgage every month with your rental income, your equity will continue to increase until you own the property free and clear … leaving you with residual cash flow for years to come.

III. Hedge Against Inflation

Inflation is the rate at which the general cost of goods and services rises. That means as inflation rises, the money you have sitting in a savings account will buy less tomorrow than it will today. On the other hand, the price of real estate typically matches (or often exceeds) the rate of inflation. To hedge or guard yourself against inflation, real estate can be a smart investment choice.

IV. Leverage

Leverage is the use of borrowed capital to increase the potential return of an investment. You can put a relatively small amount down on a property, finance the rest of the investment with a mortgage, and then profit on the entire combined value.

V. Tax Benefits

Don’t overlook the tax benefits that can come with a real estate investment, as well. From deductions to depreciation to exemptions, there are many ways a real estate investment can save you money on taxes. Consult a tax professional to discuss your particular circumstances.

These are just a few of the many perks of investing in real estate. But what’s the best strategy to maximize returns on your investment property? In the next section, we explore the differences between long-term and short-term rentals.

 

LONG-TERM (TRADITIONAL) RENTAL MARKET

When most people think of owning a rental property, they imagine buying a home and renting it out to tenants to use as their primary residence. Traditionally, investors would use their rental property to generate an additional stream of income while benefiting from the property’s long-term appreciation in value.

In fact, that steady and predictable monthly cash flow is one of the key advantages of owning a long-term rental. And as an owner, you don’t usually have to worry about paying the utility bills or furnishing the property—both of which are typically covered by the tenant. Add to this the fact that traditional tenants translate into less time and effort spent on day-to-day property management, and long-term rentals are an attractive option for many investors.

However, there are also limitations to long-term rentals, which often come down to your ability to control the property. Perhaps the most obvious one is that you do not get to use the home or closely monitor its upkeep (this is different from a short-term rental, which we’ll share in the next section).

In addition, while you can usually generate a steady, predictable income stream with a long-term rental, you are limited in your ability to adjust rent prices based on increasing or seasonal demand. Therefore, you may end up with a lower overall return on your investment. In fact, according to data from Mashvisor, in the 10 hottest real estate markets, short-term rentals produced “significantly higher rental income” than long-term rentals.4

 

SHORT-TERM (VACATION) RENTAL MARKET

Short-term rentals are often referred to as vacation rentals, as more and more travelers enjoy the benefits of staying in a home while on vacation. In fact, according to Wells Fargo, vacation rentals are steadily growing and predicted to account for 21% of the worldwide accommodations market by 2020.5

Investing in a short-term rental or funding your second-home purchase by renting it out can offer many benefits. If you purchase an investment property in a top travel destination or vacation spot, you can expect steady demand from travelers while taking advantage of any non-rented periods to enjoy the home yourself. In addition to greater control over how your property is used, you can also adjust your rental price around peak travel demand to maximize your returns.

But short-term rentals also have risks and drawbacks that may dissuade some investors. They require greater day-to-day property management, and owners are typically responsible for furnishing the property, upkeep, and utilities.

And while rental revenue can be higher, it can also be less predictable based on seasonal or consumer travel trends. For example, a lack of snowfall during ski season could mean fewer bookings and lower rental revenue that year.

In addition, laws and limitations on short-term rentals can vary by region. And in some areas, the regulations are in flux as residents and government officials adapt to a new surge in short-term rentals. So, make sure you understand any existing or proposed restrictions on rentals in the area where you want to invest. Urban centers or suburban communities may be more resistant to short-term renters, thus more likely to pass future limitations on use. To lower your risk, you may want to consider properties in resort communities that are accustomed to travelers. We can help you assess the current regulations on short-term rentals in our area. Or if you’re interested in investing in another market, we can refer you to a local agent who can help.

 

 WHICH INVESTMENT STRATEGY IS RIGHT FOR YOU?

Now that you understand these two real estate investment options, how do you pick the right one for you? It’s helpful to start by clarifying your investment goals.

If your goal is to generate steady, predictable income with less time and effort spent on property management, then a long-term rental may be your best option. Also, if you prefer a less-risky investment with more reliable (but possibly lower) returns, then you may be more comfortable with a long-term rental.

On the other hand, if your goal is to purchase a vacation or second home that you’ll use, and you want to defray some (or all) of the expense, then a short-term rental may be a good option for you. Similarly, if you’re open to taking on more risk and revenue volatility for the possibility of greater investment returns, then a short-term rental may better suit your spirit as an investor.

But sometimes the decision isn’t always so clear-cut. If your goal is to purchase a future retirement home now to hedge against inflation, rising real estate prices, and interest rates, then both long- and short-term rentals could be suitable options. In this case, you’ll want to consider other factors like location, market demand, property type, and your risk tolerance.

 

HERE OR ELSEWHERE … WE CAN HELP

If you’re looking to make a real estate investment—whether it’s a primary residence, investment property, vacation home, or future retirement home—give us a call. We’ll help you determine the best course of action and share insights and resources to help you make an informed decision. And if your plans include buying outside of our area, we can refer you to a local agent who can help. Contact us to schedule a free consultation! (904) 373-8453.

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

  1. USA Today –
    https://www.usatoday.com/story/money/personalfinance/real-estate/2017/11/11/renting-homes-overtaking-housing-market-heres-why/845474001/
  2. The Globe and Mail –
    https://www.theglobeandmail.com/real-estate/the-market/article-demand-for-rental-housing-in-canada-now-outpacing-home-ownership/
  3. Phocuswright –
    https://www.phocuswright.com/Travel-Research/Research-Updates/2017/US-Private-Accommodation-Market-to-Reach-36B-by-2018
  4. com –
    https://www.rented.com/vacation-rental-best-practices-blog/do-long-term-rentals-or-short-term-rentals-provide-better-investment-returns/
  5. Turnkey Vacation Rentals –
    https://blog.turnkeyvr.com/short-term-vs-long-term-vacation-rental-properties/
Posted in Real Estate Investing

2 US Visa Options for International Investors

Posted on by John W. Tanner, J.D.|M.S.

If you are an entrepreneur and have the ability to invest in or start a US business, there are two visa options that may be right for you: the EB-5 (Foreign Investor) Visa and the E-2 (Treaty Investor) Visa.

EB-5 Visa

The foreign investor with a capital investment of $500,000 dollars, or more, who is willing to enter a business within a designated TEA (target employment area), which may be either a rural location or an area with a high unemployment rate, may be eligible for the EB-5 Visa.

Q: Does the foreign investor have to manage the business?

A: No. The investor does not need to personally oversee managing the business, and is able to hire a manger to oversee the operation. The investor can also choose to be a limited partner.

Q: Does the investment capital have to be all cash or can it include debt or intangible assets?

A: No. The investment does not have to be all cash. It can include a mix of cash, equipment, goods, other tangible assets (furniture, fixtures, & equipment), cash equivalents, and secured credit lines.