Every business needs a base of operations and, if the kitchen table isn’t fit for purpose, it may be worth considering a move altogether. The professionals at Coleman Tanner Realty are determined to help you find a property suitable for both living and working. But, before you reach out, here are some important questions you should first ask yourself.
What Are Your Home Office Requirements?
When it comes to setting up a home office, there are a few key requirements – the most obvious of these is space. It can be a good idea to calculate how much square footage your business requires.
For entrepreneurs that are dealing with physical products, this may be more than someone who is entirely digitally based. Space is also a consideration when trying to partition your workplace from family areas – using floor plans, we can gauge your requirements and work out your specifications precisely.
On the other hand, if you’re working digitally you’ll have an increased reliance on high-speed internet access. The Federal Communication Commission (FCC) broadband deployment map can help you to check internet availability and compare locations. The FCC’s recent progress report found that 6% of Americans still do not have internet access so be sure to check any potential locations for dark spots.
Where and When To Move?
Location is doubly-important for someone looking to secure a home office – you may want to move into or close to a thriving business ecosystem. A study by the EPA found that central business districts tend to generate 20 more patents per worker and that’s not to mention reduced shipping costs, proximity to clients and other key benefits.
However, with the advent of remote working, these advantages can be offset by the higher costs, denser traffic or inconvenience to family life. You’ll want to weigh up your options and consider location in relation to your work.
If you’re looking to form an LLC (Limited Liability Company) in Florida then you should also pay close attention to state regulations. An LLC can help you save on paperwork, tax and reduce your personal liabilities, but the rules vary depending on location in the USA. Click here to learn more about the registration process.
The other consideration is ‘when’ to buy. In a seller’s market, it may be smarter to wait or even to purchase in an area that you think may scale over the coming years. There are now a number of online tools to help you identify high-growth properties in areas nearby or you can contact your agent directly to request a free market analysis.
How Can I Save Money?
As important as the market itself is, understanding mortgage rates and buying strategies is also key.
For example, you can save money with a new property by purchasing ‘as is’. This means that the seller has made no repairs prior to listing and any problems, major or minor, become your responsibility.
In this case, you should look to work with a lawyer to inspect and examine the land records and the property itself for any potential red flags. A property ‘as is’ can represent a great investment but background checks are crucial to avoid regrets later.
Once you’ve asked yourself the above questions, you’ll have a clearer idea of what kind, whereabouts and how to go about finding the perfect work-from-home property. From there, you’re ready to hire a trustworthy Realtor®️ and begin your house hunt.
Connect with the experts at Coleman Tanner Realty and take the next step toward securing your dream Florida home.
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?
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.
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:
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
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?)
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.
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!
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!”
Qualifications: Florida Real Estate Sales Licenses
Work Authorization: U.S.
Job Responsibilities: As a Real Estate Agent, you will be tasked with representing buyers, sellers, landlords, or tenants in the acquisition or disposition of real property (residential or commercial).
Training: We offer a free 7-module post-licensing residential real estate sales and marketing training series and first-time homebuyer course, available on Udemy at: https://www.johnwtanner.com/courses
Duties: Assist sellers with determining the value of their home, demonstrate the benefits of showcasing their home, and help them find a buyer by promoting their home via online marketing, MLS listing syndication, and hosting open houses. Assist buyers by determining their wants and needs, discovering neighborhoods and the lifestyles associated with them, and viewing new construction homes and resale homes in those sub-markets. Present offers, facilitate inspections, and negotiate changes as necessary for our client’s best interests. Schedule the final walkthrough and closing. Follow up with clients after closing. Assist landlords with locating tenants or assist tenants with locating a property for lease, negotiating contracts, and conducting due diligence (qualify the person or the property).
Consulting & Property Management: Provide clients with assistance in determining investment strategies, exit strategies, and asset management.
Networking: Develop a robust list of contacts with third parties who service real property owners.
Valid driver’s license
Motivation and grit!
Witty and creative team players with extroverted personalities are encouraged to apply.
Locations: Miami, Fort Lauderdale, The Palm Beaches, Naples, Tampa, Orlando, Pensacola/Destin/FWB, Tallahassee, Jacksonville/Fernandina Beach/St. Augustine, and Daytona Beach.
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:
What is the property worth?
How do you calculate return on investment? (ROI)?
How much equity will I earn through appreciation?
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.
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.
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.