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Single-Family or Multi-family Rental Properties: Which Is Superior?

Rental Properties

For those unable to withstand the stock market’s volatility, real estate can be an excellent alternative. It’s also a better investment for investors who’re looking to take on an active role in increasing their capital, instead of passively putting their money into a fund for someone else to manage. The fact that multiple strategies can be successfully used is one of the greatest advantages about investing in real estate.

For instance, real estate investing moguls – Zhang Xin and Donald Bren both built their billion-dollar fortunes by developing several residential and commercial properties. In contrast, Sam Zell, the founder of Equity Residential, built his wealth by slowly acquiring an income-producing portfolio of rental properties.

Other real estate investors have also earned a lot from purchasing properties or house flipping for cents on the dollar (buying houses in disrepair and renovating them to sell them at greater cost). One such form of investment is in multi-family properties; let’s see why it’s one of many investors’ best options.

A Lot Easier to Finance, But More Expensive

In many cases, purchasing an apartment building as an investment is substantially more expensive than the cost to buy a single-family home. While a single unit rental can cost an investor a few thousand dollars, a multi-family building can go up to millions.

Initially, it may seem as though securing a one-family property loan is simpler than trying to secure funds for a million-dollar complex. However, the fact is, a multi-family property has more chances of being approved by a bank for a loan than a typical home. The reason is that multi-family properties consistently generate strong cash flows on a monthly basis. This remains the case even if a property has many vacancies or some tenants who don’t pay rent on time.

If a tenant moves out of a one-family home, that whole property become vacant. In contrast, a property with ten units and a single vacancy is considered 10% vacant. Consequently, the chance of foreclosing on an apartment building isn’t as high as a one-family rental. All of this translates to a less risky investment for a lending institution; it can also result in a better interest rate for the landlord.

Growing a Portfolio Doesn’t Take Much Time

For property investors who intend to build a relatively big rental units portfolio, multi-family real estate is a great option. Acquiring an apartment building with 20 units is less time consuming and more efficient than buying 20 different one-family homes. With the latter option, an individual would need to work with 20 different sellers and perform inspections on 20 houses, with each of them a potentially at different locations. This route would also need an investor to open 20 separate loans for each property in certain cases. By simply buying one property with 20 units, this headache can simply be avoided.

You’re in a Situation Where Property Management Makes Financial Sense

Certain real estate investors don’t enjoy the hassles of property management and appoint a property management firm to take hold of their rentals’ day-to-day operations. Typically, a property manageris is paid a portion of the monthly income that a property produces. Their responsibilities may consist of screening and finding tenants, maintaining the property, handling evictions, and gathering rent payments.

Many investors who own one or two single-family homes don’t have the luxury of contracting a manager from outside since it’s not a financially sound decision considering their small portfolio. The amount of money that multi-family properties generate every month gives their owners room to leverage property management services without substantially cutting into their margins.

The Bottom Line

Like stocks, investing in real estate enables an individual to be successful using a variety of different strategies. Owning a collection of rental properties is one of the most popular ways to invest in real estate. One-family rentals are properties consisting of just one residential rental unit, while apartment complexes that have more than one rental unit are referred to as multi-family properties. There are a plethora of advantages to owning multi-family real estate. These comprise the ability to grow one’s rental property portfolio quickly, and access to better and easier financing opportunities. So go ahead and invest in multi-family properties. It’s worth it.

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How to Determine the Value of Your Real Estate Investment

Real Estate Investment

Please answer a simple question: How much time do you spend picking out clothes every morning? Usually, it’s longer than most investors spend doing the math for real estate investment analysis. Unfortunately, people select deals based not on analytics, but intuition.

Diving deep into the details of deal analytics may feel like a trip to jargon-town. Total return? Cash-on-cash return? NOI? Cap rate? Feeling bewildered? You’re not the only one.

In this article, we teach you how to determine the value of your real estate investment – the preliminary step towards conducting a real estate analysis. Different properties are valued differently. Evaluating a triplex the same way you assess a single-family home will lead to a wildly skewed figure. Here is what you need to know.

Single-Family Homes

Market comparables (comps) identify the value of the investment, single-family homes, etc. These comps are nearby properties demonstrating similar characteristics. They share variables like amenities, garage size, number of bathrooms and bedrooms, floor plan. Generally, a single-family investment home increases in value if a similar home nearby is also increasing in value – and vice versa.

Multi-Unit Properties

Larger investment properties – those consisting of at least two units, and especially those with over four, are valued and priced differently. The value is directly related to how much profit or income the property generates. It’s possible that an apartment building in a neighborhood where house prices are declining could increase in value.

You can’t compare your apartment building to others down the street to assess how much it’s worth. This is where real estate investment analysis comes in handy. There are several primary factors to take into consideration. However, appreciation and cash flow are the two most important variables. To put it simply, cash flow is the money left after every bill has been paid, and appreciation is referred to as the equity acquired as the value of property increases.

Since there aren’t many ways to estimate future appreciation without a crystal ball, it’s better to focus on the cash flow.

Collecting your information

Good financial analysis consists of feeding a bunch of information into a financial model and using its calculations to determine whether the investment is good or bad – and right for you. Be aware of these variables for the most comprehensive financial analysis of a residential property:

  • Property details – utility metering design, square footage, number of units, etc.
  • Purchase information – improvement costs or purchase price plus rehab, or total purchase expenses.
  • Financing details – loan or mortgage information, like closing costs, interest rate, down payment, and the total loan amount.
  • Income – rent payments along with any other income the property generates.
  • Expenses – maintenance costs, including maintenance, insurance, and property taxes.

Actual or Pro-Forma Data

Getting good data from your model needs accurate, reliable information. Remember: It is in the seller’s best interest to offer appealing, not precise, numbers. For instance, they may offer high rental income approximations or neglect to mention some maintenance expenses. It is part of the investor’s job to ensure you have the best available information.

Estimated – or pro-forma – data from the seller only kicks off the discussion. Determine the actual numbers before closing. Ask to see maintenance records, property tax bills, and previous years’ tax returns. Hopefully, the actual data resembles the pro-forma data. However, don’t be surprised if it doesn’t.

Don’t forget to check for a prospective surprise

Check for a surprise as well. For instance, when was the last time the property was evaluated for taxes? If it was a while ago, and values have substantially increased, it is possible that the taxes will increase and the property will soon be reevaluated. Even little changes to expense and income numbers can mean significant changes to your bottom line.

Where to look for data?

Confused as to where to track down the necessary information? Begin here.

  • The seller must make the property details available. For more detailed, comprehensive information, check with your local records.
  • Purchase information comprises any improvement or upfront maintenance work that must be finished before the property’s income potential is met. Have the property inspected to ensure that no hidden problems or issues exist.
  • Your mortgage broker or lender may offer financing details.
  • The seller directly gives the income details – but don’t depend on pro-forma data. You can also have a chat with the property management firm currently dealing with the property, if one exists, for this information.
  • The property Management Company or seller must directly offer expenses. A building inspector can notify you regarding any major repairs that may surface, like an HVAC system or a new roof. 
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Investors Guide For Choosing The Top Real Estate Firms To Grow Their Business

top real estate investment firms

People who’ve made huge fortunes by investing in real estate did it by strategizing their approach towards buying real estate properties, analyzing their competition, and understanding the ins and outs of the market. Only then they were able to reap the lucrative benefits of investing in the Real estate market.

If you’re new to the market, then we suggest teaming up with a leading real estate investment firm as they are seasoned players of the Real Estate market and will help you in making the right choice.

People say that you learn by mistakes, but a single mistake in the real estate market could throw you out of the game for good. That’s why we suggest you team up with these companies as they won’t let you make costly mistakes while also educating you about investing in the real estate market.

But not everyone is what they seem to be. It’s a matter of trust and your hard-earned cash that you’re putting in the hands of a real estate firm, that’s why it is important you choose the right company as the future of your investment depends on it.

Looking to find the top real estate investment firms to help you in making the right investment decision? Here are the things you should check before teaming up with a real estate investment firm.

It’s All About Experience

Every day a new real estate company pops up because of the ever-increasing market. We suggest that you go with one that has been in the business for many years. What is the point of teaming with an inexperienced company that is will make the same mistakes as you?

Companies that have hands-on experience in dealing with the real estate market will have a track record to prove their years. You should inquire about their old clientele, their wins and losses, their history, as well as the individual experience of the team members like the real estate agents, brokers, and other experts like lawyers, etc.

Does The Company Understand You?

The second most important thing is that the real estate company should understand your aims and objectives. Before deciding on a real estate company, decide for yourself that your goals are, do you wish to see yourself in the residential real estate market, or you better off in the domain of commercial real estate? Consider this before you decide on a company, and once you’ve figured out your goals, choose the real estate firm accordingly and see if you and they have a mutual understanding regarding your real estate objectives.

Is The Company Open To Teaching And Guiding You?

The top real estate investment firms are known to teach young investors about the ins and outs of the real estate market. Is your company doing the same? There are a few real estate firms that only tell you as much as they deem fit while keeping most of the information for themselves. They believe that if investors know everything, there is to know, then they will see no purpose of the investment firm and will start investing in real estate on their own. However, that is not the case, investors tend to stay with the company as the learning process is never-ending and because the company has also earned the trust of the investor – which is hard to find these days.

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Is Inventing in Airbnb Properties Still A Good Idea?

Inventing in Airbnb Properties

People who have invested in Airbnb have made a huge fortune with short-term rentals. But, it’s not all that easy – there are a ton of things that most real estate investors ignore, which results in loss of their money. Like any other investment, Airbnb also needs due diligence and a strategy.

If you’re planning to invest in Airbnb properties, then you’re in luck as we’ll be sharing some of the things that you should know about before you invest in Airbnb properties today.  

Don’t Jump Right Into It

Every real estate investor’s dream is to make millions overnight, but sadly, that’s not how it happens. The same is with Airbnb investment. Before deciding to invest in this particular market, ask yourself that do you really want to be a part of it at all? While we could help you in deciding but only you and you alone should answer that.

Just like any other business, you need to start small. Don’t jump right into it as that never turns out good for anyone. When making a business strategy, consider the pros and cons of investment in Airbnb properties. Doing the proper research before investing in this market will help you understand it better and make it easy for you to decide whether to invest or not.

There Are Regulations Involved

Yes, you heard us right – there are regulations involved, and we recommend you understand them before you invest in Airbnb properties. In some cities, it is restricted and even illegal to lease properties on a short-term basis. These cities include New York, San Francisco, and Santa Monica. In these cities, it is illegal to rent out properties unless the permanent tenant or the owner is residing in the property while it is being rented on Airbnb.

If you don’t comply, you might be subjected to harsh legal consequences that could ruin your future in the Airbnb market. We don’t say this because it could happen, we say this because it has happened to Airbnb investors and, as a result, they had to pay hefty amounts of cash in fines. So, be careful and understand the regulations before you plan to invest in Airbnb properties.

Tough Competition

If anyone has told you that investing in Airbnb is the easiest way to make insane money, then let us tell you that you’ve been fooled. The Airbnb market is very competitive, just having a rental property isn’t enough, you should know the art of marketing it as well.

Airbnb claims to operate in almost 65,000 cities with more than 3,000,000 listings. So, how could you make your property stand apart? Let us tell you a little secret. Airbnb market runs on reviews from people who’ve rented your property. In order to get a good review from them, you need to spend a little extra, like quality beddings, professional photography, welcome basket, bathroom accessories – all of this coupled with the right marketing will surely make your rental property stand apart from the rest.    

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Why Should You Hire an Investment Property Management Company?

Investment Property Management Company

Real estate property is a valuable asset, especially if you own rental property, with time the property’s value increases, and so do the monthly rent you get. But it’s not as easy as it sounds. Owning rental and commercial property is one thing, but managing it is another. You have to make sure that it’s utilized to its fullest extent, the property is maintained adequately, which includes repairs and upkeeps, and lastly, you’re marketing your rental property the right way to reap its full benefits.

If you feel overwhelmed by these tasks, then worry not as investment property management companies will take care of everything while you sit back, relax, and enjoy the additional income made off from these properties.

If you’re still unsure about how an investment property management company can help you, then continue reading as we’re going to mention a few reasons why you should hire such a company.

Investment Property Management – The Remedy For Tenant Trouble

If you’ve had tenants before, then you must be aware of how problematic it could be to deal with troublesome tenants. It’s like living on life support, you can’t throw them out because of the contract, and they are always getting on your nerves.

Hiring an investment property management company is the one solution for all your rental trouble. They have hands-on experience in reviewing tenant applications; this enables them to identify the good tenant qualities that you’re looking for, like taking care of the property, paying rent on time, and more. Property managers will also let you know the possible red flags, which could result in troublesome tenants.

Acting As The Bridge Between You And Your Tenants

Hiring an investment property management company becomes necessary when you own multiple units. Imagine something breaking at your rental property; you will have to drive all the way to your unit and inspect the incident yourself. This could be more time consuming if the property is in another state or town. Property managers will see all this personally and keep you in the loop. Even if you have tenants that complain a lot, your manager will be the ones receiving their calls so you could relax and take care of other important stuff.

Timely Rent Collection

You don’t pay investment property management companies out from your pocket; instead, they deduct their fees from the monthly rent collection, that’s why they are as much as motivated and concerned when it comes to rent collection.

Property managers will make sure that that rent collection is done consistently, and if payments aren’t made on time, then they will enforce lease policies, which could also mean issuing eviction notice if it comes to that. Rent collection is a common issue when it comes to managing rental properties, and property managers are well trained to handle this concern so that your cashflows aren’t affected.

Apart from these issues, there are also concerns like maintenance of the property, legal matters, and periods of vacancy. An investment property management company knows how to handle all such issues, and they will make sure that your property is managed in a productive and profitable way.  

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Real Estate Investment Analysis – The Right Way of Doing It

Real Estate Investment Analysis

Analysis is an integral part of real estate investment, investors who want to reap the lucrative benefits of real estate investments should do a complete market analysis before entering the domain of real estate. Rental home investors usually have several units or properties on their hands, but not every property is the same when it comes to cash returns. Some properties might pay off more than the others. Investing in the right real estate property could result in double-digital cash backs, along with consistent cash flows for many years to come.

You might be wondering what do you have to do to get similar cash returns on your real estate investment? Well, we’re about to share the secrets of analyzing real estate investments so you too could reap the full benefits of your rental property.

Analyzing Cash Flow

Evaluating your cash flow is the most important thing before you invest in a real estate property. The more you borrow, the less your cash flow will be. When you subtract the debt service from your Net Operating Income (NOI), then you have your profit. If you pay cash for your property, only then your NOI will equal your cash flow.

The real estate market is always in flux, and your cash flow is directly affected by the on-going changes in the market, along with several economic factors. For example, the demand for a rental property could hike overnight because of a new shipping port or a factory opening in the area; the demand could also plummet when the local business closes and moves elsewhere.

Economic factors

The federal reserve also has a part to play in regulating the price of the property as they could increase the interest rates, which will drive up the basic cost of borrowing while having a ripple effect on the real estate market. This small change could increase the cost of buying new real estate properties, which could result in reducing your cash flows.  

Due diligence is the only solution

Such things are beyond the control of the common man, but no one is stopping you from preparing for these situations. Due diligence about the condition of the local business and keeping an eye on economic news while predicting changes in the interest rates could almost make you immune from all such changes. Keep your contracts and leases according to the market conditions, and your properties will be as profitable as they could have been.

Analyzing NOI

Assessing your NOI is the basis of any real estate investment analysis. To simply explain, NOI is one of the several real estate metrics used by investors to evaluate how lucrative the real estate property could be. NOI is the primary indicator of the property’s on-going revenue, but it does not include capital expenses like loan coats and taxes. If you want to know the NOI of your property, then subtract the expenses from the total income, and you’ll have your NOI.

There are other factors to consider as well like, property taxes, depreciation, insurance, and maintenance while investing in a real estate property, but one thing is sure, if you want to make double digits cash backs on your real estate properties, then you need to analyze every angle and corner of the property before you decide to invest in it.    

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All You Need To Know About Private Lending

About Private Lending

Everyone dreams of being the owner of their dream house, but not everyone could see their dream come true. With constant ups and downs in the real estate market along with the country’s economy, it is a tough job to buy the house you want, especially in your desired budget. If you already own a house, then you must be aware of the trouble one has to go through in buying a house. Investing in real estate is probably one of the smartest and safest financial plans that promise huge returns.

If you’ve lately looked at house prices, then you’ll know that a good-looking modern house will break your bank. First-time buyers usually don’t have few millions lying around; neither do they have such savings. This is where you have two options – either you apply for a mortgage loan at a bank or consult a private lending firm.

What Will It Be – Bank Loan or Private Lending?

People who can’t get a bank loan usually turn towards private lenders. These individuals or private lending firms will invest their capital in your real estate investment or business so that you could get what you want, but they aren’t just good Samaritans – there is a price, usually in the form of interest rates.

When you borrow money from such firms or private lenders, you are liable to pay them within a fixed time period along with an interest rate.

Individuals who usually go for private lending are rejected from banks because of various reasons, like bad credit scores, employment issues, or low income.

The Advantages of Private Lending

No One’s Checking Under the Hood

When you opt for private lending, no one is going to check whether you have a job or not, what is your credit score, your monthly income and other things like that. Even if you’re turned down by a bank, you could still qualify for private lending.

Hassle-Free Process

When you apply for a bank loan, you have to sign like a million papers while a hundred other “formalities” are also involved. Private lending in comparison is hassle-free, you can qualify in a few minutes and get the money in a few days (depending on the amount of money.) Paperwork will still be required even in private lending, but there the approval, along with the funding, will be swift.

Individualized Plans

A bank loan as one size fit for all plan for every individual who applies for a loan, but a private lending entity will let you decide the time and plan of paying back the money.

Disadvantages of Private Lending

High-Interest Rates

This is probably the only drawback of private lending. People who opt for private lending have to pay high-interest rates, which could as much as 15% or higher. These people are usually rejected by banks, and the only way for them to get the required capital is by private lending. Therefore, it leaves them no choice but to agree to such interest rates.

Although this might seem like a major blowback of private lending, a bank wasn’t providing you a loan for free as well. It would’ve charged you just as well in the form of interest rates. They might be less than private lending, but there are other “hidden” expenses as well like credit card bills, etc. Therefore, at the end of the day, private lending is still somewhat better than applying for bank loans.    

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Understanding Self Directed IRA For Real Estate

Self Directed IRA For Real Estate

Individual Retirement account (IRA) allows individuals to save money for their retirement in a tax-advantaged way. When there is saving, there is the idea of investment as well, and one of the most misunderstood and least discussed is the self-directed IRA. People usually confuse self-directed IRA with other types of IRA, like SEP IRA and Roth IRA. But self-directed IRA is a category of its own and is completely different from other IRAs.

Before we dive deep into the technicalities of the IRA, let us first understand what does Self-directed IRA means.

What is the Self-Directed IRA?

The self-directed IRA is basically an “individual retirement account” in which the investor, which is you, will have complete control and responsibility for all the investments in your account. While typical IRAs that are offered through different financial institutions tend to limit your investment options – we are talking about bonds, mutual funds, and stocks. With a self-directed IRA, you can easily invest in a huge range of investment opportunities, such as real estate.  

Self-Directed IRA For Real Estate

Planning to invest in real estate? Wise move – but before you do that, we need to know a few things. First things first, you need to set up a self-directed IRA. Some reputable companies and firms offer individual investors the ability to set up their own self-directed retirement account. Because of the complex nature of the IRAs, we recommend that you have a custodian that will take care and provide you with all the information and guidance as you navigate yourself through the uncharted territory of the IRS tax code.

What Do You Need To Know About IRA Custodians?

Just like real estate agents, IRA custodians could also have complicated fee structures. Therefore, we advise you to do your research and understand all there is to (potential fees and expenses) before you contact a custodian as it could heavily impact your overall return on investment.

Benefits of Self-Directed IRA investment in Real Estate

You’re the one in-charge

The name says it’s all, “Self-directed” IRA makes you the one who is running the show. You’ll be solely responsible for handling your financial future. With some help from a trusted accountant and a real estate IRA, you will be able to make the right decision that will keep you happy in the later part of your life.

Higher ROI potential

When you invest in real estate through Self-directed IRA, you’ll have more flexibility regarding the overall amount that you want to invest, which means there is the potential for higher ROI.

Investing in real estate is a dream for everyone, and the self-directed IRA is the perfect route to do so. With financial freedom, you’ll be the one making decisions and controlling your own financial future so you could see a happy ever after.    

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What to Know Before Investing in Multi-Family Properties?

Investing in Multi-Family Properties

People often believe that investing in real estate and the stock market will reap the same benefits, but that isn’t the case. Make no mistake; the stock market is infamous for its volatility while the real estate market is known for its lucrative cash returns. People who like to have a role in growing their capital are ideal for the real estate market – they are the ones in charge of cash flows and investments, and best of all, they can come up with their own marketing strategy to give them an edge over their competition.

Investing in rental property is the preferred investment for investors who like to have an additional source of monthly income while also growing the value of their property. If you are planning to invest in residential property, then there are two types of properties you should know about; single-family (typical houses for rent) and multi-family properties (large residential complexes.)

Investors who are looking to take their real estate business to the next level could invest in multi-family properties as it’ll allow them to produce more income while building net worth much faster.

If you are planning to invest in multi-family properties, then these are the things you should know before you step into the market.

Location Matters

Like any other real estate investment, the location of the property matters, in fact, it is of the prime importance in multi-family properties. How is the neighborhood? Is the area close to the freeway or the subway? Does it provide quick access to downtown areas? It the area in itself popular? Is it close to educational institutions? Is it close to a park?

Also consider other demographics like the size of average houses, age of the residents, local economic activity (availability of new jobs in the area), and, most importantly, the crime rate of the area. All this should be taken into consideration before investing in multi-family properties, as tenants will make sure to consider everything mentioned above before moving into the building.  

Condition Of The Property

The physical condition of the multi-family property must also be assessed before investing in it as it can affect your tenants – becoming a liability for you in the future. If you’re planning to invest in an apartment building, then you should inspect a few things. Like the roof and its condition, the building’s central heating and air conditioning system, the plumbing and electrical works, the condition of the elevator, and most importantly, is the foundation of the building concrete?

You should also calculate the expected future repairs or renovations that you might incur in the long run. Everything should be considered before investing in a multi-family property as it can help you in negotiating the right deal when acquiring the property and also when you’re planning it for further investment.

Along with these factors, you should also consider the competition in the area along with the vacancy rates. Investing in multi-family properties could have huge monetary benefits if the planning is done flawlessly – making it the investment to take your real estate business to the next level.