Embed Size (px)
DESCRIPTION
Have you ever dreamed of becoming a savvy real estate investor? Hosted and presented by this area's industry experts, free slideshare will prepare you for the real estate, property management, mortgage, tax, and settlement expectations for investment property ownership. Did you know: You can make more money with less risk in long term real estate investment than in flipping homes? Property management fees are tax deductible? You need 2 years of landlord experience for rental income to be considered as cash flow for another property? Less rent CAN be more return? Learn more about these topics and the best ways to invest in residential real estate with this presentation, assembled by local area experts: Tommy Chambers, Vince Coyle, Tommy Trask, and Helen Krause.
Citation preview
{Flipping is for Pancakes.
Presented by: McGrath Real Estate Services, MVB Mortgage, New World Title, & National Capital Corporation
…how to be a savvy real estate investor
What makes a good investment property?
How does the investment perform as a business?
Do an operating analysis! Understand your risks and liabilities and
how to manage them.
Flipping is for Pancakes!
…not houses!!
If you are already represented by a Realtor/broker, discuss your ideas with them, this is not intended to solicit your business if you have already hired representation.
McGrath Real Estate has a niche as a property management firm that serves the investor.
Discuss with a Realtor
Making a sound investment choice is quite simple.
Watch out for myths, misinformation, and distractions.
THE BASICS
Gross Rent Multiplier (GRM) … lower is better!
Capitalization Rate (Cap Rate) … higher is better!
Scalability
Quantitative Measures
GRM is the ratio of real estate investment to its annual rental income BEFORE expenses.
Sales Price / Gross Annual Rent = GRM
Ex. 1: $400,000 / $24,000 = 16.7 Rent is $2,000 month
Ex. 2: $500,000 / $33,600 = 14.9 Rent is $2,800 month
Which house is a better investment?
Gross Rent Multiplier
The Cap Rate is the ratio between the net operating income produced by an asset and its capital cost, or alternatively, its current market value.
NOI / Sales Price = Cap Rate Ex. 1: $15,000 / $350,000 = 4.3% Ex. 2: $40,000 / $580,000 = 6.9%
Which house is a better investment
Capitalization Rate
If one is good, two is better. Ex.1: $500,000 home rents for
$2,750/month Ex. 2: $1,000,000 home rents for
$5,000/month
Two $500,000 homes renting for $2,750 = $5,500 AND if one is vacant you still get $2,750/month.
Scalability
Measuring Risk Risk vs. Reward Remember scalability…
Qualitative Measures
Tenant likelihood of paying rent Tenant care of property Pets & Smokers Laws of local jurisdiction Job grown/economic stability School district Proximity to metro
Measuring Risk
Tier 1 vs. Tier 2 markets Sales Appreciation Rent Appreciation Long term leases
Risk vs. Reward
Length of ownership 7+ Years
Number of tenants in five years? 3 is the dividing line
Economic trigger years Cap Rate vs. Interest Rate
Simple Measures for Success
1st Priority: High Quality of Tenant 2nd Priority: Vacancy time/secure longer
term tenancies 3rd Priority: Maximize monthly cash flows 4th Priority: Tax Benefits and
Consequences 5th Priority: Protect your ASS(et) – Hire a
Property Manager
The Most Successful Landlords
{
Mortgage Decisions
Vince Coyle – Senior Loan OfficerCoyle Mortgage Team • MVB Mortgage
Cash Flow
Simply put, cash flow is the movement of money into and out of a business. A professional property manger can help ensure the money going in is maximized (rent).
My job is to make sure the money going out is minimized (mortgage payment).
Investment Property Mortgages
They are the same loan types and terms as primary residence or vacation homes.
Selecting the right type and term can have a significant effect on your bottom line.
Selecting the wrong type and term can turn a great investment into a poor one very quickly…
Mortgage Loan Types
Fixed vs ARM (Adjusted Rate Mortgage)
Fixed Rates have different terms Terms (30 years, 20 years, 15 years, 10
years)
ARMS (Adjustable Rate Mortgages) ARMS are not EVIL Terms (3 Years, 5 Years, 7 Years, 10 Years)
Down Payment??
If you are acquiring a property for the purpose of being an investment, the minimum down payment is 20%.
TIP: Putting down 25% can reduce your interest rate by up to .25%.
On a $400k investment property with a 30yr fixed:
20% down payment = 4.75% 25% down payment = 4.50 %
THE FBI INVESTIGATES MORTGAGE FRAUD
Common Pitfalls
Down payment guidelines are more relaxed for primary residence and second home purchases. Rates and closing costs are also lower. As a result, some clients attempt to manipulate the system.
Attempting to call this new purchase a “primary residence” when it is clearly an investment property.
Attempting to call this new purchase a “second home” when it is clearly an investment property.
Common Pitfalls (cont.)
If you don’t have a two year history of being a landlord, you can’t use the future rent to qualify for a mortgage. (You will have to qualify carrying your primary and investment property)
There are many investors who will not allow a client to carry more than 4 mortgages TOTAL on their credit profile.
Mortgage Tips
If you live in a home and wish to rent it out and acquire a new primary residence, you will have the benefit of a nice low rate and smaller down payment.
Condos are commonly thought of as a smart investment. There are more restrictions on condos than ANY other property type. (LTV, Investor %, condo dues, defaults)
If you work with the mortgage lender in front of you, you can have up to 8 mortgages in some cases.
IT IS NEVER A BAD IDEA TO DO THE RIGHT THING. THE FBI INVESTIGATES MORTGAGE
FRAUD.
{
Income Taxes & Your Investment Property
PRESENTED BY TOM TRASKNATIONAL CAPITAL CORPORATION
TAX REPORTING
RENT RECEIVED
OPERATING EXPENSES (Representative)
Cleaning and maintenance Commissions Insurance Management fees Repairs Utilities
TAX REPORTING
REAL ESTATE TAXES
MORTGAGE INTEREST
DEPRECIATION
Residential 27.5 years
Nonresidential 39 years
TAX REPORTING
Usually reported on Form 1040 Sch. E
Multiple owners probably partnership
Single/multi member LLC
Initial planning/setup important
TAX REPORTING
PASSIVE ACTIVITY (In General)
Gains and losses netted
Net gain taxable
Net loss deferred (Maybe)
TAX REPORTING
DISPOSITION
Sale – capital gains with recapture
Realize prior year passive losses (maybe)
Sec 1031 exchange
THANK YOU – NATIONAL CAPITAL
CORPORATION
{
Title & Escrow
Helen Krause, New World Title
Title & Escrow
Role of the Title Company
Costs of Closing
Putting Property into an LLC
Basic Title Insurance vs. ALTA policy
Rent out your primary residence and purchase a new primary residence.
You’ll need to be well financed. Avoiding condos. Flipping is for pancakes. After tax annual cash flow. Knows the rules and laws you will be
operating under.
Tips to Buy the Right Investment Property
1031 Tax Deferred Exchange
Buying all cash vs. leveraging financing
Buying foreclosures or short sales
Amortization period
ARM vs. Fixed Rate Mortgages
Advanced Discussions
If it sounds too good to be true… Work with someone who is an expert. Use simple metrics to measure your
goals and success. Know the likely demographic for the end
user of the property.
Rules of Thumb
Watch out for blanket statements or mass generalizations.
“You should buy in Arlington, real estate will never go down there.”
“This is a good investment, it’s near Route 7 and shopping.”
“Buy near where the metro is coming.” Realtor telling you the property they have
is a good investment.
Red Flags
Re-evaluate every year. Buy low. 1031 Tax Deferred Exchange Understanding capital gains tax
exclusions.
ITS NOT A GOOD INVESTMENT UNTIL YOU HAVE A RETURN!
Exit Strategy
I’ve got this great property. Now, what should I do with it?
Should I hire a property manager? How do I operate it efficiently?
Protecting your ASS(et)
Treat your investment property like a business. You are the business owner, the Tenant is your customer
Presentation sets expectation Fair Housing Regulations
Guilty Until Proven Innocent VRLTA vs Common Law? Don’t get in your own way!
Landlord Perspective
Hiring Cousin Eddie to be your property manager
Furnished Rentals Repair Deductibles Keeping rent low to keep a tenant Myths & Paradigms:
Pets? Embassies? “Young professionals” Military tenants
#LandlordFails
Property Management is not a commodity, it’s a service
Good property manager will have: Team Depth Specialization Care Measureables
Activity-Based Pricing Model 3 Reasons a property will not rent
Good management = Good Procedures
Pre-Qualify with a Lender Discuss your intent with a Realtor you
feel comfortable with Have Fun House Hunting!
Next Steps
Video Streaming and Slideshare made possible by:
Social Media Maxima, Inc
Andrea Howard
Contact Andrea for a free Social Media consultation for your business today!
All attendees that RSVP’d to our event on Eventbrite will receive a link to their email with a digital version of the presentation to share with their teams, colleagues, and clients.
Questions Welcome! Answers Ready!
Q&A
