Archives for July 2013

Property Investment Ironman

Goal setting lessons from uber-athletes

I was just afforded the opportunity to attend my first “Ironman” competition. I had friends, a perfectly “normal” husband and wife couple, participating for their first time in the event – this one held in Lake Placid, New York. I felt the least I could do was show a little support for their Herculean efforts by cheering them on. I mean, they are, after all, totally nuts to enter the competition. And let’s face it, if you’ve got any friends partaking of an Ironman competition, you can’t help but feel like a poor shlub of a human being in comparison. I don’t care how healthy you may feel – the Ironman is a race made to intimidate mere mortals. Hell – that concept is the whole root strategy of their niche market!

Preparation truly is everything

As I watched the stream of triathletes biking past me, I waited, sign and cowbell in hand, to find my friends and cheer them on as I was doing with the hordes of bikers deftly riding by. I was reminded of the unique, individualistic set of goals each athlete in the race had set for themselves. It was these set of goals, their comprehensive, exhaustive training, preparation and follow through of strategies, that enabled them to complete the event. Each one was accomplishing their own cherished, valued and proscribed set of goals for themselves as ultra-athletic competitors. I was hit with the juxtaposition of such goal setting and attainment with investing in property.

Property investors should realize the comparison by now – that same singlemindedness is also what is required when devising your strategies and action plans for property investment. You’ll need that stick-to-it-iveness to succeed in the heavily competitive, and arduous, field of real estate investing.

More lessons: training – the base strategy

Anyone attempting the feat of competing in an Ironman, nay, completing the ordeal – is, de facto, superhuman. This provides a great deal of cache to the entrants – and I can certainly understand the idea…Getting ready for the event…well…that’s an entirely different story. Training schedules begin a year in advance of the race. Training regimens must be set out for the individual, and followed with intense religious fervor. The kind of fervor associated with, oh…knights marching off to the Crusades, for instance.

Staying with the program…

Don’t feel up to training today – ooooh, it’s raining out…poor baby – get tough. Get your ass outside and train. Run, run run. Bike, bike, bike. Swim, baby swim. Over and over again. Cross- training your little body into submission. It’s a discipline that most humans cannot possibly follow. But Ironmen can (don’t get me started on the overt sexism with their name…)

Then there’s the diet schedule and regimen. There’s a whole field in nutritional expertise related to these uber-athletes. A field complete with creating highly individualized eating schedules for any particular body type, that are set with ridiculously rigid diets, and little if no deviation from the program. Otherwise – don’t even think about entering the Ironman…If the actual event is gruelling, the training is far more demanding…

And even more planning…

There’s even strategies employed for reducing “transition” times – those few minutes between each leg of the competition, where competitors have to get out of their wetsuits, get “changed” into their bike outfits, find their bikes, and launch into the (arguably) most gruelling part of the race; or the ever-popular (and far easier) transition from biking to running.

Lessons from the pros…

One thing’s for sure – the same skill set employed for planning on participating in an Ironman can be utilized for…well…ummm… “running” any investment property business. Many different strategies of investment have to be winnowed down to the ones that will work best for you – for your temperament, personality and style.

And, like training for an Ironman, you’ll need to stick to the strategies you think will work well for you. Deviations are not adviseable from the initial set of investing strategies used. This does not mean that “plan B’s” can’t be planned for and utilized…On the contrary, “plan B’s” are part of your overall strategy. When an Ironman racer gets karate-chopped in the water by a fellow racer’s downstroke, blows a bike tire out, or starts to cramp up while running – don’t you think they’ve devised strategies for dealing with these “in-race” problems? You bet!

Plan for the rough times

Likewise, you need to plan out for the downsides and improbabilities that can hit you when investing in property. This means paying close attention to creating those “plan B’s.” As part of your overall investment strategy, they will be your blueprint for how to handle your exit strategies, rainy day options, bad tenants, emergency repairs, and a host of other strategic ways designed to handle adversity while managing your real estate investments. Most of the articles here deal with the solutions to these types of issues, and possible strategies that can be utilized to handle property investment-related problems. Go over them – especially the ones mentioned in the articles included in the “Tools and Resources” section of this site. Develop your own individual plan of attack – and stick with it. In this way, you, too, can become a property investment Ironman. And you don’t even need to be on a special diet to achieve your real estate investing goals…

photos courtesy of wallsave.com, iamdawnanderson.com, noboundariesmultisport.com, vivathlete.com, entertainment.howstuffworks.com, examiner.com, detroitcashflowanalysis.com,

Basic Property Investment Search Tips

The main goal: lowering overall risk

When searching for residential investment property, and prior to any numbers crunching on any one particular property, employ these basic strategies to help lower your downside risks when acquiring real estate for profit. Each of these search tips has its own unique shortcut for helping you decide if a property will be a cash cow or not, as well as helping determine quickly the amount of risk inherent in the potential acquisition. No sense wasting time doing your property investment search in areas that are way too risky.

The renter quotient

You’ll need to assess the overall appeal to your target market: residential renters. First, ask yourself what particular niche of renter your prospective building and/or units will be most attractive to – for example, a three family house with three one-bedroom units will only appeal to single individuals, or couples at most. Families with children would not have an interest in a one bedroom unit. Likewise, if the building contains a three or four bedroom unit, then you’ll most likely be attracting families with one or more children.

When using this shortcut, don’t worry about “market” rents just yet – be concerned with the marketability to your target niche groups – matching the right demographics to the unit. If there is higher demand in the building’s area for families, say, in suburbia for example, then try to key in on houses with three or more bedroom units. However, if you were looking in an urban setting, where there may be greater demand by single individuals and couples, you’ll reduce your overall risk by looking only at buildings with studios or one bedrooms as their units.

Look at infrastructure

When evaluating properties in any particular area, always keep a key eye on the current – and more importantly, proposed or planned for, infrastructure. What new highways are being built? Is there currently easy access to the building? What is the availability of good transportation in the region? Are buses and trains close by? In addition, are employment centers nearby as well? What is employment like in the area? Are there existing malls and/or good shopping availabilities in the area? All these are important in attracting good tenants…and therefore being able to charge market rents for your units. I’ve previously written articles here explaining the Walkscore. Make sure you check the Walkscore (at Walkscore.com) for any given area you plan to search for your new acquisitions. The higher the score, the greater the appeal to renters – and the lower your overall risk of ownership.

Key in on high-volume sales regions

Are you considering running your property investment search in an area with very few cumulative sales in the past year? This would be a mistake. Make sure your search area is in a relatively high-volume sales area. It doesn’t matter what the sales prices are – only that the relative volume will help lower your risk should you need to sell – and sell quickly. Of course there will be different price-break points for different-sized buildings. But the key point here is to understand that overall sales volume in a given region should be a key factor in determining whether you even bother searching in that area or not. As a rule of thumb, the more rural the area is, the greater the difficulty in unloading the property should you need to do so…even if the cash flow of a particular investment property looks great on paper. Be very wary of this as you run your searches.

Can the investment property attract home buyers too?

Again, think down the road…Besides other investors like yourself, can the property you’re evaluating also appeal to a homebuyer – or a homeowner who would like to live there while also renting out the other units in the building? The more niche markets you can appeal to, the greater the chances of lowering your downside risk should you be forced to sell the property. Since there are many more home buyers in the U.S. than property investors, it makes sense if you can find a building that would appeal to both markets.

Is the property attractive to you?

Basically, could you live in the building, or one of the units in it, if you lost your employment, or were forced to move from your home? After all, if it’s a suitable living environment for yourself and/or your family, it should probably be a good place for potential renters as well. Make sure it’s a place that you can give your own personal “good housekeeping” seal of approval. Not simply if things were to go south for you someday, but more importantly, so you can feel good about the product you’ll be placing on the market to rent to others – your tenants – your lifeblood and cash flow.

photos courtesy of flickr.com, anchoragehomesearch.com, best-realestate.com.au, wisely-usatoday.com, activerain.com, neighbors.denverpost.com, sultharproperties.com

The Luck Of The Irish?

Overseas property investing with REITs

If you’re considering alternatives to personal ownership of your investment properties, you’ll certainly be considering the use of Real Estate Investment Trusts (REITs). These investment property vehicles are a good alternative if you don’t have the temperament for dealing with hands-on management of rental properties, be they residential or commercial, or if you find direct ownership of properties to be too risky for your situation and/or personality. For anyone that eschews hands-on property investing, but wants to diversify with some form of investment property, REITs are a wonderful tool for achieving steady returns.

Further diversification

By investing in REITs, as I’ve mentioned in a number of previous articles here, you can diversify your portfolio, keeping a hand in real estate investment opportunities – but letting someone else do all the management. Investment in REITs is just like purchasing shares of stocks in companies – except these companies are funds that invest in some form of property type. Some REITs are publicly traded, some are privately held. Either way, most REITs tend to specialize in some niche area of real estate investment.

The largest REITs tend to be the most diversified – and their investments tend to be allocated amongst both residential as well as commercial properties. In addition, many larger REITs will invest in foreign properties as well. Some REITs only invest in foreign buildings. And a newer trend is for larger publicly-traded REITs to invest some amount as a stake in the creation of other, foreign-based REITs, many of which are privately held.

Pimco’s latest buy-in

One such example, and worth exploring, is the unique buy-in by the huge REIT Pimco, with over two trillion dollars invested worldwide in numerous types of properties, of a 10% stake in the newly formed Ireland-based REIT, Green Property. It is the first Irish-based REIT of its kind, and it specializes in the investment in mostly commercial, retail properties in the Dublin area.

Its latest public offering raised over $200 million dollars for the express purpose of investing in Irish retail buildings. Not only does this show a resurgence in European business trends and a stronger retail market, it also shows a comeback in one of the formerly-troubled European Union countries, and displays great faith in the rebound of the Irish economy proper.

Having faith in the EU

The fact that Pimco would take such a large stake in the Green Property REIT shows the inherent faith one of the largest worldwide REITs is placing in the success of the Irish economic recovery. And that’s something even a small U.S. property investor should consider in our world-wide economy today.

Green Property REIT is expected to go public very soon, and when it does, it offers yet another option for the small investor to get in on the ground floor of foreign investment – without the headache of having to manage foreign property from these shores. It’s certainly worthy of a good hard look to any investor considering overseas property investing, especially in foreign REIT investments.

photos courtesy of donegalimporters.com, moneycrashers.com, aaii.com, online.wsj.com, marlesshouse.com

Obtaining Commercial Property Loans

Commercial versus residential loans

So you’re considering the big move up to some form of commercial property investment. This could mean retail – a single store or small strip mall, for example, or office building or warehouse or light manufacturing building as well. It could also mean any residential multi-family housing that contains five units or more. Since commercial space is traditionally a much greater leap in pricing than single or small multi-family residential housing, how best do you finance the potential investment?

Most individuals don’t have the deep pockets required for such serious cash outlays relative to simple residential buildings. And I have advocated in previous articles here for the concept of partnerships as a way to pool investor money for larger and more lucrative investments. But at some point, if you’re going commercial, you’re going to require a commercial mortgage to handle the ability to make the deal happen. So where is the best place to look, and how are commercial loans evaluated?

Commercial lending departments

Most banks offer commercial loans, but they are traditionally processed in a separate department from residential lending within each bank. Rules tend to be more stringent than residential loans, and a common axiom is that interest rates associated with commercial mortgages will definitely be higher than for residential loans. In addition, while amortization times may compare favorably with residential loans, expect much shorter time limits on when the mortgage will come due, and so balloon payments should be expected within five to seven years on most commercial loans. Thus, you can expect your monthly payments to be comparable to residential loans due to longer amortization schedules, but you will have to prepare for that short term balloon pay-off of the loan.

Debt to income ratios

Another key difference that commercial loan evaluations require relative to residential lending, include a greater weight placed on debt to income ratios. For residential mortgages, one’s personal income is paramount in determining whether you may qualify for a loan. In commercial lending, the building’s ability to throw off cash flow through its net operating income is paramount. So all your income statement documentation (or pro formas if the building is new) must support this positive net cash flow. A lender will look at the building’s debt service coverage ratio (DSCR) as a key determinant. This ratio is a simple measure that looks at the projected net operating income, then divides it by the mortgage payment amount. Most DSCR’s need to come in at a minimum ratio of 1.2 as a general rule of thumb in commercial lending.

Loan to value ratios and credit scores

In addition, lenders will look at the loan to value ratio you’re applying for, and in most cases, 70% LTV would be the maximum ay bank will allow. Of course, the lower the LTV, the greater the likelihood of your obtaining the loan – simply because the bank’s risk is reduced when you have more equity at stake in the property. The lender will also look at your credit score to get a good idea of how you’ve handled credit through your lifetime. Obviously, the higher, the better. Minimum commercial credit scores need to be in the 720 range…but your chances for obtaining a commercial loan increase greatly as your approach the upper end, or 850.

Landlord experience

Another key ingredient in a lender’s commercial loan department deciding on your loan approval, will be your previous landlord experience. General business experience (if you have already run a successful business) will also be taken into account in a very positive way too. You’ll want to show proof through examples and documentation of your past landlord/business experience. Showing that you’ve been successful in the past will be a boon to any attempt to obtain a commercial loan. It also helps to write up a separate business plan for your potential new investment building to help sway a lender’s commercial loan officer. The more professional and business-like you come off, the greater your likelihood that a lender’s loan officer will see that you’re treating this mortgage seriously, and that will afford you a greater opportunity and chance to be rewarded with the mortgage loan.

Hard money lenders as last resort

If all else fails, and you are unable to obtain a commercial loan from a bank, there of course, hard money lenders out there in droves. I have previously written several articles here on where to find them and how to apply with them. But – they are only to be used as a last resort. Their rates and terms tend to be ridiculously onerous – especially since they know they represent your last ditch attempt to make a commercial deal happen. Only utilize them if the deal still makes sense after being initially turned down by a bank.

photos courtesy of businessfinancespecialist.com, melbournehomeloans.biz, atascaderoins.com, indiapropertyexpert.com, barryspringerlaw.com, 123rf.com, triangleeaststorage.com

Commercial Property Investment Comeback

Where’s the smart money going?

Savvy property investors remain wary of the current housing rebound. This is mainly due to heavy institutional investing in rental residential properties over the past couple of years, which have acted to buoy up the previously moribund housing arena. And with almost one-quarter of all recent home purchases being gobbled up by said institutional investors, where should the average property investor be searching for high returns these days?

Clearly, this new housing marketplace, especially in previously hard-hit areas like Miami, Phoenix, Las Vegas and parts of southern California, continues to show such marked gains as to make the underlying economic factors for new-buy positive cash flows untenable, due to the rapid increase in property valuations. Simply put, in many markets, there are no bargains to be found right now where the metrics make sense, and that will throw off enough positive cash flow to yield even a modest Return On Investment (ROI).

The current trend away from residential rentals

Large investment firms have already begun to stop their residential buys due to this inflation in market values, and smaller investors naturally are shunted to the sidelines when the cash flows make no particular sense for them, at least in the short term. In fact, many large institutional investors may already be starting to unload some of the foreclosures they previously bought (and are now weaker-performing residential properties), but nevertheless have soared in valuations since they were bought over the past two years. They are now selling them and re-investing their profits. And where are they reinvesting, you might ask?

Commercial property as prime reinvestment arena

Large commercial investment companies, such as Simon Property Group, are doing much more buying and development of new retail outlet malls across the world of late. They are creating new mall centers, purchasing existing ones, as well as creating mergers with other commercial institutions to meet the expected need for more retailers world-wide over the next several years. Smaller investors have the ability to buy in with shares of these large commercial companies, as well as investing on a small scale locally, in their own local communities, by sticking with local commercial retail space buildings to meet the expected demand for new retail space.

Technology sector investing

Another area smaller investors should consider is commercial data center building investment. Technology growth continues to expand in the real estate sector of late. And new data center investment is way up to meet the demand. One particular technology real estate company is CyrusOne, which specializes in the creation of new data centers world-wide. The current expansion in the data industry continues to fuel the need for more construction of facilities to house these huge data centers.

So smaller investors should look to the potential returns from investment in these companies that specialize in data building investments as another way of bypassing the current dearth of high-ROI producing residential investments. With the housing industry making a sketchy comeback, and underlying metrics in the housing arena being very suspect, it’s time to consider commercial real estate alternatives in the interim.

photos courtesy of worldpropertychannel.com, quickenblog.com, dcmud.blogspot.com, intomobile.com, hpcwire.com