Real Estate Wins
So you have $100K. What do you do with it?
You could put it in a money market savings account with an average return of 0.30% APY. After one year you will have earned $300.
You could put it in a CD with an average return of 0.50% APY. After one year you will have earned $500.
For an IRA, you are still looking at 0.50% APY. After one year you will have earned $500, but withdraw it early and you will be taxed heavily.
You could buy gold as the commercials will tell you, but gold has doubled in price over the last 2 years and this isn’t 2009.
You could give it to your broker to invest, but the stock market is turbulent and if you are getting a 4-5% return, you are doing better than 95% of investors. After a great year in the stock market, you will have earned $4,000 – $5,000.
But if you take your $100K and buy a bank owned property. Let’s say you find a 3 bedroom house in a decent neighborhood and negotiate with the bank for $90K. You spend another $10K on closing costs and fixing the place up. You can then rent it for $1200 per month. In this example you don’t have a mortgage, since you had $100K to start with, so you only pay taxes and homeowner’s insurance. Say your taxes for the $90K home are $2000 per year and insurance is $1000 per year. Your monthly expenses are $250 per month. Your gross income is $1200. Your net income is $950. After one year you will have earned $11,400 for an 11% return on your $100K. Where else are you going to get that kind of return?
Real Estate also has the advantage of tax breaks through paying a mortgage or deducting expenses on the property. Appreciation is a thing of the past, but if you buy under market conditions and have the cashflow to hold it for 10 or more years, you will make money when you sell it.
Even in the Great Recession, Real Estate still wins.
For expert property management in Treasure Island, St Pete Beach and Lakewood Ranch, Florida, contact Sun Rock Property Management
The Other Number
When looking at comparable properties to see how much to list your property for rent, you not only have to look at the listing price, but also the number of days the property has been listed. A property listed for $1500 per month and sitting vacant for a year is worth $0 that year. The same property listed for $1000 per month and leased after one week is worth $12,000 that year. The rental rate is not determined by what you think it should rent for or the exorbitant rates realtors list similar properties for.
The rental rate is how much the new tenant agrees to pay when they sign the lease and put down the deposit. Nothing else.
Recently, we had a new buyer believe they could get higher rent then what we were getting. The $900 per month didn’t seem like enough when there are similar properties listed in the neighborhood for $1200 – $1400 per month. But if you look at the other number, number of days on the market, those properties had been listed for 9 months to a over a year.
I’d rather have the $900 per month and my $10,800 per year, than $0. Vacancy kills real estate investments.
Look online to get a ballpark range of what to list your property for. Start on the high end and then lower it every few days until you are getting enough phone calls. In this ‘owners’ market for rentals, there will be plenty of leads once you get the right price point.
For expert property management in Hillsborough, Pinellas, Manatee and Sarasota Counties, Florida, contact Sun Rock Property Management
The MLS is Useless for Finding a Tenant
One time a realtor asked me for the MLS (multiple listing service) listing of a property I had for rent. I told her it isn’t on the MLS. She was shocked. I told her I wasn’t a realtor, so I couldn’t put it on the MLS and if I was a realtor I still wouldn’t put it on there because it is a complete waste of time.
The MLS used to be the only thing out there to buy and sell properties. But now with so many resources online, it is irrelevant. Craigslist is still the current king of finding tenants online. Everyone uses it. We post our properties to over 50 different rental listing websites, but craigslist is the only one worthwhile. We get a couple of leads from HotPads and then some from local rental pages. But that’s it.
The MLS is only searched by other realtors anyway. There are not a lot of ‘renters’ agents out there looking, if any.
If your property manager tells you their advertising strategy is to list the property on the MLS, call a different property manager.
For expert property management in St Pete Beach and Treasure Island, Florida, contact Sun Rock Property Management
Don’t Bank on a Growing Population
A cornerstone of the wisdom of the Rich Dad, Poor Dad books, was real estate is a good investment because the population will always grow.
More people will need more places to live and property will be more valuable.
The turbulent economy over the recent past has taught many that always never happens. So what if the US has a declining population?
Less people will need less places to live and property will be less valuable.
In the book, The Next 100 Years, by George Friedman he predicts a declining population in the 2030’s and 2040’s. Venturing a hypothesis that the US will have to incentivize immigrants to come in and people will earn very high salaries because there will not be enough workers.
Friedman’s supports his theory by explaining changes in financial incentives of children over the last century. People used to have a lot of kids because they needed them to work on the farm or in the factory, contributing income to the family. Now kids go to school until they are about 25 years old. The shift from income to expense gives financial reasons to have less children. Add in the Great Recession and your birth rate plunges to historic lows. The U S recently had the lowest birth rate in over 100 years.
When looking at a long term investment strategy, don’t bank on always.
For expert property management you can depend on, contact Sun Rock Property Management
The Long, Hot Summer
Finally the last day of summer, I walked into the gym and could smell the dank air. I could tell immediately the air conditioner was broken again. This was the second time it broke this summer and a different gym I was going to back in April had a broken air conditioner too. I discovered a broken AC at a vacation property over the weekend and it seemed like every where I went I couldn’t escape the heat.
The AC broke at my house one steamy August day, and recently the power was out for over 5 hours. I drove around for two of those hours just to have air conditioning. It felt like all I did was deal with air conditioners all summer as about 70% of our properties had AC problems and one needed to be replaced. Invoices for repairs ranged from $70 to $700. Although people said this summer just felt hotter because the winter was so cold, it sure was a long, hot summer.
I remember when I was first learning to structure real estate deals, they said you had to calculate cashflow by including rent, mortgage, taxes, insurance, homeowners dues, property management fees, vacancy and maintenance. The money they set aside for maintenance seemed pretty high, and I really didn’t pay much attention to it. I thought I wouldn’t have those type of problems.
The very first tenant call I got was for a broken AC on the 4th of July right after I had bought the property. Since it was a holiday, I couldn’t get anybody out there the same day. The tenant was not happy, I ended up with a $400 invoice and I thought, ‘welcome to real estate investing’.
So when analyzing investment property in Florida, find out the age of the AC and factor in money to have it checked once a year for preventive maintenance. Buy a year’s worth of air filters for the tenants, show them how to change them and remind them to change them out often. Plan for the worst, and hope for the best.
Usually it is right around Halloween when the time changes and we get that first cool front. Then we have six months of perfect weather. Snowbirds do it right!
For pre-purchase consulting and expert property management in Lakewood Ranch, Florida, contact Sun Rock Property Management.