Are Tech Upgrades goof for Investment Properties?

With new technological upgrades happening every single day, you may wonder whether or not you should get that Nest thermostat, or if you should keep the smart technology out of the rentals. Well, here is the answer to that.


First of all, millennials and Gen X buyers love smart technology, and once understood, it does make life easier. Combination door locks are good because it helps if you forget your keys somewhere, and you don’t have to shuffle for your keys. Virtual assistants are great for changing the channel, or even turning on the lights and turning them off. Electronic doorbells allow for you to see who is at the door so you can stay safe. But are they worth it?

The best answer is, to stick to what you believe is useful. Many people don’t necessarily think Alexa is worth it, but Nest thermostats, for example, are great. The reason for that being, when you rent out a place, you never know what the damage will cost. It’s better to replace a cheaper item with something that is pricer, for obvious reasons. It increases the worth. you’ll start to realize what will happen over the next few years though.

The thing with technology in the home is that in 10 years, they will be antiquated. If the buyer needs to have the newest Nest thermostat, and it affects whether they’ll rent or buy, chances are you probably won’t want this person anyways, and they won’t’ care about a piece of tech that’s 10 years old.

As an investor, you should consider what people will buy. If they want just a Nest thermostat, you can just put one in. That will have the advantage over the traditional thermostats that you have to get up and change. If the properties in the area don’t have these, that will put you at an advantage. You want to look at, as an investor, what will give you the best bang for your buck.

If you have a property that’s been on the rental market for far too long, chances are you should consider putting the upgrade in. even if it’s just smart bulbs, you will put the property over other ones, because people desire smart technology. But, if you’re someone that never has properties that sit on the market for a long time, you should definitely not worry too much about these. But, if you notice this is what people want, then you should ultimately consider these upgrades, for they will help you get the property to a sold deal.

Technology is constantly advancing, and as a property manager or investor, you need to consider what you want to put in. Is the 400-dollar upgrade worth it? In many cases yes, in many other cases no. you have to make the call yourself, and figure out financially which ones will provide the best ROI for you, and what will get tenants into a property way faster.

 

Avoiding Risks in Real Estate

To get into the real estate business real fast and efficient, people might use several financial instruments or even try to borrow investment from others. Mortgage is the easiest example when it comes to leverages in real estate. With a twenty percent or more down payment the property is handed over and the rest of the payment is done on monthly or yearly basis. In real estate joint ventures, the partners in the contract put all or some of the money in the dealing of the property. When using these leverages the investor should try to avoid the following things.


High level of appreciation
Every deal in the real estate investment is a new experience so one should not keep thinking that the next deal in a process will the same as earlier. The value of a property can increase and decrease at any time so expecting the same appreciation from properties at different times is not wise. Calculating the same rate when using leverages in real estate should not be done. If this is done the investor may have to face a loss or even a worse situation. When using leverages, all three scenarios should be imagines i.e. best case, worst case, and the most likely case. If the market remains calm and unfluctuating we can expect the best case to happen and a lot of profit is generated using the leverages. The real estate market can get effected by a number of factors such as the political situation and change in the map etc. If this happens the property may lose its value rapidly. When the value of the property is lost all the anticipated profit becomes a burden and the borrowed money has to be returned without any profit. This can be quite a situation for an average investor.
Having a too high payment in the end
Higher payments only come with leverages. In the case of mortgage, the buyer will have to go for monthly payments. The more the investor borrows, the higher will be the monthly payments. If the market fluctuates and one may face credit losses, the mortgage payment may not seem easier as it appeared in the beginning.  Not being able to pay the monthly payments can endanger the whole investment. The borrowed money has to returned in a specific time period and if the property has failed to prove enough benefitting at the end, the payment becomes a headache and may turn into a lawsuit sooner.

Good financing but bad purchase
Overpaying during investment when using leverages is a common thing among investors. At that time everything seems to be perfect and no issues are anticipated. Everything seems perfect as the investor is getting the property at a very less initial payment. There are several factors to consider. If the property is priced higher than it should be it can prove to a bad purchase sooner or later. It may lead to a significant loss in the end. Sometimes the deal seems to be so attractive that its overpricing does not seem to be a problem and is not given much importance but this can be a problem when the property does not gain enough value or looses the value it already has.

Importance of cash flow
If the rental property is generating enough cash that pays the mortgage and the expenses of the property, then the fact the property is gaining value slowly does not count much. But if it is not generating enough cash and also not gaining value, this is worrisome. As long as we are gaining from the property, everything is well and good.

 

 

The 1038 Exchange For Real Estate Investors

Under Section 1031 of the United StatesInternal Revenue Code, 1038 exchangeallows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states that no gain or loss shall be recognised on the exchanging of real property held for productive use in trade, business or for investment, if such property is exchanged solely for real property of a like kind which is to be held either for productive uses in a trade or business or for investment.


1031 is gradually making its way into our daily conversations but there isn’t a lot known about the provision. But here’s something you should always remember for information sake; At the time of the sale, 1031 property exchanges are not taxed, that is because you are exchanging property not  selling it. An other important thing to know about it is that “1031” is not restricted to real estate.
That being said, here are some things you should know about a 1031:
“LIKE-KIND” REFERS TO A BROAD SPECTRUM
The “..if such property is exchanged solely for real property of a like-kind which..” doesn’t necessarily mean what you perceive. The “like-kind” term is pretty flexible, essentially meaning that you don’t really have to swap a condominium for an apartment complex. You could exchange your apartment for raw land! That’s right, the rules are quite liberal.

1031 IS NOT FOR PERSON USE
Though there are a few exceptions, generally 1038 is not for personal use. The 1038 Real Estate Exchange is only for investment and business property. Unless your primary property is now rental property, a 1038 cannot be applied. You can’t swap your primary property for another house.

DELAYED EXCHANGE
The delayed exchange is pretty straightforward: the Exchanger swaps property before he acquires property.  To put it simply, you owning the exact type property another person wants and him owning the exact kind is pretty unrealistic. Thusly exchanges are often delayed. So, once one of the exchangers sells the property, the money is kept with the middleman who then buys the replacement property for you. This third party exchange agreement is known as “delayed exchange.”Remember, that the third party must be a qualified intermediary or else the exchange is not possible.

MORTAGES AND DEBTS MUST BE CONSIDERED
Remember that the property that you relinquish may come with mortgages and debts. If you do not get cash back for the relinquished property but your liability goes down, then that too would be considered capital but it will be taxed of course.

PURCHASES WORTH LESS THAN THE ORIGINAL PROPERTY
A 1031 exchange allows the investor to sell a real estate property and then reinvest the capital in a property of equal or greater value. The investor cannot make a purchase for less than the original property, (The like-kind rule). This would defeat the purpose of deferring taxes on again.

BOTH PROPERTIES MUST BE HELD FOR PRODUCTIVE PURPOSES
Both the relinquished property and the replacement property must only be used for the purpose of investment, trade or business. Rental property which is no longer considered as primary property, should be rented for a minimum of two weeks.

BONUS
You can hold the property for as long as you want, 1031 property exchanges are not taxed. That’s right for as long as you may hold the property, you defer taxes!

That’s all for today folks! 1031 Exchange can be tricky and a bit complicated to get a hang of at first but it’s not rocket science. A little more of reading and researching and you’ll get the hang of it in no time!

7 Fundamental Principles of Investing Successful Wealth-Builders Know to Be True

Let’s directly jump to the principles in detail.

Principle #1: Investors never spend the principal.

Most of the investors understand this fundamental principle. It is the origin of capitalism. It is great divide between the 1%. I would tell you the one phrase that could be a key to wealth preservation.

That is ‘do not ever spend the principal’.

If you obey this principle, you and your children, next and next generation will be financially stable till end of the life. This concept is not easy to understand by new investors. This goes over the head. Let’s jump into the details of do not spend principal.

When you invest a dollar just think it has gone and never come back. You now cannot use it. You are not able to buy anything or you cannot pay any debt from that dollar. This is no more in your life. That dollar has gone in a process that generate returns for you forever.

I am showing you an example through which you can clearly understand the meaning of do not spend principal.

I have a total sum of $200,000. I buy a rental property with the whole amount. The property gives me $2,000 per month. After a year my property value gets appreciated and the worth now is $220,000. I have total of now $244,000. I sell the property and walks to bank. Now I have $244,000 in my account. I earn $24,000 from rent and $20,000 from appreciation value.A total gain is $44,000 or 22% ROI. The $200,000 of that money in the bank is the principal. I used to invest in the first hand.I can spend $44,000 that I have earned without touching the principal amount.

Principle #2: Investors should reinvest most of the return amount.

Investors should also understand this fundamental principle to the core.  I can also say this the origin of true wealth. The great division of the 0.01%.

The phrase I will use here is:

Principal and majority of return on investment both should reinvest.

If you obey this principle the same would happen to your generations and generations. The fruit will be sweet and big for the life.

If you want to build up wealth then you cannot spend all of the return you get from your investments. Instead, you need to reinvestsome portion of the return you get.

The example I gave in the first principle think again of it. You have earned total of $44,000 do not spend whole amount. Half of the return should be reinvested. Buy new property of $222,000 and it will give you more return with appreciation value. Do it every year and earn more return on investment.  The more you invest the more you gain. Make this habit of investment. That will give you a faster growth in your income.

The core thing for investing is to build your wealth and enhance the life style.  So, you can enjoy the luxury life but be careful do not use principal amount in the over joy.

Principle #3: For investment you should have capital.

When you think about investment you must have capital. You have capital in only two situations one you earn it or the second is you inherit it.This is the reason there is such a great divide in wealth in America. Instead of the fact that America has a relatively low cost of living.

If you want to be potentially strong in wealth and want to gain financial freedom then do not spend what you earn. The amount you have earned that would be your investment. Do not go with the other’s money. If you are a real entrepreneur or want to be a successful businessman than do not seek people’s money. You have to do on your own. The capital must be yours. And you have to earn your capital.

Principle #4: Investment returns do not correlate with effortsalways.

A person who invest all his efforts in finding the right opportunity for investing. His is using his potential energy for market study and undervalued stocks. He is using all his right behavior but his all efforts are in vain Unfortunately. He can use his potential simply in investing index fund and can earn better long-term returns. So, the key is think smart and gather your all efforts for acquiring high return on investment.

Too many amateur investors attempt to pick stocks and beat the experts in public markets. It clearly shows that there is no correlation between their efforts and their returns.

Principle #5: Return on Investment are strongly affected by knowledge.

The most interesting thing is the folks usually pick stocks because they are ignorant of the investment.They do not possess the knowledge regarding math and philosophy of investment. Most of the successful investors suggest do not get into picking stock. That is their lack of knowledge that leads to valueless efforts. Knowledge can be powerful and it leads us in long term financial positions and high return on investment. Just the thing is,apply correctly the knowledge to the business over which we have some control.

Let me give you my example. I have knowledge in Denver real estate market and real estate investing fundamentals. Then it is easy for me to gain high return on the investment. So, this knowledge could not help me in getting high return on stocks.

 

Without knowledge many of you can go wrong for investing and building businesses. And the problem is that it will not only reduce your return but can destroy the principal you have invested.

Principle #6: Investors do not confuse rapid change with risk.

First thing is to understand the definition of risk. The folks who says that investment in stock is risky they are wrong. They do not know the exact definition of risk. So, stocks are a group which are volatile. Bonds as a group are less volatile.This is the important distinction that investors should understand. See stocks are less volatile so they are less risky while bonds are riskier because they are more volatile.

Principle #7: The best investments could be specific to the investor’s personal situation.

Most of the people, fails to understand that great investment does not return from typically investment, stock market, bond market or rental investment. In spite of this, the greatest investment is reducing your cash out flows. In spite of that reducing your personal expenses is the greatest investment. Reduce your cash out flow that will give you increase in wealth and return on investment.

Cut down your personal expenses. Use energy savors instead of LED light. That will cut down your expense on utility bills. Reduce some cost of the fuel and try to get save more. This is the best way for cutting down your expense and making high income. If you did not try this yet. Then go with this option first.

 

What to Do When Your Tenant Gives You Notice to Vacate

The tenant will give you written notice if he wants to vacate.  When you receive the notice the first thing you have to do is withdraw the lease. Review the contract keenly. There will be some important points you need to keenly observe when you receive the notice from tenant to vacate.

Time Duration of Written Notice.

The time duration of the notice may vary in every state. In some states common requirement of the time duration is 20 to 30 days prior notice before ending up the rental agreement or vacating the apartment. Before getting into rental contract you need to check up what rules applies in your state regarding prior notice of vacating the apartment. The notice period is to be mentioned in rental contract. If we talk about the State of Washington 20 days prior notice before ending up the rental contract is required to be given by tenant to landlord.

The 20 days prior written notice should be given at the start of the month in which the contract likely to be end.So, if your tenant gives you written notice at the 2nd of the month in which the contract is going to be end that is the best thing. But in case he gives you written notice at 24th of the month and he plan to move 31st of the following month then the tenant is responsible for paying rent through the fulfillment of the lease.


In this case when the tenant does not give you a sufficient notice of vacating the apartment. Two options for them are:

  1. You can stay here for one more month.
  2. They have to pay obligations and they can move according to their plan.

By choosing option 2 they have to pay rent but in case we find new tenant then they will receive a prorated refund on rent from the day the new tenant moves in.

Expiry of lease.

Find out the expiry date of lease. It is very important in order to check whether they are breaking the lease or not. Means they are moving in the middle of the lease or not. If yes, they are breaking the lease then let them know what the obligations they have to pay for it.

There is a one exception of the notice is: if the tenant is military person then he is allowed to break the rental lease. Just because they may get any reassignment or deployment order any time. It is a tiny price for us to pay for those serving in our Military.

Their Deposit Money.

It is important to know how much your vacating tenant’s deposit is. So, you can be prepared to personally cover any overages. Of course, your tenant is still responsible for all charges associated with returning their apartment to rent-ready condition. Let me be honest, it will be a while before that your tenant pays for any overages above and beyond their deposit money.

Utilizing the Deposit as Final Month’s Rent.

Many of the tenants want their deposit should be used as last and final month’s rent. Do not let it happen. It is totally understandable that they want to use their deposit money as last month’s rent as saving up for their new place. But this is not good for you. Make sure your lease agreement should have the clause that clearly mention that the deposit amount could not be use as last month’s rent.

The deposit amount that held by landlord is to encourage positive behavior of the tenant. In case they want to move out without leaving your home in its original condition then you can utilize the deposit amount for paying off the cleaning bills, for fixing the damages, or may be something worst then this. Even if they do not pay the last month rent then you can use that deposit amount. So, always remember do not use deposit amount at any time as rent.

 

 

5 Reasons why I am Not Worried About the New Real Estate Market Correction

New real estate market correction happening now. So, the wise thing is to get aware of the change happening in the market. It is important to be alert from any blizzard that can happen to the real estate market. Put your all efforts it be ahead of every curve of the change in the real estate market.

Everyone still remembers the huge crisis of 2008.Nobody wants to face it gain. Manhattan property market has been in correction for a year. Some of the people think they spreading the news of correction because of the 2008 crisis.


You should know how to reduce risk if you are facing correction experience.

5 reasons you should not worry about market correction. I am sharing with you my tactics.

  • I buy on cash flow.
    I talk about myself. The real estate investing model of mine is to obtain income properties. I am not depending on flipping or gambling regarding appreciation. This situation seems especially dangerous right away. The numbers should work up front. I have to be able to hold it all. Recently, I moved up tonew multifamily apartments and it is even more flexible during tougher economic times.
  • I always pay attention on growth markets
    There are the markets that are growing like they have sufficient rooms for growth. But also, there are some markets that have peaked or have surpassed their recent peaks. Always remember do not invest in the unpleasant neighborhood like where the crime rate is high. Check out the place before investing. It may seem like low investing is good for income but it may give you worst results at the end. So always pay attention to the market where the possibility of the growth is high and you may able to get high return on investment.
  • I am selective in picking up the property.
    ATTOM Data analysis shows that over 30% of houses flipped in the first half of 2018. That were bought as distraint properties. It shows that most of the investors are picking up full-priced properties of the MLS. They are speculating on appreciation to sell them. You have to be more selective about picking up the property. I probably look at 185 to 220 properties before selecting to work on. Do the same.
  • I stick to the units of the apartment.
    The numbers do work. It is still hard not to fall in love with property business, but you cannot afford to do that. It is because you are not going to live there then what to do. So, the more profitable thing to do in buying is to buy on numbers.I do the same and advises people that 110-units apartment could be the best deal for you. Buy with the units of apartment.If you want to do property investment you can persuade to stretch numbers and sell the property.
  • I focus on services and management.
    Always focus on management first. When you are doing property business pay keen attention to management and its services. The thing you should do is to make apartments and communities. In case the rent drops you have an upper hand. In the community the rent is getting lower and you are providing them good services of that apartments then the low rent case does not apply on you. As the tenants will see the services you are providing them they will pay you a good amount.

Summary.

Housing correction may come at any time and it can be very deep. You need to be smart and make some adjustments to low down the risks. Follow these above-mentionedsteps and you will no need to worry about market correction.