Cash Flow

There are many key performance indicators that investors use when determining if a property is worth buying or not. However, when running an analysis on any investment property, my standard measurables are Cash Flow and After Annual Tax Yield (a KPI that considers appreciation). I’ll focus in on Cash Flow as it is the primary metric used by most investors in residential real estate. 

Cash Flow, measured on a monthly and annual basis, is a property’s income minus it’s expenses. Obviously, an investor would want a property’s income to outweigh the expenses, so that money can be put in the bank every month and used for future investments.

There is a sizable list that goes into property expenses; which I will cover extensively another time, but understanding and including all expenses in the initial analysis is key to calculating the correct cash flow and keeping you out of a bad deal.

In areas like Windsor, Fort Collins, Greeley, and Loveland, as well as anywhere in and around Denver, home affordability can be challenging. Therefore, rent can be equal to or lessor than that of a mortgage. So what would make it so appealing for an investor to invest in Colorado? Appreciation. Colorado has been on a strong trajectory with home appreciation and when homeowners and/or investors sell their properties they walk away with a generous profit.

Appreciation is just the “icing on the cake”. If your are losing money on your investment every month with a negative cash flow, then your investment isn’t a good one. Therefore, cash flow should be considered over appreciation.

To learn more about Cash Flow and setting expectations for your financial portfolio, please message or contact me  at 970.775.4030 or justine.marx@windermere.com.


Posted on April 27, 2020 at 3:36 pm
Justine Marx | Posted in Investors |

COVID-19 & The National Housing Market

 

How will COVID-19 impact the national housing market? 

Take-aways from Chief Economist, Matthew Gardner

Housing Market

  • Expect a 10% -15% contraction in the number of home sales for 2020 
  • Contraction is anticipated to be brief and pick back up quickly
  • Qualification and financing is going to more achievable than ever
  • Low supply in new construction, but households are still being created which puts upward price pressure on housing stock

Buyers

  • Mortgage Interest Rates continue to remain extremely low and are expected to remain low
  • Buyers are influenced by the economy and with 70% of the US economy being influenced by consumption and the stock market declining, buyers concerns of job security arise and the option to obtain a down payment from selling stocks is limited
  • Take Action: Buyers, look for lending options that offer achievable money down and doesn’t create a risk for leveraging stocks or completely deplete savings during this uncertain time. Leverage the low interest rates while they last and understand how a decline in interest rates can significantly change your monthly mortgage, making home ownership more achievable in the long term.

Sellers

  • Inventory may drop as, depending on market, sellers may be hesitant to list
  • Sellers may be cautious to open their home to potential buyers
  • Take Action: Discuss virtual safe tours with your agent to keep your listings moving and buyers looking.

Recession

  • Will we experience a recession in 2020? Yes, if the economy continues to see a shirk through Q3.
  • How long will it last? Because there is nothing systemically wrong with the market, if a recession occurs, it will be a short term impact.
  • The economy is expected to recover and to be much healthier than in the second half of 2020 than what is experienced in the first half.
  • Note – A recession is two or more quarters during which the economy shrinks.

 

Most importantly! Order take-out, get coffee to-go, buy gift cards and find every opportunity to continue to support your small businesses and stimulate the overall economy. Action now will lessens the impact when we fully recover from COVID-19.


Posted on March 17, 2020 at 7:15 pm
Justine Marx | Posted in Buyers, Buyers & Sellers, Investors, Sellers | Tagged , , , , , ,

When To Sell An Investment Property

 

Common and urgent reasons to unload your investment property:

 

If Real Estate Is Too Much of Your Net Worth

Experts recommend holding investments in at least three or four different asset classes, with a roughly equal portion of your value in each class. If real estate is more than half your net worth, you might want to consider diversifying.

If Long Term Tenants Move Out

Long-term tenants don’t always a allow for continual upkeep on your rental. If your tenants move on, and the market looks strong, you might want list your rental in place of exhaustively upgrading.

Increase in Property Taxes

A times, property taxes go up right alongside home values, sometimes even outpacing them. When property taxes increase, landlords have to pay them out of their rental income, so either their profits go down, or they’ll increase rents to make up the lost revenue. In either case, the situation can get complicated; higher rents mean a smaller tenant pool to draw from, and smaller profits means, well, less money. Only a few successive property tax hikes can make an investment property financially unfeasible.

Reset the Depreciation Clock

Depreciation can play a big part in an investor’s financial strategy. When properties no longer offer any potential depreciation, it’s time to sell, and buy newer properties, thus resetting the depreciation clock.

Seller’s Market

If you’re a short-term investor or have reached the financial capacity of your property, leverage a favorable seller’s market to get the highest return. Work with a knowledgeable real estate broker that understands the local market and its trends, so you know when the best time is to sell.

A Bigger, Better Opportunity Presents Itself

If you’re looking to turn your present investment into a larger one, a 1031 exchange is a valuable tool. The 1031 essentially lets you trade one property for another, a more valuable one, while temporarily deferring capital gains taxes.

An investor can exchange a small duplex for a larger six-unit property, using a 1031 exchange, and then flip that six-unit property for a full apartment building with another 1031 exchange, and defer capital gains from all the transactions. Since capital gains taxes can take a huge bite out of your profits when you sell, being able to delay this tax bill, potentially indefinitely, is incredibly valuable.

This article is highlights from Thomas O’Shaughnessy article, How to Know When It’s Time to Sell Your Property and Buy Another.

 

 


Posted on March 2, 2020 at 8:20 pm
Justine Marx | Posted in Investors, Renters, Sellers | Tagged , , , , , , ,

So you bought an investment property, now what?

Investing in a home is a great way to build passive income but earning from your investment will take a little groundwork to become a well-oiled machine. This is your beginner’s guide to owning an investment property so you can set up that foundation properly to avoid future headaches.

 

Make sure it’s livable

It’s important to start with your home inspection before you start making plans. Use the inspection report to prioritize the maintenance issues.

Before a tenant moves in, make sure the home is livable. Handle the important items that affect the livability of the property, either now or in the near future. If the inspector noticed a leak in the roof or holes that could lead to infestation, take care of those first. Other maintenance issues to prioritize are the fuel and the hot water source.

If your city has inspection and registration requirements, be sure to cross check those inspection checklists with your current property. If the property wouldn’t pass now, make sure it will pass by the time the city sees it.

 

Upgrade the space

Once your property is in livable condition, it’s time to upgrade. If you have any left-over budget after the necessities are handled, consider adding a bedroom or a bathroom where you can find the space. These rooms heavily impact the rental price, and the more you have the higher the price. If there’s no space for another bed or bath, think about finishing the basement or upgrading some of the appliances to make the property more attractive to potential tenants.

Use similar properties in your neighborhood as your inspiration. These units are your competition, think about what you can add, or even take away, that would help you compete. Ask yourself what about your home is unique and in what ways does that affect your rentability? If every unit in your area has hardwoods, how can you make your carpeted home appealing? Maybe new carpet? Or is switching to hardwoods, or vinyl laminate that looks like wood, worth it?

 

Market it to future tenants

You need two things in your listing: 1) Great Photos 2) An Amazing Description

After you’ve perfected the property, it’s time to tell potential tenants that it’s available. Creating the listing is essential in drawing eyes on the unit so you can show it to as many people as possible.

Renters looking to move are quick to make their first impression of a property with thumbnail photos on a map. So, take lots of great, bright, photos of the entire place to showcase the amenities and show potential tenants what it looks like, then choose the best photo to be the first in the lineup. Remember to get the lighting is just right to show every corner of the listing. Dark photos scare tenants away, making them think the unit is dingy and dirty. Light and bright photos show a clean home that’s move-in ready. They can imagine themselves living there a lot easier than in dark and cramped looking units.

Next, they’ll read the description. This is again where other listings in your area can help you.

Read other listings to structure your description and to draw inspiration on what tenants might think is important. Find the selling points and emphasize those above the unique features, especially if those unique features are obvious in the photos.


Posted on November 21, 2019 at 3:57 pm
Justine Marx | Posted in Buyers & Sellers, Home Facts, Housing Trends, Investors, Renters | Tagged , , , , , , , , , , , , , , , , , , , , ,

END OF YEAR HOME BUYING

 

Here is a fact…

If you have ever thought about owning a new home, the last two months of the year are usually the best time to make that happen.

Here’s why…

Many builders have year-end goals and sales quotas to hit.  If they have a “standing inventory” of homes that are completed but not sold, they are typically motivated to sell these homes by the end of the year.

This dynamic can be especially true for publicly-traded builders who are even more motivated to hit year-end sales numbers.

Up and down the Front Range there are beautiful new homes in fantastic neighborhoods.  The builders of these homes may be happy to make concessions and provide incentives as long as you close by year-end.

We just recently helped a buyer with a very compelling incentive package from a builder which included a lower price, additional landscaping and window coverings.

If you would like more details about these kinds of opportunities, reach out and we can help.


Posted on November 1, 2019 at 7:48 pm
Justine Marx | Posted in Buyers, Investors, Windsor Real Estate | Tagged , , , , , , ,

NEW BUILD ON WINDSOR LAKE!

What a view! In addition to the beautiful mountain scenery and glass water that mirrors Colorado’s amazing skies, Windsor Lake offers peace and tranquility to its visitors. The lake is surrounded by a well-maintained paved 2.25 mile trail connecting to miles of extended trails that run through the lovely town of Windsor. Walk your furry friends, run, bike, fish, bird watch, or just simply relax. Spend your summer days boating, swimming, barbecuing, or buying fresh goods at the occasional Farmers Market at Boardwalk Park. Enjoy summer nights accompanied by family and friends with live music, food trucks, outdoor games, and movies in the park. We in Windsor are fortunate to have Windsor Lake as part of our community and home.

Don’t be just be a visitor; live just feet from Windsor Lake and be the first to enjoy the unique opportunity of waking up to breathtaking views in our newly built condominiums. Located on 6th and Cedar in Windsor’s Downtown District you will have immediate access to restaurants, shopping and entertainment. Each unit offers high-end finishes, over-sized double pane windows, and a large patio or balcony to enjoy everything the lake has to offer.

Learn more about this development by contacting Justine Marx at 970.775.4030, Windermere Real Estate, Windsor.


Posted on October 30, 2019 at 9:00 am
Justine Marx | Posted in Buyers, Colorado Real Estate Market, Investors, Windsor Real Estate | Tagged , , , ,

What You Need To Know About Buying a Bank Owned Home

SalePriceRecently, news about how to purchase a real-estate owned (REO/bank owned) home, foreclosure property or short sale is everywhere. Bank owned homes are sold directly from the lender after the foreclosure process is complete, and while you may save quite a bit of money by choosing to go for this type of home, it is not without trials and tribulations. The process of purchasing a home directly from a lender can be long and arduous, but could very well be worth it in the end.
If you have your sights on a particular home or are looking to find a deal on your first, working directly with the lender may be your only option. Purchasing a bank owned home is not for the faint of heart, here are some tips for negotiating the REO process:

1. Be prepared: The condition of bank owned properties is usually poor and hard to show. Past owners may have left angry and left the home in bad condition with foul smells, missing appliances, wires taken from breakers, gas fireplaces gone, even bathrooms without toilets and sinks.

2. Understand the costs: Maintenance or repairs may be necessary, since these homes have been vacant for an unknown period of time–sometimes months or years. Keep in mind, when they were occupied the owners could have been under a financial hardship, preventing them from doing regular seasonal care or repairs when needed. Remember as well that the bank is trying to sell the house immediately, so you will receive a financial break in the price rather than a willingness to negotiate on the maintenance and repair issues.

3. Accept the unknown: In traditional real estate transactions, homeowners fill out Form 17 regarding important information about the history of the house. A bank owned home is either exempt or marked with “I don’t know” throughout the document. Not having the accuracy of this 5 page disclosure form could leave you with a lot of unanswered questions on the history of the home.

4. Know what is non-negotiable: The pricing on the house may not get much lower. Some of these properties can be “a dream come true” if you get them at an amazing price, or they could be your worst nightmare. Do your due diligence researching any property, and conduct all necessary inspections to safeguard yourself. Some major repairs may be negotiable, but will likely not reduce the home price.

5. Make a clean offer: The higher the price you can offer, the better. Include your earnest money, keep contingencies to a minimum, and suggest a reasonable closing date. The simpler your offer is, the higher chance you have of the bank accepting your offer or countering in a reasonable time period.

6. Be patient: Consult with a professional who handles bank owned home purchases to help you negotiate the pathway to homeownership. The process of purchasing a bank owned, foreclosed or short-sale home is typically longer than a typical real estate sale.

What do you want to know about purchasing bank owned, foreclosure and short-sale properties?

Tonya Brobeck is a Broker at Windermere Lake Stevens. She has a total of 17 years combined residential real estate and worldwide resort sales & marketing experience.


Posted on March 22, 2019 at 2:20 am
Justine Marx | Posted in Buyers, Colorado Real Estate Market, Housing Trends, Investors, Real Estate | Tagged , , ,

Considering becoming a landlord? How to evaluate whether to rent or sell your property

CalculatorThe financial analysis is probably the easiest of the three to assess.  You will need to assess if you can afford to rent your house. If you consider the likely rental rate, vacancy rate, maintenance, advertising and management costs, you can arrive at a budget.  It is important both to be reasonably correct in your assumptions and to have enough reserves to cover cash-flow needs if you’re wrong.  The vacancy rate will be determined by the price at which you market the property.  Price too high and you’re either vacant or accepting applicants that, for some reason, couldn’t compete for more competitively priced homes.  Price too low and you don’t achieve the revenue you should.  If you want to try for the higher end of an expected range, understand that the cost may be a vacant month.  It is difficult to make up for a vacant month.

Consider the other costs renting out your property could accrue. If you have a landscaped or large yard, you will likely need to hire a yard crew to manage the grounds. Other costs could increase when you rent your home, such as homeowner’s insurance and taxes on your property. Also, depending on tenant turn-over, you may need to paint and deal with maintenance issues more regularly. Renting your home is a decision you need to make with all the financial information in front of you.  You can find more information about the hidden costs of renting here.

If your analysis points to some negative cash-flow, that doesn’t necessarily mean that renting is the wrong option.  That answer needs to be weighed against the pros and cons of alternatives (i.e., selling at the price that would actually sell), and some economic guesswork about what the future holds in terms of appreciation, inflation, etc. to arrive at an expectation of how long the cash drain would exist.

Risk is a bit harder to assess.  Broadly though, it’s crucial to understand that if you decide to lease out a home, you are going into business, and every business venture has risks.  The more you know, the better you can mitigate those risks.  One of the most obvious ways of mitigating the risk is to hire a management company.  By hiring professionals, you decrease your risk and time spent managing the property (and tenants) yourself.  However, this increases the cost.  So, as you reduce your risk of litigation, you increase your risk of negative cash-flow, and vice versa… it’s a balancing act, and the risk cannot be eliminated; just managed and minimized.

In considering Goals, what do you hope to achieve by renting your property? Are you planning on moving back into your home after a period of time? Will your property investment be a part of your long-term financial planning? Are you relocating or just hoping to wait to sell? These are all great reasons to consider renting your home.

Keep in mind that renting your family home can be emotional.  Many homeowners LOVE the unique feel of their homes.  It is where their children were raised, and they care more about preserving that feel than maximizing revenue.  That’s OK, but it needs to be acknowledged and considered when establishing a correct price and preparing a cash flow analysis.  Some owners are so attached to their homes that it may be better for them to “tear off the band-aid quickly” and sell.  The alternative of slowly watching over the years as the property becomes an investment instead of a home to them may prove to be more painful than any financial benefit can offset.

In the process of considering your financial situation, the risks associated with becoming a landlord, and the goals you hope to achieve with the rental of your property, – ask yourself these questions.  Before reaching a conclusion, it’s also a good idea to familiarize yourself with the landlord-tenant-law specific to your state (and in some cases, separate relevant ordinances in the city and/or county that your property lies within) and to do some market research (i.e. tour other available similar rentals to see if your financial assumptions are in line with the reality of the competition across the street).  If you are overwhelmed by this process, or will be living out of the region, seek counsel with a property management professional.  Gaining experience the hard way can be costly.

J. Michael Wilson is the dedicated broker at Windermere Property Management Seattle, and has 17 years of experience managing properties in the Seattle region.


Posted on March 18, 2019 at 7:46 pm
Justine Marx | Posted in Colorado Real Estate Market, Investors, Sellers | Tagged , , , ,