Investment Properties


accredited investor

The Path to Becoming an Accredited Investor in Real Estate

Real estate has long been a cornerstone of wealth creation and financial stability. For many, it’s a place to call home and a powerful investment vehicle. However, not all real estate opportunities are created equal, and there’s a significant distinction between regular investors and accredited investors in real estate. In this comprehensive guide, we’ll delve into the intricacies of becoming an accredited investor in real estate, exploring the criteria, mindset, and strategies required to attain this coveted status. What is Accredited Investor Status? Before embarking on the journey to becoming an accredited investor in real estate, it’s crucial to understand what this status entails. Accredited investors are individuals or entities that meet specific financial criteria established by regulatory authorities, such as the Securities and Exchange Commission (SEC) in the United States. This status grants them access to a wider array of investment opportunities that are not available to the general public. The primary rationale behind accrediting investors is to protect retail investors from high-risk investments that might not be suitable for their financial situation. By requiring individuals to meet specific income or net worth thresholds, regulators aim to ensure that accredited investors have a level of financial sophistication and resilience to withstand the potential risks associated with certain investments, such as private equity and hedge funds. Criteria for Accredited Investors Achieving accredited investor status in real estate requires meeting specific financial criteria. These criteria typically revolve around income and net worth. The particular thresholds can vary depending on the country and regulatory authority, but the general principles remain consistent. Income Criteria One common criterion for accredited investors is a minimum annual income. In the United States, for instance, to qualify as an accredited investor, an individual must have a yearly income of at least $200,000 (or $300,000 for couples filing jointly) for the past two years, with a reasonable expectation of maintaining that income in the current year. Net Worth Criteria Another pathway to accredited investor status is through meeting minimum net worth requirements. In the United States, an individual must have a net worth exceeding $1 million, individually or jointly with a spouse. Net price is calculated by summing up the value of all assets (excluding the primary residence) and subtracting liabilities. It’s important to note that these criteria can evolve over time due to regulatory changes, so staying updated with the latest requirements is crucial if you’re pursuing accredited investor status. The Power of Mindset Becoming an accredited investor isn’t just about meeting financial thresholds; it’s also about cultivating the right mindset. The journey toward financial accreditation in real estate often involves risks, challenges, and a long-term commitment. Here are key aspects of mindset that can help pave your path: Continuous Learning: The world of real estate is dynamic and ever-changing. It would be best if you were committed to constant learning to thrive as an accredited investor. Stay updated with market trends, investment strategies, and legal developments that may impact your investments. Risk Tolerance: Real estate investments can carry various levels of risk, from relatively safe rental properties to high-risk speculative ventures. Understanding your risk tolerance and aligning your assets is essential for long-term success. Patience and Persistence: Building wealth in real estate takes time. Be prepared for setbacks and challenges along the way, and maintain the persistence to keep moving forward. Diversification: While the focus here is on becoming an accredited investor in real estate, it’s vital to diversify your investment portfolio across different asset classes to mitigate risk. Strategies to Increase Net Worth Accredited investor status often requires a significant boost in net worth, which, in turn, necessitates strategic financial planning. Here are some proven strategies to increase your net worth and inch closer to accredited investor status: Real Estate Investments: Naturally, investing in real estate is one of the most effective ways to boost your net worth. Consider various real estate investment options, such as residential or commercial properties, real estate investment trusts (REITs), or real estate crowdfunding platforms. Each avenue comes with its own risk profile and potential returns, so assess which aligns best with your financial goals. Reduce Debt: Reducing high-interest debts, such as credit card balances or personal loans, can significantly enhance your net worth. Allocate a portion of your income to pay down debts systematically, starting with the highest-interest ones. As your debt decreases, your net worth increases. Increase Savings and Investments: Growing your net worth requires diligent savings and strategic investments. Set a budget that allows you to save a portion of your income consistently. Invest these savings wisely in assets that have the potential for long-term growth, such as stocks, bonds, and real estate. Entrepreneurship and Side Ventures: Starting a business or engaging in profitable side ventures can be a powerful net worth accelerator. Entrepreneurship allows you to leverage your skills and ideas to generate additional income streams. Professional Advancement: Investing in your career can lead to higher income and, consequently, an increased net worth. Consider pursuing advanced degrees or certifications, seeking promotions, or exploring job opportunities with higher earning potential. Balancing Active and Passive Income Achieving accredited investor status often involves a delicate balance between active and passive income streams. Active income requires your direct involvement, such as from a job or actively managing a business. Passive income, on the other hand, flows in with minimal ongoing effort once the initial setup is complete. Striking the right balance between these income types is crucial for reaching your financial goals. Active Income Job or Business: Your primary job or business should be a reliable source of active income. Focus on career growth, salary negotiations, or expanding your business to boost this income stream. Side Ventures: Consider engaging in side ventures that align with your skills and interests. These can provide an additional source of active income. Passive Income Real Estate Investments: Rental properties, REITs, and real estate crowdfunding platforms can generate passive income through rental yields or dividends. Investment Portfolio: A well-diversified investment portfolio, including stocks, bonds,

Freddie Mac Moderate Rehab Loan

Freddie Mac Moderate Rehab Loans: Transform Your Property with Ease

In pursuing property ownership, individuals often face the challenge of purchasing a structure that requires cosmetic or structural improvements. Buying a property that needs repairs can provide a wealth of opportunities, but it also comes with its own set of difficulties, particularly regarding the financial aspects.  Freddie Mac, a U.S. government-sponsored enterprise, offers the Moderate Rehab Loan to assist individuals in this endeavor. This loan allows borrowers to purchase a property and finance its renovation through a single, manageable loan rather than securing a separate construction loan. Freddie Mac provides a way to transform and revitalize properties that require renovation through the Moderate Rehab Loan. With this loan, the cost of property acquisition and rehabilitation are combined into one, providing more convenient financing for both new property owners and seasoned investors. In this article, we will explore the details of the Freddie Mac Moderate Rehab Loan and how it can help to create more livable, profitable properties. Flexible Financing for Property Renovations Freddie Mac’s Moderate Rehab Loan is designed to accommodate many renovations. This includes anything from minor repairs to major upgrades such as heating, plumbing, roofing, or structural repairs. The loan gives property owners and investors a greater degree of flexibility compared to traditional mortgage loans. Moreover, the Moderate Rehab Loan doesn’t merely cover the property’s purchase price. It also finances the cost of renovations up to a significant percentage of the property’s post-rehabilitation value. This aspect makes it a desirable financing option for those looking to improve and increase the value of their investment. Low Down Payment Options and Amortizations One of the significant advantages of the Freddie Mac Moderate Rehab Loan is its low down payment requirements. Unlike conventional loans, which often require a 20% down payment, Freddie Mac offers more affordable options, often starting at just 5% for eligible borrowers. This lower initial investment helps to make property renovations more accessible to a broader range of investors. Furthermore, the Moderate Rehab Loan provides more extended amortization periods. This means borrowers can repay their loans over a more extended timeframe, resulting in lower monthly payments. This characteristic can significantly enhance the financial feasibility of a renovation project. Streamlined Process for Well-Funded Borrowers Freddie Mac has optimized the application process for the Moderate Rehab Loan to be more efficient and straightforward for well-funded borrowers. They have implemented a streamlined underwriting process that expedites approval times. This allows borrowers to commence their renovation projects sooner and reduces the overall holding costs associated with delays. Renovate and Revitalize: A Case Study of Profitable Transformation To fully appreciate the potential of Freddie Mac’s Moderate Rehab Loan, consider the example of a multifamily property needing significant upgrades. A potential buyer could purchase the property for $500,000, which requires an additional $150,000 for necessary renovations. Without the Moderate Rehab Loan, the buyer would need to secure a separate construction loan or pay out of pocket for the renovations. However, they can finance the purchase and renovation costs together with this specialized loan. As a result, they gain the benefit of single, manageable monthly payments, and upon completion of the renovations, the property’s value could increase significantly, providing a more profitable investment. Eligibility Criteria for the Moderate Rehab Loan Program Like any loan, the Freddie Mac Moderate Rehab Loan has specific eligibility criteria. The property must be residential, involving at least five units. The requested loan amount must be above $1 million, and the rehabilitation cost must exceed $25,000 per unit or at least 15% of the post-rehabilitation value of the property. Moreover, the borrower must demonstrate financial strength, experience in property management, and a history of successful similar projects. Freddie Mac also requires that the rehabilitation work begins within 90 days of the loan closing and is completed within 24 months. Periodic Draws and Advantages of the Loan During the renovation period, Freddie Mac allows borrowers to draw down funds at intervals based on the progress of the work. These periodic draws ensure that renovation works continue seamlessly without needing the borrower to add additional out-of-pocket funds. The advantages of the Freddie Mac Moderate Rehab Loan extend beyond just the financial aspects. Offering a simplified application process and flexible repayment terms encourages property improvement efforts. This, in turn, can lead to improved property values, better living conditions for tenants, and more vibrant neighborhoods. Supporting the Local Economy and Enhancing Property Value The Freddie Mac Moderate Rehab Loan not only benefits property owners and investors but also has a positive impact on the local economy. By financing the renovation of residential properties, this loan helps create jobs for contractors, builders, and suppliers involved in the renovation process.  Additionally, the revitalization of properties contributes to the overall improvement of neighborhoods, enhancing the quality of life for residents and increasing property values in the area.  Ultimately, the Moderate Rehab Loan promotes sustainable community development by encouraging the renovation of existing properties rather than new constructions, which often involves higher costs and environmental impacts.  This comprehensive approach to property renovation and community development makes the Freddie Mac Moderate Rehab Loan a win-win solution for all parties involved. Bottom Line Freddie Mac’s Moderate Rehab Loan is a comprehensive financing solution designed to make property renovations more accessible and financially feasible for property owners and investors.  Additionally, by fostering local economic growth and contributing to sustainable community development, this loan serves as a win-win for both individual investors and the broader community.  It’s more than just a loan; it’s an investment in the future of our neighborhoods and cities. FAQ Section What are Freddie Mac Moderate Rehab Loans?  Freddie Mac Moderate Rehab Loans are designed to help property owners and investors finance the purchase of a residential property and the cost of its necessary renovations. How do Moderate Rehab Loans differ from other financing options?  Unlike traditional loans, Moderate Rehab Loans cover both the cost of property acquisition and necessary renovations. It offers lower down payment options, longer amortization periods, and a streamlined application process. What types of


ADR in Real Estate: Maximizing Profits with Average Daily Rate

From green investors to seasoned real estate moguls, everyone is looking for strategies to maximize their profits. While some focus on the location, others may consider factors such as property type or local amenities. However, there’s a potent tool often underutilized yet can offer crucial insights into a property’s potential profitability — the Average Daily Rate or ADR. In the ever-evolving real estate landscape, staying informed about key metrics is critical. This article highlights ADR’s calculation, significance, comparison to other metrics, and rising influence in vacation rental investments. We will also explore how machine learning can leverage ADR insights and share strategies to enhance your ADR. What is ADR in Real Estate? Average Daily Rate (ADR) is a performance metric measuring the average rental income per occupied unit in a specific period. Originally used in the hotel industry, ADR has found its place in the real estate industry as a powerful tool to gauge the profitability of rental properties. How to Calculate ADR for Real Estate Investments? Calculating ADR for real estate investments involves dividing the total rental income in a specific period by the number of rented days.  This is the formula: ADR = Total Rental Income / Number of Rented Days For example, if a property generated $30,000 in rental income over 200 rented days, the ADR would be $150. The Significance of ADR in Real Estate Analysis ADR plays a pivotal role in real estate analysis. It gives investors a clear picture of their daily revenue per unit, facilitating better pricing strategies. Furthermore, comparing ADRs across different properties can help identify underperforming assets and uncover opportunities for improvement. ADR provides insights into seasonality trends for vacation rental properties, which can inform pricing adjustments for high-demand periods. This way, real estate investors can optimize their pricing strategy, leading to increased profits. ADR vs. Other Metrics: Making Informed Investment Decisions While ADR is crucial, it’s just one piece of the puzzle. Other metrics such as Net Operating Income (NOI), Cap Rate, and Cash on Cash Return (CoC) should also be considered to make comprehensive and informed investment decisions. Metric Description ADR Average income per rented day NOI Total income from a property after operating expenses Cap Rate Ratio of NOI to property asset value CoC Annual income over the total investment Though ADR provides an average daily income, it doesn’t account for operating expenses or investment costs. NOI gives an after-expense view of the income, Cap Rate helps understand the return on investment relative to the property’s value, and CoC provides the percentage return. The Rising Influence: ADR’s Role in Vacation Rental Investments In the realm of vacation rentals, ADR has become an increasingly influential metric. As the vacation rental market grows, properties with higher ADRs tend to attract more investors due to their potential for higher returns. By tracking ADR, investors can anticipate demand trends, adjust prices, and maximize profits. Unleashing ADR Insights with Machine Learning Machine Learning (ML) can unearth profound insights into ADR trends. We can predict future ADR trends by feeding historical ADR data into ML algorithms, informing investment and pricing strategies. Moreover, ML can identify correlations between ADR and other factors like property features, location attributes, or market dynamics, thus providing nuanced perspectives on real estate investments. Strategies to Boost ADR in Real Estate Investments Upgrade Amenities: High-quality amenities can command higher rental prices, thus increasing ADR. Seasonal Pricing: Adjust pricing based on demand, with higher rates in peak seasons. Effective Marketing: Promote unique features of the property to attract potential tenants. Regular Maintenance: Ensuring the property is well-maintained can justify higher rental prices. The Limitations and Criticisms of ADR in Real Estate Investments While ADR is a valuable metric for understanding the revenue potential of rental properties, it’s important to recognize its limitations and criticisms. One key criticism is that ADR doesn’t account for vacancy rates, a crucial factor affecting the profitability of real estate investments. A high ADR is not always indicative of a high yield if the property suffers from prolonged periods of vacancy.  Additionally, ADR is a gross income metric, meaning it does not factor in operational costs like maintenance, utilities, or property management fees, which could significantly erode your profits.  Therefore, while ADR provides quick insights into revenue potential, it should be considered in conjunction with other financial metrics and qualitative factors such as location, property condition, and market trends for a more rounded investment strategy. Bottom Line ADR, while often overlooked, is a potent tool to help real estate investors maximize their profits. It offers insights into daily revenue, influences pricing strategies, and can inform investment decisions. With the addition of machine learning, the depth of insights to be gleaned is extensive.  However, it’s crucial to remember that ADR has its limitations, such as not accounting for vacancy rates or operational costs. By adopting strategies to enhance ADR and considering it alongside other important metrics, investors can ensure they are realizing the full potential of their real estate investments. FAQ Section What is Average Daily Rate (ADR) in real estate? ADR is a performance metric that measures the average rental income per paid occupied unit in a specific period. How is ADR calculated in real estate investments? ADR is calculated by dividing the total rental income in a specific period by the number of rented days. Why is ADR necessary in real estate analysis? ADR gives investors a clear picture of their daily revenue per unit, aiding in better pricing strategies and identifying underperforming assets. How does ADR compare to other real estate metrics? While ADR provides an average daily income, it doesn’t account for operating expenses or investment costs. Hence, it’s essential to consider other metrics like NOI, Cap Rate, and CoC for comprehensive investment decisions. Can machine learning predict ADR trends in real estate? Yes, machine learning can predict future ADR trends by analyzing historical data. It can also identify correlations between ADR and various factors, providing nuanced perspectives on real estate investments.

business plan

Apartment Complex Business Plan: A Roadmap to Real Estate Investment Success

Investing in an apartment complex is a remarkable opportunity for a significant return on investment in the real estate market. Whether you’re a seasoned investor or a newbie in the real estate field, a detailed, well-researched business plan guides your enterprise toward success. A business plan not only offers a structured path to achieve your financial objectives but also helps potential investors understand your vision and the profitability of your venture. This article explores the critical elements of an apartment complex business plan. We’ll dive deep into understanding the apartment rental market, discussing the key aspects of an effective business plan, identifying the latest market trends, building a robust marketing strategy, crafting financial projections, performing a SWOT analysis, and mitigating risk. The goal is to equip you with a solid roadmap to steer your real estate investment toward substantial success. Understanding the Lucrative Apartment Rental Market With a growing population and the increasing trend towards urban living, the apartment rental market has become a lucrative field for real estate investment. As of 2023, the rental market in the United States alone stands at a staggering $172.3 billion. This growth is further spurred by millennials and Gen Z, who prefer flexible living arrangements, making renting a more appealing option. The business model of apartment complexes offers a consistent revenue stream via monthly rentals. Additionally, tax benefits, value appreciation, and the opportunity to leverage property management services further enhance the profitability of this investment. Key Elements of an Effective Business Plan A comprehensive business plan for an apartment complex includes the following key elements: Executive Summary: This section provides a high-level overview of your business, including your business name, location, mission statement, and an outline of your business strategy. Company Description: Here, you delve into details about your company, such as legal structure, ownership, the type of apartment complex you intend to own, and your unique selling proposition. Market Analysis: This section covers an in-depth analysis of your target market, market trends, and competitive landscape. Marketing Strategy: In this segment, detail your pricing, promotional plans, and strategies to attract and retain tenants. Organization and Management: Explain your organizational structure, key personnel, and their roles. Financial Projections and Funding Request: Outline your financial projections for the next 3-5 years, and if you seek external funding, specify how you plan to use these funds. Market Analysis and Market Trends It’s critical to analyze the market thoroughly to make informed decisions about your investment. The market analysis should detail your target demographic, income level, renting habits, and preferred amenities. Moreover, understanding current market trends, such as the increasing demand for eco-friendly buildings or smart home features, can give your business a competitive edge. Your market analysis should also incorporate a competitive analysis. Understanding the strengths and weaknesses of your competitors, their pricing strategies, and their unique offerings can help you differentiate your apartment complex, making it more appealing to potential tenants. Building a Strong Brand and Marketing Strategy Building a strong brand is pivotal in the real estate business. Your brand should reflect reliability, quality, and value for money. A unique logo, a catchy tagline, and a consistent brand message can contribute significantly to building a strong brand image. Your marketing strategy should focus on attracting and retaining tenants. Online marketing channels, such as social media and email marketing, are potent tools to reach potential tenants. Consider traditional marketing methods, such as signage, print advertisements, and referral programs. Financial Planning and Projections Accurate financial planning and projections are the backbone of any business plan. These should include projected income statements, cash flow statements, and balance sheets for the next 3-5 years. To track the financial health of your business, monitor key metrics such as occupancy rate, average rental income, operating expenses, net operating income, and return on investment. SWOT Analysis and Risk Mitigation A SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) allows you to identify your business’s internal and external factors that could impact your success. By identifying these factors upfront, you can capitalize on your strengths and opportunities while mitigating your weaknesses and threats. Risk mitigation strategies include diversifying your property portfolio, ensuring comprehensive insurance coverage, regular property maintenance, rigorous tenant screening, and establishing an emergency fund for unexpected expenses. Legal Considerations and Compliance Navigating the legal landscape is a crucial yet often overlooked aspect of an apartment complex business plan. It’s essential to understand the federal, state, and local laws governing real estate investment and property management. These may include zoning laws, rent control regulations, Fair Housing Act compliance, and local building codes.  Failure to adhere to these laws can result in hefty fines, legal disputes, or even the closure of your business. Therefore, it is advisable to consult legal experts in the real estate field to ensure that your business plan is compliant with all legal requirements. This not only protects your investment but also builds trust with potential investors and tenants, enhancing the overall credibility and viability of your venture. Bottom Line A robust, well-structured business plan is your key to success in the lucrative apartment rental market. By gaining a deep understanding of the market, building a strong brand, crafting effective marketing strategies, carefully planning your finances, and navigating the legal landscape, you significantly enhance your chances of creating a profitable and sustainable real estate investment.  Being thorough in these areas not only sets you on the path to financial success but also ensures you are compliant with legal requirements, which adds credibility and trustworthiness to your venture. FAQ Section What is the significance of an apartment complex business plan? An apartment complex business plan provides a strategic roadmap for setting up and managing your investment. It helps you outline your business goals, strategies, market analysis, financial planning, and risk mitigation tactics. How does the real estate investment market offer growth opportunities? The real estate investment market offers growth opportunities through consistent rental income, property value appreciation, and tax benefits. Moreover, the increasing demand for rental properties, especially among

cash on cash return

Cash on Cash Return Calculator: Evaluating Real Estate Investment Returns

Investing in real estate can be confusing due to the various strategies and ways to measure success. However, there’s a valuable tool called “Cash on Cash” (CoC) return that real estate investors find essential. Think of it as a compass that guides investors through the complex world of property investment. CoC return helps you figure out how much profit you’re making compared to the money you’ve invested. It gives you a clear picture of whether an investment is a good opportunity or carries potential risks. This article explains why CoC return is so important in real estate investments, how to calculate it, and how to use it strategically. It also compares CoC return to other metrics, reveals its hidden benefits, and highlights common mistakes investors should avoid. By the end, you’ll have a better understanding of CoC return and its role in making smart real estate investment decisions. What is Cash-on-Cash Return? Cash-on-cash return is a rate of return used in real estate transactions that calculates the cash income earned on the cash invested in a property. It’s a cash flow measure that provides insight into the profitability of investment properties. This metric is particularly relevant for investors who finance their properties, as it considers the impact of borrowing costs on return. Understanding the Importance of Cash-on-Cash Return Cash-on-Cash (CoC) return plays a critical role in real estate investment analysis. It paints a realistic picture of an investment property’s performance by focusing on cash flow, thereby addressing the actual return on investment. This is especially useful for rental properties because the money you make from rent directly affects the CoC return. One great thing about CoC return is that it’s really simple to use. It gives you an easy way to evaluate and compare different investment properties, which helps you make smarter decisions as an investor. It also takes into account the impact of borrowing money, so you can see how the returns look when you finance the purchase. How to Calculate Cash-on-Cash Return CoC return calculation is a simple process. It’s the ratio of annual pre-tax cash flow to the total cash invested, expressed as a percentage. Here’s the formula: Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100% To break it down: Annual Pre-Tax Cash Flow: The rental income generated from the property minus the expenses (like maintenance, repairs, property management fees, etc.). Total Cash Invested: This includes the down payment, closing costs, renovation expenses, or any other upfront costs associated with acquiring the property. The Impact of Financing on Cash-on-Cash Returns How you finance an investment property can significantly impact your Cash-on-Cash (CoC) return. If you use a mortgage to buy the property, you won’t have to put in as much cash upfront, potentially increasing your CoC return. However, it’s essential to keep in mind that financing comes with added costs, such as interest payments, which need to be considered when calculating your overall returns. Boosting Your Cash on Cash Returns: Tips and Strategies Achieving superior CoC returns requires careful planning and thoughtful strategies. This means identifying potential opportunities and implementing practical solutions to drive profitability. Here’s a more comprehensive look at the tips provided: Reduce Operating Expenses Minimize Property-Related Costs: Focus on efficient management of maintenance, utilities, insurance, property taxes, and other recurring costs. Implement Energy-Saving Solutions: Investing in energy-efficient appliances and systems can lead to long-term savings. Negotiate with Vendors: Building relationships and negotiating with suppliers can reduce regular services and repair costs. Outcome: By reducing these expenses, you can significantly increase cash flow, thereby improving the CoC return on your investment. Increase Rental Income Regularly Review and Adjust Rents: Constantly monitor local market trends to ensure your rents align with the current market rate. Improve Tenant Retention: Offering incentives for long-term leases can reduce vacancies and associated turnover costs. Utilize Dynamic Pricing Tools: Implement tools that adjust rents based on supply and demand. Outcome: These strategies can lead to higher rents, greater cash flow, and ultimately better CoC returns. Value-Add Strategies Implement Targeted Improvements: Enhance the property with renovations or additions that appeal to your target market. Focus on Amenities: Adding or upgrading amenities like a fitness center or common areas can command higher rents. Improve Curb Appeal: Simple exterior improvements can significantly enhance the property’s perceived value. Outcome: These efforts can enhance the property’s value and allow for higher rents, thereby boosting the CoC return. Key Differences Between Cash-on-Cash Return and Cap Rate Cap Rate, or capitalization rate, is like a snapshot of how profitable a property might be without considering any loans or mortgages. It’s calculated by taking the property’s yearly income (after expenses) and dividing it by its current value. It helps to understand the basic worth of the property itself, no matter how you plan to pay for it. On the other hand, CoC Return considers how you’re financing the property. It looks at the actual cash you’re earning on the money you’ve invested, considering things like loan payments and interest rates. It tells you more about how your specific investment is performing, given the way you’ve chosen to pay for the property. In simple terms, Cap Rate helps you compare different properties to see which might be a good buy, while CoC Return enables you to understand how much money you’re really making on your investment, considering all your costs. Unveiling Hidden Benefits of Cash-on-Cash Return Calculations Apart from providing insights into the investment property’s cash flow, CoC return also unveils some hidden benefits: Tax Advantages: CoC return is calculated using pre-tax cash flows, which doesn’t account for tax benefits like depreciation, mortgage interest deductions, etc. These benefits effectively enhance the overall return on investment. Influence on Exit Strategy: A property with a strong CoC return tends to be more attractive to potential buyers, thus enhancing its marketability. Common Mistakes to Avoid in Cash-on-Cash Return Analysis Avoiding common pitfalls in CoC return analysis can significantly improve the reliability of the results: Overestimating Rental Income:

Land Investment – What You Need to Know

If you’ve ever thought about investing in real estate, you’ve probably considered residential, commercial multifamily, offices, hotels, or even industrial properties. But what about land with no property built on it? Although land is becoming more and more scarce, there are still multiple options when it comes to investing in land property. In this article, we’ll look at what types of land properties exist, explain why they present quality investments, examine financing options, and talk about where you can start looking to purchase land. Let’s dive in! Land Types There are 3 types of land property we can look at to understand how they operate and their investment potential. Parking Lots In developed and developing cities and towns, space and property values are ever-increasing. In these areas, parking lots prove to be a profitable investment. Many investors are interested in them over traditional forms of real estate. Parking lots generate revenue flow through their use. In premium locations (downtown sectors and highly populated areas), parking lot owners charge for their use. These properties can exist in a few different forms, from surface-level parking lots to multilevel garages. While unassuming at first glance, parking lot properties have a low cost of entry, and they present a great ROI for minimal work. Vacant Land Vacant land is simply an empty space with no real future intentions placed upon it. These plots of land are very difficult to find in urban and developed areas, but they are often more readily available in less developed, rural locations. This type of property is a blank slate for whatever the investor chooses. It could be rented out and maintained for open space, outdoor events, it could be used to harvest natural resources, or even used for farming. Despite being the type of land property with the lowest immediate cash flow generation, vacant land accrues value immensely. Keep it well-maintained, and it will prove to be a great investment over time. You must ask yourself one big question before you plan to purchase vacant land properties: why is the land vacant? Is the previous owner simply selling the land and moving on to another investment? Or is the land difficult to manage? Is there no market for open land where you are planning to purchase it? Your answer will reveal any red flags about the property and ultimately let you decide if that specific plot of vacant land is a good investment. Land for Construction Land properties for construction are open plots of land that plan to be utilized for property and real estate development (residential or commercial). Like other land property investments, investors should look toward rural areas for available land to purchase. However, good deals on land used for development in cities can present a profitable investment. Additionally, land for construction presents a wide range of use cases, and it’s often cheaper than buying already-established property. Compared to all land property, land for construction also presents the highest potential gains for investors. A good marketing strategy will let you, as an investor, attract customers who want to build on the property. Deals can easily amount to millions of dollars, depending on the size of the land and the ease of development. Keep in mind, however, that the barrier to entry for these properties tends to be the highest of all land properties. Preparing land for construction also takes work like grading, zoning, These processes cost money. Why Invest in Land Property Land properties are fantastic investment opportunities, given a proper understanding of market demand in a given area. On a macro level, a stronger economy means land will accrue more value. Here are some reasons you should consider investing in land properties: Low maintenance and appreciation Unlike commercial or residential properties, land property requires very little maintenance. The most you’re required to do as a landlord is make sure the property is clean and suitable for its purpose. With proper maintenance and an economy that supports demand, land properties have the potential to greatly appreciate over many years, sometimes more so than other types of property. This is even more true when considering property meant for construction. Big buyers looking to expand a business or build real estate will often pay premiums to be able to utilize the land, which gives you significant revenue flow. Scarcity of available properties Available property is becoming harder and harder to come by. As time goes on—and as development projects use land in both urban and rural areas—land will become more expensive. That means investing now is a good move! Easy entry for property investment Out of all types of property, land property is often one of the most accessible for beginning investors. Land properties usually cost a fraction of residential or commercial properties, unless the land is located in a highly-populated area where demand drives prices. This inexpensive quality makes land property attractive, especially for those with limited financing options or capital. Financing Options for Land Properties It’s perfectly fine if you lack the necessary capital and still wish to invest in land properties—many financing options exist to help you! Here are some financing options that you can consider when purchasing your land property. Conventional Bank Loans When issuing conventional bank loans, banks check eligibility with your credit score and history. Having a portfolio of your owned properties helps to secure this type of loan; however, it isn’t necessary and these conventional loans are typically available to most investors. With these loans, you’ll find amortization periods between 10-30 years. Banks will cover a very large amount of the cost of the property, sometimes 100%, depending on your credit score and the price of the property. You still need to be aware of the amount of money you need to contribute for a down payment to acquire a conventional loan. This can be anywhere from 20-50% of the property’s value. Every bank will be different and there may be some ability to negotiate. Loanbase helps you compare lenders

How to Build an ADU

What is an ADU? Accessory dwelling units are secondary dwelling units built on the same lot as your larger, primary residence. They’re a great way to add extra space (and value!) to your property. Certain features “qualify” a building as an ADU: Its own utility hookup Its own living space Its own foundation Its own water hookup Types of ADUs There are 4 primary types of ADUs. Detached ADU A detached ADU can be an apartment in your backyard or a cottage. It has its own entrance, it stands separate from your primary dwelling, and it has its own water and utilities. Another person/family could live there entirely separate from your home. Attached ADU An attached ADU shares at least one wall with your primary home, and there is no internal entrance to the ADU. The attached ADUs often share utility hookups with the main residence, but they still fully function as autonomous living spaces. Garage conversions A garage conversion might be an attached or detached ADU. Either way, it’s a garage converted into a living space, subject to the same four qualifications for an ADU. Interior conversions Interior conversions are typically either in the basement or the attic. They aren’t spare rooms; instead, they are fully functional living spaces that operate independently of your house. Although they might not be visible from the outside, they’re still considered an ADU. Why should I build an ADU? Before committing to an ADU, you need to know who you’re building it for. For example: Is your ADU for aging grandparents who can’t afford a nursing home? Or is it for an adult child still getting on their financial feet? Maybe you’re building for a special needs family member who needs extended care? Who you’re building for will direct how you approach planning and constructing your ADU. Aging grandparents need a space suited for limited or reduced mobility, so an interior attic conversion probably isn’t your best option. An adult child will want autonomy and his/her own space, so a garage conversion or detached ADU might work well. A loved one with special needs will require accessibility because they might need care during all hours of the day. An attached ADU or an interior conversion would be a good choice. Calculating the cost of your ADU You’ve decided what type of ADU fits your needs—now it’s time to start thinking about cost and financing your ADU. It’s impossible to tell exactly what your ADU will cost. Why? Because of the sheer amount of variables: the structure type, the builder, market cost of materials and labor, etc. That said, you can examine aggregate data from your market to get a good sense of what you might pay for your ADU. Notably, this data includes (i) design costs, (ii) permit costs, (iii) utility connection costs, (iv) construction costs. It doesn’t include landscaping or furniture costs. This data covers ADUs built in the Portland market from 2016-2019. Average Cost ($) Sq. Footage  Cost/Sq. Foot Detached 180,833 676 305 Attached 154,400 556 300 Garage 142,000 504 297 Basement 185,833 676 265 For a deeper dive into the data, check out this post from Building An ADU. The key takeaway? The fixed costs (development, labor, materials, etc.) of a new housing development drive the final price of your ADU. As these fixed costs increase year over year, so will the price of your ADU. The good news? The land you’re building on is free—you already own it! Land typically represents the most expensive part of any real estate project. But when you’re constructing an ADU, you already own the land! That means every dollar you spend goes into the actual property. Finding a builder Finding a builder is one of the most important parts of the construction process—you get what you pay for. It’s important to hire a professional who’s familiar with ADUs and with the ADU ordinances in your area. You’ll add months of time and headache by skimping on a good builder. A quality builder will know how to design an ADU that will adhere to local ordinances, and he or she will also be able to accurately assess costs. Before hiring any contractor or designer, ask questions and review samples of their past work. Getting your ADU approved You’ve found the perfect builder for your ADU. Now it’s time to start the building process. First things first: make sure you and your builder understand the ADU regulations in your city. With that knowledge, you can start the permit approval process. Each city has its own set of documents, but they’ll typically include things like an ADU Universal Checklist, ADU Building Plans Handout, an ADU Inspection Checklist, or something similar. Fill out the necessary documents, and then submit your building plans to your local government (usually at City Hall). Make sure your builder or architect draws up your plans. A quality builder will know all the technical details to include. Once your package is approved, you’ll start construction! Constructing a detached ADU includes steps like establishing your foundation footings, installing underground utilities, adding structural rebar, concrete placement, framing, and more. Key takeaways Constructing an ADU isn’t easy and it isn’t cheap. However, ADUs can add massive value to your property and/or provide rental income that makes them worthwhile! Before committing to an ADU, make sure you understand both who it’s for and why you’re building it. Your answers to those two questions will direct the rest of your planning and construction process. When you’re ready to hire a contractor or a builder, remember: you get what you pay for! Better to spend extra money on a quality, seasoned builder than waste time and money later dealing with someone who isn’t familiar with ADUs.

Non-Owner-Occupied Investment Property

What is a non-owner-occupied investment property? Non-owner-occupied means the owner of the investment property doesn’t live in one of the units nor uses it as their primary residence. Lenders use the term non-owner occupied when analyzing 1-to-4-unit investment properties. Non-owner-occupied investment properties require insurance before the landlord can move tenants into the property. Why do lenders care if an investment property is owner occupied? Lenders want to ensure that the property is cash flowing at its maximum potential. If the owner of the property is occupying one of the units then the property is missing out on a unit that could be producing recurring rental income. This classification helps lenders issue the correct interest rate as they want to be properly compensated for the risk they take when lending money to a real estate investor. How is non-owner occupied seen as a negative? Although lenders want to see an investment property cash flow at its maximum potential to limit the risk of lending to this investor, when an investor lives at the investment property, the probabilities of defaulting on a loan decrease. Therefore, the lender’s risk decreases, and the borrower’s interest rate decreases. Properties that are non-owner occupied have a higher probability of defaulting which is followed by a higher interest rate for the borrower. Occupancy Fraud Due to the fact that interest rates are higher for non-owner-occupied investment properties, investors will attempt to classify their property as an owner-occupied investment property to try and achieve a lower interest rate. This is considered occupancy fraud and the borrower, loan and property can face serious consequences such as large fees. Benefits Non-owner-occupied investment properties allow for a greater cash flowing property, increase in diversification, and return on investment. In turn, the investor will be able to pay off the property much faster than if the property were not cash flowing at its maximum potential.

Multi-Unit Rentals (Duplex, Triplex, Fourplex)

What are multi-unit (2-4 unit) investment properties? Multi-unit investment properties are residential assets with two to four units in a single property. For example, duplexes are two-unit properties, triplexes are three-unit properties and fourplexes are four-unit properties. What are duplexes, triplexes and fourplexes? Duplexes are multi-unit rentals with two to four units under one rooftop. Each unit has a private entrance. The living spaces are typically split equally with a similar square footage. Tenants tend to favor 2–4-unit rental properties over apartment buildings as they offer more privacy since these properties only house up to four tenants. What is the difference between a duplex, a triplex and a fourplex? These three property types fall under a multi-unit (2-4 unit) property type. The three different property types don’t differ significantly. The biggest difference is the increase in income sources per property. As income sources increase, diversification, profitability and return on investment increases, all while risk decreases. Investors are attracted to this real estate property type as it offers more than one passive income source under one roof. What is house-hacking? New investors favor these three property types as they can house-hack the property. House-hacking means the owner lives in one of the units and rents out the remaining units. The owner is essentially living on the property for free as long as the other units generate enough rental income to cover the monthly mortgage alone. House-hacking also allows first time buyers to secure a lower interest rate and lower down payment as they will be living on the property. This is an easy and affordable way for new investors to get started in real estate. Where can investors find these investment opportunities? Investors can find duplex, triplex and fourplex investment opportunities through numerous sources such as: Zillow Redfin MLS Opendoor Wholesalers


What does it mean to fix and flip real estate? The fix and flip strategy has grown exponentially since the 2008 global financial crisis. Investors who have built their real estate investing business plan around the fix and flip strategy purchase distressed properties at a discount, rehab/renovate them and sell them at a higher price. This strategy profits from the property’s appreciation post-renovation. How to calculate the fix and flip value (FAFV)? Fix and Flip Value = Purchase Price + Cost of Repairs Example: An investor from Bali acquires an investment property that he is looking to fix and flip in Detroit, Michigan for $75,000 but the surrounding properties are valued at an average of $130,000. The property is in poor condition and will require $15,000 in rehab. Fix and Flip Value = $90,000 Purchase Price = $75,000 Cost of Repairs = $15,000 How to calculate the after-repair value (ARV)? After-Repair Value = Fix and Flip Value + Profit Example: The investor from Bali finished rehabbing the property in Detroit, Michigan and is ready to sell. However, the investor discovered that the property only needed $10,000 in rehab rather than the expected $15,000. The market’s average property value is $130,000. After-Repair Value = $130,000 Fix and Flip Value = $85,000 Profit = $45,00 Profit = $45,00 Average Value = $130,000 Fix and Flip Value = $85,000 Fix and Flip Value = $85,000 Purchase Price = $75,000 Cost of Repairs = $10,000 Calculation notes: The after-repair value of a fix and flip project should be calculated pre-rehab and post-rehab. This investor from Bali generated two different after-repair values as the cost of repairs was $5,000 less than anticipated. In this example, the investor was greeted with a pleasant surprise post-rehab as his expenses were less than expected. However, buying distressed properties can also come with unexpected repairs which means a property may require additional rehab expenses than expected. This will increase the fix and flip value, decrease the profit, and decrease the after-repair value.