Recently, a hot topic for a lot of our clients has been how to not only plan for retirement, but how to really develop and implement a powerful strategy for retiring early. We have presented case studies o investors working with MemphisInvest.com to place a premium on develoing and following a plan to retire with a secure income from passive real estate investments. I am including a link to a recent Webinar with one such case study involving an airline pilot worried that his own savings and airline pension would not be enough to fund his retirment:
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It never ceases to amaze me that business men and women alike can sometimes forget the very basic rules of investing when it comes to investing in real estate. Real estate investing is no different than investing in traditional stocks, bonds, funds or CD's when it comes to looking for value and return. Often times, the real value of an investment can be determined quickly and easily
and it has nothing to do with how steep the discount is! It seems that today, many in the investment real estate business want to confusecomplication with innovation!
Even companies who specialize in cash flow properties can muck up the process of analyzing a property by trying to make it easier and only creating a bigger more confusing mouse trap! Real estate investors, especially those investing in hot real estate markets like Memphis, TN. need to realizing that the simple basics to investing have not changed, just the delivery of the information to the investors. In the end, a Memphis real estate investor only needs to focus on a few key elements of the deal to determine if it fits their criteria.
1. What is your immediate exit strategy?
Some companies will assist you with determining exit strategy before you get started. If you are not dealing with a company that gives you a little direction, then make sure you have thoroughly considered what your immediate and long-term strategies are for investing.
When investing in a city like Memphis, TN., the long-term benefits of investment property ownership is a major factor in exit strategies. Today, a majority of investors are purchasing investment real estate in Memphis for monthly cash flow and long-term appreciation while a renter reduces their principle. This allows an investor to capture long-term tax benefits, appreciation and monthly cash flow.
2. Determining Cash Flow
If you are purchasing your property for all cash and holding for a return on investment, then skip directly to #3. However, since most of us purchase properties with some sort of financing attached, this is where you want to slow down and really pay attention. This step refers directly to those who are putting a long-term mortgage on their property and having a renter make the monthly payment. Passive monthly cash flow in its simplest form is the amount of rent received minus the monthly note. As an investor you need to take into consideration certain costs that you will most likely incur. Property management fees, taxes, mortgage interest, rainy-day funds, etc... There are many places to look online for copies of sample cash flow calculators which help you to breakdown cash flow after PITI (Principle, Interest, Taxes, Insurance) and property management fees. Be aware what monthly cash flow really means and how much to put away for future needs such as vacancy and maintenance.
3. Cash on Cash ROI
Again, try to keep this calculation very simple. You divide net rental income (rents minus taxes, insurance and set% for vacancy & maintenance) by total investment (purchase price, rehab costs, closing costs). Most savvy investors understand this NET Cash on Cash Return On Investment and recognize that a property with a double digit return after expenses is much better than the 2% return from the local bank CD. Every investor is different and every investor has different criteria for location, size & amenities that they want their properties to include. As long as the property meets those criteria and you are happy with its location, don't allow a lot of calculations and fancy looking spreadsheets to confuse or impress you. Stick with the basics and keep it simple. Calculate your cash flow or return on investment and purchase properties that give you the return you are looking for!
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When I bought my first property and placed my first tenant...I was a complete disaster! No point in beating around the bush right! As a Memphis real estate investor, I learned just enough about rental property management in Memphis, TN. to be dangerous and I certainly was. I was dangerous to my bottom line and dangerous to my future earnings.
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Did you see this article online this week about real estate investing? This is EXACTLY what we do in Memphis, TN and why our clients are poised to do fantastic on their discount investment property portfolios.
Source: Les Christie, staff writer, On Thursday August 5, 2010, CNN Money
No More Flips? RE Investors are now in Buy-and-Hold Mode
The real estate market is still dominated by distressed properties, and as opportunistic investors, we can’t ignore short sales, foreclosures, and defaulted note buying. One thing seems to be changing though. Whereas the preferred exit strategy used to be flipping a property or note for a quick profit, that strategy no longer works in many cases, due partly to new federal rules such as HAFA and HAMP, restrictions on same-day transactions, seasoning requirements, and general market factors.
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So you all know that we are constantly working to improve our operations and educating ourselves when it comes to investing in real estate and we urge you all to do so as well. Last week we spent 4 days at the Fortune Builders Rehab Bootcamp in sunny San Diego, CA learning new processes and touring the properties that Fortune Builders are currently rehabbing. Ryan, who heads the rehab department at Memphis Invest, joined us in continuing his education. This is by far one of the best educational opportunities of the year and we are happy that Ryan could join us.
Kent, Jr., Brett and I had the opportunity to speak to the 300+ attendees in regards to systems implementation, business building and stayed over to give a special presentation to a select group of attendees on the inner workings of the Memphis investment property bus tours that we host. See below for pictures from last week's workshops.
Be sure to check out the Fortune Builders' home page for future events and make plans to join us for one of the upcoming educational boot camps. Even the experts still attend workshop weekends to continue to grow and learn as business owners.
See you on the road soon...
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MemphisInvest.com is pleased to announce that Than Merrill, JD Esajian, Paul Esajian and Konrad Sopielnikow, stars of A&E’s Flip This House and founders of Fortune Builders, teamed up with Memphis Invest to host the Ultimate Cash Flow Buying Tour, a two day buying conference and tour in Memphis on July 9 - 10, 2010. The seminar brought 70 investors to Memphis from 18 states plus Canada and yielded a total of twenty nine Memphis investment properties sold.
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What are the laws in your state or municipality
There are different laws around the country for both landlords and renters and you absolutely must know the laws that pertain to your area. That being said, here is the easiest way to learn those laws. First, contact local property management companies and ask for their guidance with local land lording laws. It may take more than one call, but be proactive and ask for their assistance. Most will be more than happy to answer a few of your top questions. Second, contact local landlords that advertise properties for rent in the local papers. Many times, with an offer to buy them lunch or dinner, a local landlord will spend time telling you how they operate and what they know about local laws. Finally, when you have a better idea of your market place and the local laws, you turn to a local attorney who specializes in representing landlords. They can assist you with the ins and outs of how to operate as a landlord to give yourself the best opportunity for success.
Developing a great lease
Once you have established a better understanding of your local land lording laws, you can also develop your lease. Chances are, if you will ask, other landlords will share their lease with you. Another possibility is that your attorney will already have a lease that they can give you to use. Using a proper lease is the best way to protect yourself when it comes time to collect late rents or possibly move towards dealing with a problem tenant in the legal process. Being clear and precise in your lease is the best way to protect yourself when it comes time to involve the local courts and laws as a landlord. Once you have a great lease, make sure you have a great closing process. Make sure that your tenant not only signs every page of your lease, but it is a good idea to have them sign key parts of the lease where the legal process is laid out. Cover yourself and your tenant to ensure your success.
Create your process
Problems will absolutely occur when you are a landlord. From late rents, evictions, maintenance calls and even maintenance issues that have to be charged back to the tenant. All of these situations will occur to you as a landlord and you must be prepared form the beginning on how you are going to handle each of those situations and be consistent. I suggest you put it in writing and have that process filed with your attorney. Once you have committed it to writing and filed it with your attorney, you have no choice! You must follow that policy. That policy will spell out when a tenant is late, what the repercussions are going to be, when that process moves to the stage of eviction, when the tenant will be notified and again, what the repercussions are going to be. If you will follow the process you lay out, you will be moving in the right direction and the legal process will be easy.
Dealing with evictions
Evictions are one of the few absolutes in the property investment business. If you are going to manage your own properties, then getting over the fact that you will have evictions to deal with is a must. Renters will pay late, they will push the envelope and some know every step to take to play the game of staying in a property for the maximum number of days for the minimum number of dollars. If you have created your lease based on what you learned form other landlords, management companies and your lawyer and created your process for dealing with tenants (and followed that process) then you will have a very good chance of winning the eviction as quick as possible and for the least amount of work and cost.
Moving forward as a landlord
Investing in real estate and choosing to operate as your own landlord both can be very profitable and rewarding. Simply making that decision will not be enough. You must take the time to get educated and prepared to be a good landlord and out your contracts and systems in place. These simple steps will absolutely help you to become a better investor and a better landlord.