NRVLiving - Real Estate. Simplified.

Investors Can Now Own More Properties

In a stroke of genius - well, a reaction to what was a poor decision in the first place - Fannie Mae has now increased the investor loan limits from 4 properties to 10.

Limiting serious investors to 4 properties just didn't make sense - these folks don't deal with numbers like that.  We're not talking loans for weekend warriors who want to flip a house or two, or invest in a condo.  These new limits are designed for the serious investor, the ones who have excellent credit, money to put down (20% or more), and they're set up with tighter guidelines than before.  And that, in my opinion, is a good thing.

This opens up a number of opportunities here in the New River Valley, specifically in Blacksburg and Radford.  I've said it before and I'll say it again ... and again ... and again - investing in college communities makes sense.  For the past couple of years at least, Virginia Tech has announced an on-campus shortfall for residents, which means students are having to find off-campus housing.  Investors are smart to snap these up, because not only do the universities get larger, but so do the periphery of businesses that follow universities.  Where there's a university, so also there are research facilities, medical schools, design and engineering firms, and more.  Housing becomes a premium.

Before you say I'm a cheerleader for housing - which I am, but I want to be an honest cheerleader - I'm not suggesting everyone jump in the housing pool.  However, in the past two weeks I've worked with an investor, two sets of parents with kids at Virginia Tech, and one first-time buyer who have specifically targeted our market because of the university-focus.

That's proof enough.  Thanks, Fannie Mae.

Weathering The Real Estate Storm

Zach Crizer of The Collegiate Times called me early last week and asked "why do people decide to invest in college towns?"  We talked for a few minutes, and later in the week he posted "Blacksburg Real Estate Weathers Financial Storm".

Thanks, Zach, for the chance to talk with you, and to be quoted in the same article as someone as well known in his field as Dr. Koebel was an honor.  He certainly described it in much more intelligent terms, but at least I didn't stutter.

I appreciated the chat, Zach, call anytime. 

Wow.

There's No Road Map On This Trip

     What a day.  We knew on Sunday that there were bad things waiting to happen when the markets opened on Monday, but in case you've missed it (and I don't know how you could):

• the DOW dropped 504 points, the worst free fall since 2001
• Lehman Brothers, one of the top firms on Wall Street, went bankrupt
• Merrill-Lynch was forced to sell to Bank of America
• American International Group (AIG) is looking for money in order to stay afloat

Are you wondering what this all means for housing in the US?  Yea, me too - I'm still trying to wrap my head around it all myself, but stick around and I'll try to get something logical up here shortly.  There's no guide book for today's news, time will tell how we fare.  Stay tuned ...

Progress Is Defined By The Number of Trailers

Radford University is a school on the move. 

As someone who has family in town right now, moving their daughter into Radford as an incoming freshman, I can tell you I've seen it firsthand and it's true.  Radford is making some moves.

Things like this wouldn't be happening if it weren't true.

There are some good opportunities to invest in an up and coming college community - as someone who actively invests there can tell you (read: Me), let me know if you'd like a confidential analysis. 

Chris Pund Explores Why Small Towns Are Great For Big Business

The picture has nothing to do with the post - I just liked it.  Photo credit here.

Chris Pund talks about his reasons why small towns and cities are great for starting a business.  Chris isn't new to the small business scene - he's a serial entrepreneur, and received high praise from Stuart Mease for his role in Radford's student-run entrepreneurship seminar.

I think Chris is on track here.  Items #2, 6 and 9 in particular are truly benefits to living and working in a small town; there seems to be more flexibility and a spirit of collaboration among many of these smaller firms.  If you're thinking about starting a business in the New River Valley, let's talk about how to get you started - I'd bet there might be some folks at VT Knowledgeworks that might be interested in helping, as well.

H/t to Stuart Mease for this ...

If you enjoyed this post, why not leave a comment and subscribe via RSS or email here to be sure you don't miss the next post?

My Re-Education in Real Estate Investing Started With The Mob

I like mob stuff.  Al Capone, Lucky Luciano, Vito Genovese ... I don't know why, but that old time mob thing has always been interesting to me.  So it's no surprise that when I was introduced to the application "Mob Wars" on Facebook I jumped on it.

Are you kidding me??  Create a mob, buy and sell firearms and exotic cars, real estate ... get in fights ... it's a dream!  It's addicting, and - I'm entirely embarrassed to admit this - I check into my Facebook account at least a half dozen times a day now to see how my "investments" are doing, and to see if anyone's punched me (yes, that's an option).  My wife is now entirely convinced I'm crazy, as I'm discussing my next investment - an apartment building, or a casino, or an armored Range Rover.

Okay, that wasn't as embarrassing as I thought it'd be.  Wait, yes it was.  And through this process, I've discovered that I'd be an awful mobster.  Mom, I guess that dream I had as a kid of being in the garbage business just isn't going to pan out. 

See, I'm an impulse buyer, so when I get a little cash I immediately start looking for ways to spend it.   "A bulletproof SUV's only $90000?  Sure, I'll buy two!"  "You mean I can buy 5 vacant lots that are only producing $500 in income?  Awesome, sign me up!"  A few purchases later and I'm left with $600 and nothing to show for it.  

Silly as it may sound though, Mob Wars has taught me something about working with real estate investors.  People say "debt is bad, don't be in debt", and while there are some very solid reasons why debt CAN BE bad, in some cases it's not that black and white.  See, when I'm playing Mob Wars, I have a tendency to buy things that decrease in value, and don't have any appreciating value.  I know it's surprising to imagine, but a bullet proof vest just doesn't hold it's value after you've been in gunfights.  I'm buying things that are creating BAD DEBT, and I need to be focusing on GOOD DEBT.

Bad Debt - borrowing to pay for depreciating assets, like a boat, or a car, or new golf clubs.

Good Debt - borrowing to pay for things that increase in value ... things like real estate, perhaps a business, or (sometimes) stocks.

By paying off the bad debt, and taking on good debt, a real estate investor's potential for big gains begins to grow exponentially.  As an agent, I need to know how to identify the things that are limiting an investor's potential for real success.  By educating, and working together to replace bad debt with good debt,  everyone's goals are met.

Just remember to pay the Tax Man - all the good mobsters seem to conveniently forget that part.

Photo Credit

Parents - Need Last Minute Housing For Students?

Virginia Tech parents, are you in a bind for housing this semester?  Tired of paying rent, and would like to move your child into a place that actually EARNS you money every year?

Whether your student is living on campus or off, most housing options have been decided at this point.  However, there are some folks out there that still need housing in the Blacksburg area immediately, or are just fed up with the rental options.  There ARE some options available, but we need to act quickly.

If you need:

• a one or two bedroom place that's vacant and ready to go,
• low HOA dues with no exterior maintenance so your child can study :) ,
• a place close to public transportation,

then I've got some ideas. 

If you want:

• strong appreciation on your investment,
• thousands of potential renters,
• tax benefits and no landlords,

we should talk. 

We need to act quickly though - contact me and we can get started!

Photo credit

Good News For Blacksburg Real Estate Investors

More good news for Blacksburg real estate investors.

If you have questions about investing in Blacksburg real estate, whether or not investing makes sense in a college town (because it doesn't always), or want advice on property management, email me and we'll run an investment analysis for you.  The numbers don't always work, but we'll take a look with you and help you decide.

If you enjoyed this post, why not leave a comment and subscribe via RSS or email here to be sure you don't miss the next post?

Investing? What's Your DSCR?

Debt Service Coverage Ratio … DSCR.  Steve and I are working with a couple of sets of clients who are looking to invest.  Some are local, some are international, all are interested in what opportunities we have available here in the New River Valley, but not all know how to determine whether the debt service is covered by the income.  I thought this might be a good time to study real estate investing 101 …

Anytime you’re considering investing in income-producing property, you need to know whether or not the income can outpace expenses.  That only makes sense - you’re not investing to LOSE money, right?  And when you take out a loan on the property, the bank wants to know whether THEY’RE going to make money as well, which is why they want to know your Debt Service Coverage Ratio.  It’s really easy to figure out … let’s assume that you’re looking at a duplex that costs $250000, and rents for a total of $2400 a month.  Here’s the breakdown:

•    Gross Annual Rent – $28800
•    5% Vacancy Rate – $1440
•    Gross Income – $27440
•    Real Estate Taxes – $1450
•    Hazard Insurance – $500
•    General Maintenance and Upkeep – $2000
•    Utilities – $1500
•    Management Fee 10% - $2880
•    Reserves – $2000
•    Total Operating Expenses – $10330
•    Net Operating Income (NOI) – $17110

So after expenses, you’d make more than $17000 on this property.  Wait, you put down 20% of your own cash but you’ve still got a loan you’re paying every month, so that debt service has to be factored into the equation.

•    Loan Amount - $200000
•    Interest Rate – 7% at 30 years
•    Annual Debt Service - $15891.24

Now we’re getting somewhere.  To figure out the Ratio, divide your Net Operating Income of $17110 by the Debt Service of $15891.24 = 1.07.

Not too bad – you’re looking for anything higher than 1, which means that you’re making money.  Ready to get started?  Email me to discuss it in more detail.  Have a property that doesn’t have a Debt Service Coverage Ratio of 1.0?  No problem – let’s discuss ways we can improve that ratio.  I just looked at one of my properties, the DSCR is .85 … guess I need to look at some rent increases!

Interested In College Student Rentals? Look At This Comparison ...

Yesterday, Scott Rogers in Harrisonburg posted an explanation of why investing in college student housing MIGHT NOT be for everyone.  It's an excellent post, and I recommend you read it.  But that's not what this post is about.

Scott highlighted a complex called Hunters Ridge, which caters to college students.  I found that ironic ... Blacksburg has a Hunters Ridge, as well, which caters to college students.  And lo and behold, they look the same!  Must've been built by the same company, and I thought it would be an interesting comparison, to put two college communities in separate university towns against one another.  We'll look at cash flow as it's affected by purchase price, mortgage rates, and rental income, among other things.  Prices in Blacksburg's Hunters Ridge appear to be a bit higher than at Harrisonburg's Hunters Ridge, so we'll take that into consideration as of today, December 21 2007.  So let it begin ... The Battle of Hunters Ridge, 2007.

1470-J Seneca Drive, Blacksburg	1346-D Hunters Road, Harrisonburg
Price of $136450, 80% financed at 7.25%, self-managed	Price of $105000, 80% financed at 7.25%, self-managed
Rental Income + $750, going to $1000 in May 2008	Rental Income + $770
Mortgage (Principal & Interest) - $744	Mortgage (Principal & Interest) - $573
Condo Association Fee - $145	Condo Association Fee - $155
Real Estate Taxes - $80	Real Estate Taxes - $45
Insurance - $28.50	Insurance - $35
Monthly Profit - $247.50 loss until May 2008	Monthly Profit - $38 loss

If you decided to put down only 10% and hire a Property Manager, your numbers would look like this:

1470-J Seneca Drive, Blacksburg	1346-D Hunters Road, Harrisonburg
Price of $136450, 90% financed at 7.25%, property mgr	Price of $105000, 90% financed at 7.25%, property mgr
Rental Income + $750, going to $1000 in May 2008	Rental Income + $770
Mortgage (Principal & Interest) - $837	Mortgage (Principal & Interest) - $645
Condo Association Fee - $145	Condo Association Fee - $155
Real Estate Taxes - $80	Real Estate Taxes - $45
Insurance - $28.50	Insurance - $35
Property Management - $75, going to $100 in May 2008	Property Management - $77
Monthly Profit - $415.50 loss until May 2008	Monthly Profit - $225 loss

Scott muses, "with these monthly losses, you might wonder why someone would buy an investment property." Keep in mind, at least with the Blacksburg property, after May 2008 you'd MAKE $2.50 a month if you managed the property yourself, and lose $190.50 a month if you let a Property Manager take over.  So ... why does investing in college towns make sense??

• from a tax perspective, losses on investment property can actually be a good thing (provided that appreciation isn't going south, as well!)
• College towns have historically been great investments - JMU and Virginia Tech continue to project for more and more students, as does Radford University , and they'll need somewhere to live.
  
  It's an interesting comparison, to be sure.  In both examples, it's either a wash or a loss each month at current market prices.  That isn't to say investing in properties like these doesn't make sense ... but, before you jump into the game, let's talk about what specifically your goals are and structure a plan to get there. 

How To Turn $100k into $10mil, Guaranteed!

If I could show you a way to turn $100,000 into $10,000,000, would you be interested?

Thought so ...

If you've ever wanted to make money buying and selling properties, here's an easy, no-risk way to get started. Enjoy.

Billionaires Have No Idea, & Jim Cramer Is Upset About It

I'm a fan of Stephen Colbert's ... I found my wife giggling at the TV one night, and we catch his show "The Colbert Report" fairly regularly.  Last night, he brought in Jim Cramer from "Mad Money".  The two were hilarious, watch the whole thing.

Jim Duncan at Real Central VA caught this line, which I had originally missed:  "Apparently a bunch of billionaires thought it would be a good idea to give millions of poor people mortgages that they couldn’t afford and somehow that turned sour."  Shocking ... How did that fail?

Want To Get Rich Quick? Invest In Real Estate!

But it's not as easy as it sounds.  Sure, lots of self-named Real Estate Gurus would tell you differently, and none of them will get a plug on this site.  And it's not as easy as they'd make it out to be.  But if you want to grow wealth, faster than you can in just about any other investment vehicle, then let's talk real estate.

I'm a beginning investor, picking up my first property - a townhouse - with steady appreciation and good rental rates.  I'll hold it for a while, in the meantime looking for more opportunities with different investment goals ... and eventually sell it (using a Tax-Free Exchange, of course).  When I read this post by BawldGuy on how real estate beats stocks investing I was blown away - it explained it all much better than I could, so all credit has to go to him for the examples. 

The gist of the post is this -  a $100000 investment in both real estate and stocks would net an investor a profit of $358000 in real estate vs. $159400 in stocks over a 10-year period.  Significant yes, but he goes further by providing three additional benefits associated with real estate investing:

• "Any income derived over that period generated by the real estate would not be taxable because of depreciation."
• "All excess depreciation would then be allotted to the ordinary income (salary from job) of the investor, resulting in thousands of dollars in taxes not paid."
• "On the other hand any dividends derived from stocks are taxable.  With rare exceptions the only way the stock market investor gains any tax shelter is when he loses his money, which is far more likely in stocks than in real estate, especially over the long haul."

The secret?  Leverage.   

How To Avoid Paying Taxes

Didn't think it was possible?  It is, and can be done through what's called a Starker Trade, or a 1031 Exchange.  Say you bought a rental property five years ago that has appreciated well; you now have $100000 in equity but have decided you don't want to be a landlord anymore.  You want to sell the property and invest in a piece of land you've found, but you don't want to pay 35% to Uncle Sam when you sell the rental property.  What do you do?

With primary residences, the law says any profits up to a certain amount are non-taxable if you have lived in the property for 2 of the last 5 years, but with investment properties that's not the case.  If you want to sell an investment property and use the entire amount of the equity to purchase other investment real estate, you set up an exchange - using a qualified intermediary - and purchase the replacement property.  It works like this:

* Property A - owned for 5 years, $100000 in equity
* you decide you want to sell, so you put Property A on the market and a buyer writes you a contract.  At that time, contact a qualified intermediary (like Equity Investment Exchange) to hold your profits in escrow until you find a replacement property, Property B.
* Close on Property B, and your intermediary sends the profits to the new closing for you to use.

The secret is that the money never touches your hands, so it stays non-taxable.  And you can use a 1031 Exchange to sell an apartment while buying land, or selling a commercial space while buying a house ... it doesn't matter!  The NRVLiving Team has done several of these over the last few years, if you're considering selling an investment property and want to save on those taxes, or are thinking of investing and want to learn how to get started, contact us and let's see how we can help!