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All posts tagged cash flow

Real Estate Investing Isn’t For The Short-Sighted

Real estate has made more millionaires in the United States than any other investment class. So why doesn’t everyone invest in real estate? Simple answer. Real estate investing is not for shortsighted individuals. It’s a marathon, not a sprint. It takes patience, dedication, commitment, and hard work over a long period of time to be successful in this business. Unlike the stock market, real estate doesn’t appreciate overnight. You tends to see the benefits (appreciation, cash flow & debt reduction)  slowly year-over-year, but with a lot more consistency and stability than the stock market.

We live in a world where people are addicted to instant gratification. If they can’t have it today, tomorrow or this week than it doesn’t interest them or hold their attention. That’s not the way it works with real estate investing. You have to be able to think long-term. You have to be able to make a few sacrifices today to live a better life in the future. You have to be able to look 10 – 20 years down the line and say “this is the life I want to live and real estate can get me there”. Most people never stop to think about where they will be or what they’ll be doing 10 years from now. Will you?

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There is an alternative to simply saving for retirement over the course of a 40 year career. One of the most effective options is to acquire income producing assets. A perfect example of accomplishing this is to purchase rental properties that cash flow every single month. This is a great way to supplement your employment income and actually provides you the opportunity to immediately increasing your spending power if you so choose. We are seeing more and more that just simply saving for retirement has left people in difficult situations once they reach that point. Therefore, if done right, investing in long term rental properties can be an incredible vehicle to allowing people retire the way retirement was always meant to be.

 

If you are looking for more information about Boston real estate or investing in general call us directly 617-297-8641

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Recently I was finally able to go to my first Boston Wealth Builders event, “Building Wealth Through Multifamily Investing” and it was everything I hoped it would be. A big thing for me when deciding to go to any real estate meetup is to not have to sit there and listen to a bunch of sales pitches from whatever guest speaker they decide to have attend that day. Instead, this is event was purely educational, covering topics such as evaluating your target market, determining property values, calculating cash flow, etc. As a beginner investor it was great to be educated on so many different topics involving multifamily real estate investing.

Another aspect of the event that I really enjoyed and thought was powerful was the several guests that attended to also speak. There was a mortgage broker from Sierra Pacific Mortgage, an attorney from Mahoney Law Group and a real estate agent from The Mandrell Company. No, they were not there to sell, but to cover their own topics as well as reinforce the organizer’s presentation.  The mortgage broker went into great detail about all the different loan options that are available to people, along with several that some people may not be aware of. Also, he explained some of the qualifications that his company goes by that may present an easier option to obtaining a loan that could help you fund your deal. The attorney provided a handout which essentially documented a step by step walkthrough of what you need to be doing throughout the process of purchasing a multifamily property which was incredibly helpful. Lastly, the real estate agent supplied a ton of additional information as well as his own personal experience of what he is noticing in these current markets and where some of the best places might be to look for multifamily properties.

At the end of the event they had allowed plenty of time for questions to be answered and even let people talk individually with any of the speakers that were there. This was a great opportunity to start networking with the type of people that you need to establish relationships if you want to be successful in this business. Ultimately this was the biggest take away from that day’s event. The importance of networking cannot be stressed enough and to be a part of a group that prides itself on creating an environment in which you can connect and build relationships with like minded people is something that I definitely look forward to continuing.

 

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Are you an investor or are you in the business of speculation? Investors typically look for a cash flow return on their investment based on a sound cash flow analysis. They purchase a property when the projected ROI make sense compared to other investment options. Buying a property with little to no cash flows and hopes of appreciation is called “speculating”. There are no financial predictions, but rather a hope that the market will continue to rise and you will make a financial gain the in the future. There are two main problems with type of investing which are as follows.

1. What happens when the market goes south? If the economy tanks and your property values decrease will you be forced to sell at a loss? An investor with a cash flowing investment isn’t affected as much by down turns in the market. Despite a loss in value, the investor is still putting cash in her pocket every month when their tenants pay rent.

2. What happens when the property needs repairs? If you’re investment isn’t putting cash in your pocket and you need a new roof where are those funds coming from? You’ll now be forced to dip into your personal funds and make a further investment into the property rather than the investment taking care of itself.

Want to know how to evaluate rental property in Boston? Watch the video above and download our Cash Flow Analysis. If you have questions about the form or the video, please give us a call at 617-297-8641 or email us at contact@mandrellco.com

Download the Cash Flow Analysis here!

 

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Supply & Demand:  Like everything else in the economy when the supply of a particular good increases the price will typically decrease. This is simply because buyers can buy somewhere else if not with you. You can’t over charge for a home if your neighbors 3 doors down are also selling a very similar house at a lower price. The two of you are competing with each other and will actually drive price down for both of you.  Conversely the opposite is true if the supply of homes for sale is low. If buyers don’t have many options to choose from then sellers can usually charge a premium or create a bidding war. When buyer demand is higher than the available inventory of homes it creates a “sellers” market. When the supply of available homes for sale is high and demand is lower is creates a “buyers” market.

Municipal Improvements:  New roads, bridges, schools and highway expansions all have an impact on property values. The downtown redevelopment taking place in Quincy is a perfect example of this. Quincy is in the process of converting the city’s downtown area in the same way Boston did the big dig. The city is directing major traffic away from its center and creating alternate routes to major highways. The city also built a new high school and middle school. Major projects like these have a tremendous impact on the property values for surrounding homes. Existing residents tend to stay in place with improvements happening while new residents are trying to get into the area pushing demand upward. The opposite can happen to a city’s home values when the wrong projects are puts in place or there is a long-term lack of improvement.

Inflation:  Inflation is described as “The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.” Inflation affects the value of your property by changing its replacement cost. If the prices are going up in general then we can assume the materials to build a home are getting more expensive …which means the total cost of replacing your home will go up. If you walk down the aisles of home depot today the cost of building products are significantly higher than they were 10 years ago. Labor wages are always on the rise as well. If material cost and labor cost of building a new home are trending upward then the cost of existing homes (already built) will follow closely.

Cash Flow:  This is where property owners have the most control. Your cash flow is the monthly rents you collect minus the properties operating expenses. You can positively affect the properties cash flow (and value) by increasing the income and lowering expenses. Income increases come from raising the rents as well as finding other sources of income …like laundry, parking and storage. If all else remains, as cash flow is improved the property’s value will increase.

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Thinking about buying a 3 Family in Boston? If you’re looking for a great ROI consider investing in the Dorchester area. This Boston neighborhood allows for better cash flow than any other neighborhood in the city. Prices are still relatively low compared to other neighborhoods, but the rental market is very strong. Rental prices have been headed upward for the past few years and the demand for available units is high. Here is a quick look at some of the averages and how this scenario could play out in the Dorchester market.

Average Price for 3 Family Home: $550,000

20% Down Payment $110,000 – Interest rate of 4% on a30 year fixed  

Mortgage payment of $2100.00 per month

Mortgage $2100 + Taxes $350 + Home Insurance $200 + Water & Sewer $150 = $2800 Monthly Expenses

Market Rent For 3 Bedroom Dorchester Apartment = $1600 * 3 Units = $4800 Monthly Income

$4800 – $2800 = Monthly Cash Flow of $2000 or $24,000 Annually

These numbers equate to a Return on Investment of nearly 22%, which is tough to find in other markets. There are some assumptions here that will lead ROI numbers to be slightly better or worse depending on each particular investment, but the overall averages speak for themselves.

Don’t let your lack of knowledge for Dorchester real estate steer your away from this great market. There are many local professionals that can assist you in locating great properties in the neighborhood. Like any real estate market, not every property will be a great investment, but when you take the time to do a little market research you can understand which properties will perform well. 

Don’t have 20% as a down payment? Want to run your own mortgage calculations? Click here to use our mortgage calculator!

Not interested in dealing with tenant issues? Looking for a great property manager? Click here to read more about our services!

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