5 Ways to Find Inventory

The market is tight. It is hard to find good rentals investments.

Finding deals that turns into rentals with good rates of return are even harder.

Fight the temptation to give up searching and pay more. Here are 5 ways to help find the deals when the inventory is down.

Moving-Concept1

1. Check the County Tax Records

-Identify what your ideal property is coded by in the tax record.

-Find properties that have sold a certain amount of years back. Likely things will have changed for owners over the years, and they may be ready to sell. People who bought in years 2006-2008 likely had negative equity for a while, but now have recovered and may want to sell to get out of the property.

-Send a letter letting them know you would be interested in buying. The tax record has the mailing address of owner.

2. Develop or Convert

In a low inventory environment like current market, creating units is a need in the marketplace.

-A easy place to look is along busy road, where the zoning likely allows a greater density and more flexibility. Find larger homes and convert to several units.

-Find vacant land and build economically. Most builders will charge a premium to supervise a build job, making the numbers to high for a good return. This can be avoided if you have the knowledge to supervise it yourself. Be prepared to deal with very busy contractors, as they are all in high demand.

3. Predictive Analytics

Realtors use a a method called ‘Predictive Analytics’ to digitally watch for cue signs that a sale might be taking place soon. If a person goes online and searches ‘Home Painter’ or a similar term, that data can be purchased. The statistics show that someone who searches for certain key words will likely sell within a short period of time.

Match up with a realtor who uses this marketing, and they can match your criteria to any coming inventory in the marketplace, to get you in a first priority.

4. Go Farther

Be willing to look in a more rural area. Because of the high demand, many renters are looking in more rural areas to find rentals. These properties can be purchased at lower prices and make better returns possible.

For the renters coming from more urban higher priced areas, these rentals look like a bargain, but still cash flow healthily.

Look at the areas within a reasonable commute to major employment draws and attractions.

5.Network

Know someone who is retiring and selling portfolio? Your investor buddies can pass on deals to you that they may not have the resources to take on.

Let your sphere know that you are an investor. Before you know, people will be coming to you.

In conclusion, making an effort to explore all options will yield you a portfolio that will love you back for years to come.  Call us for a consultation on how to build your strong portfolio. Naomi 717-819-2825

bank-banknotes-cash-358647

Rentals in Condos Communities?

architecture building construction daylight

Photo by Pixabay on Pexels.com

If you are looking to add to your portfolio, town homes and condos are a likely target. Most non-single family homes that are newer (1980 or younger) will be in a town home community.

Many investors buy older housing stock, and avoid this issue. Older housing is not subject to HOA’s the way newer housing is. However, the the older stock takes a great deal more upkeep. They also may not attract high quality tenants.

If you go looking for newer attached housing, navigating the issue of where rentals are allowed in these communities can take a lot of time.

Home owner associations must follow guidelines from Fannie Mae and Freddie Mac if they desire to keep up the ability for owners to obtain traditional financing.

Their guidelines include

-No more than 10% can be owned by the same entity

-More than 50% must be owner occupied

-The Homeowners Association is not involved in a lawsuit

-No more than 25% can be commercial space

Communities that meet these guidelines are called ‘Warrantable’, and ones that do not are ‘Non-warrantable’.

Because of these guidelines, the Associations will limit these factors to ensure their owners have access to financing.

It is in the best interest of a Landlord to buy in a community that is warrantable, and meets these guidelines. The property values take a significant nosedive if conventional financing cannot be secured on the homes.

While the rental rate may be the same, the future value is inhibited by the lack of financing options. This may provide a attractive price up front to an investor, but it is important to think about your exit strategy when you buy.

If the community does not have access to traditional financing, there will likely be many more foreclosures and distressed sales. Coupled with the downward pressure from lack of financing options, it keeps appreciation temped down, and may result in depreciation.

For these factors, it is generally better to look for warrantable condos or town homes where the fees are reasonable.

The exception to this is if the investor intends to purchase a large chunk of all the homes in a non-warrantable community. This allows you as the owner to monitor upkeep and help to uphold the integrity of the community for all the owners.

If you are looking to add to your portfolio with a keen eye on value, contact us for local information on communities on both sides of this spectrum.

Naomi Brown 717-819-2825

house money capitalism fortune

Photo by Skitterphoto on Pexels.com

 

Little or Big? Which investment is best?

When starting out as an investor, most will purchase single units at a time, until a large portfolio is built.

Once a portfolio is built, is it better to transition to a large group of rentals in one property/location? Or is holding the single units the best way to maximize the return?

The Cap Rate for the small units in York County (1-10) is 8%, which is in contrast to the Cap Rate for large rentals (10-200) at 7%.

In Lancaster County, 1-10 unit owners enjoy a 7.3% Cap Rate. The larger owners with 10-200 units have a 6.3% Cap in contrast.

Looking at this number, it seems to make sense that a large portfolio of smaller units would be the better return. As an investor, the management of multiple properties in soft costs could start to lessen that. The accountant must track the depreciation and basis in many more properties, which increase the cost.

Calls for maintenance for properties spread out in many location may also affect the viability of the cap rate for these smaller units.

If financing is placed on these properties, the total effective cost of the financing should also be factored into the ratios.

For these reasons, we encourage investors to examine their soft costs in legal, finance and accounting before arriving at a final decision.

Before assuming an overall rate is reflected in the Cap Rate, we must also look at appreciate in value. Because investment value is tied directly to income generated, the increase in rental rate is a reflection of increase in value.

For large property in Lancaster, the rental increase sits as 2.7%. For smaller Lancaster Properties, they have a 1.9% growth rate.

In York, the large property owners have a 3.7% growth rate. The smaller units have a 2% growth rate.

This seems to indicate the larger properties will see greater appreciation in value from greater rental increase. Taking into consideration the overall picture of the investment performance with Cap Rates, rent growth rates and soft costs will help to form a wise decision.

If you would like a personal analysis of the overall picture of your investments, call for a no-obligation consultation.

Is Now the Time to Buy in Central PA?

Are you asking yourself  “Is now the time to buy an investment property?”

Money Crowing

That is a great question. Is the economy going to continue to grow as well?  Indication from GDP is that we continue to maintain a fabulous growth in our economy. The GDP grown was 3.2% in first quarter of 2019. A ‘Regular’ grown rate is 1.9%, so this number is well above the average.

What does this mean for investments? Well, it means rents are growing, demand is strong and your units will be easily filled, which results in the best cash flow.

If you wait to purchase until we have another recession, it may be a long wait. In the meantime, the low vacancies and higher rents provide a return that balances out any higher sale price.

Take these examples:

Scenario 1. If you purchase a four unit building for $250,000.

The building stays fully rented, so your Net Operating Income is a strong $25,000. This is a 10% CAP Rate.

Scenario 2. In a recession, you get a great deal on the same 4 unit at $200,000.

The building always has one unit empty, and rents are lower to keep the tenants you have. Your Net Operating Income is $13,800. This results in a 6.9% CAP Rate.

See the point? Purchase good deals in a strong economy, you will come out on top in the cash flow game.

The above scenarios are based solely on cap rates, which are an important measure of value. However, there is also the growth rate to consider as well. Buying in a downturn may mean that your potential for growth in value is much greater, which will grown in relation to the overall economy.

The Internal Rate of Return is a measure of how the property performs with both income and growth taken into consideration. In scenario #2 above, to really understand the outcome the growth rate should be added in as well.

Let’s say after five years, your income grows to $25,000. The value of the building has now increased to $250,000. You sell for a $50,000 profit. The overall rate with growth added in is 12.64%.

The growth rate now increases your return beyond just looking at income. Many factors play into what may be your best scenario. For some investors, the income stream is much more important. For others, it is the shelter from taxes. These factors may outweigh the benefits of just looking for growth in the investments.

If you would like to learn more, contact us for a consultation, and let us prove the value of professional service with results to your bottom line.

3 Reasons to Build Rentals in Central PA

What is the hardest part of being a Landlord? If you have good tenants, the hardest part is staying on top of maintenance and dealing with the calls of a broken toilet late at night.

If you could avoid that headache, buying more rental property would be an easy choice, right? The best solution is to purchase newer rentals, to minimize the cost and frequency of repairs.

Just one problem: finding good newer property to purchase! Most newer single family homes sell at a price that is not cost effective for rentals. Individual townhomes are not an easy solution, as many condos and townhomes restrict rentals. If you do find townhomes that are not restricted in rentals, then the condo/HOA fee can make it less efficient of a rental.

Solution? Find a community and build some rentals yourself. This is easier than you think. If you have a good builder partner, they can handle the work, while the investor handles the capital.

If you are interested in working on a development project, the time to build that stock is now. During the recession, building almost ceased, so now there is pent up demand for new housing stock in rentals and sales. This provides the investor the opportunity to enter a hot market and build future appreciation.

The reasons Central PA makes the ideal place for an multi-family development right now:

  1. Cap rates are higher in smaller markets. Contrast a CAP Rate of 6.36% (10 Year average) in Philadelphia with 6.91% in Lancaster and 7.34% in York County

2. The demand for rentals are strong. With many manufacturing and supply chains       housed in the area, jobs are plentiful which boosts the housing demand.

3. A low inventory of newer units means the developer will be rewarded when time comes to sell with a healthy investor demand.

For a list of options to build rentals in Central PA, and builder partners,  contact us for further details. Call Naomi at 717-819-2825 or email naomibrownhomes@gmail.com

Comparing CAP rates in Central PA

As investors, we are always looking to make a smart purchase. You have heard the saying: ‘The money is made when you buy, not when you sell’.

Weighting the CAP rates on an investment is an art. As the ‘Artist’ for your painting, the decision of what CAP rate to apply takes into account the factors of the area around it. Considering the CAP rates of the different Counties in Central PA is a useful tool to use as you paint your future.

Here is a look at the prevailing economics for Multi-Family Investments.

Dauphin County

-Currently at 8.16% average. The 10 year range is 8.99%.

Cumberland County

-Currently at 7.70% average. The 10 year range is 7.83%.

York County

-Currently at 10.04% average. The 10 year range is 11.04%.

Lancaster County

-Currently at 9.60% average. The 10 Year range is 10.48%.

Interesting to note, both York and Lancaster County are at the lowest point of their 10 year average range. This reflects the rising prices in the market and improving economy.

All counties show a lower than average CAP rate, which means that the deals are harder to find and in higher demand than ever before.

If you are looking to maximize your profit and find better than average returns, call for a consultation. Together we can create a masterpiece for your future.

Naomi Brown 717-819-2825

Hit me: Investments 101

Just starting out as an investor?  Have no fear, it is simple.

Why choose real estate as your investment? Here are a couple reasons:

  • -It is inflation protected, and grows in value as the inflation rate increases.
  • -Once a loan is paid off, you enjoy ongoing cash flow for years to come.
  • -Costs to operate and own the real estate are all deductible.
  • -‘Passive Income’ from investments are subject to less tax.

9 Meadow_01

So you are ready to go find a property? Here a a few things to know first:

  • -Loans will require a 25-30% down payment, plus closing costs, and funds needed to fix the home up when needed. If you have cash, a discount can be expected.

 

  • -It is a wise idea to have your property in an LLC, so plan ahead. They are easy to create, but it will take a little time.

 

  • -Consider your strategy first: will you manage it yourself? Hire a property manager? If you will manage yourself, being close by makes it much easier.

 

  • -Research what rental rates are, so you know how much you will make on your investment.

 

  • -Learn to figure a CAP rate. This is a simple calculation where the money made after expenses is divided by the sale price. The ratio is your CAP rate. Rates vary in this area from 6-12%.

Make THIS YEAR the time you take action to ensure your future financial freedom.

Call or text with questions and get started making money!