Real Estate Investing 1-2-3

The 1-2-3 of Real Estate Investing

eal estate investments have soared over the past several years. According to the National Association of Realtors, about one in three homes purchased last year was for investment purposes. If you’re looking to feather your retirement nest, rental real estate not only should appreciate in value, it also provides an additional source of monthly income. If your 401(k) or other retirement plans are held in stocks and bonds, rental real estate is also a good way to diversify your investment portfolio.

If you’re thinking about taking the jump and investing in rental real estate, here are a few things to consider.

Figuring out the dollars and sense
The first step in determining whether rental property is right for you is to calculate the potential cash flow—the amount of money a property brings in and the amount you need to pay out to cover expenses. It’s not uncommon for rental properties to start out having negative cash flow—the amount you collect for rent does not cover the mortgage payment. If that is the case, you need to determine whether you feel comfortable making this additional cash outlay each month. Here’s how to estimate what your monthly cash flow will be.

1) Estimate your income
The first step is to determine the amount of rent you can charge for the property. Look at what comparable homes—same size, location, amenities— are renting for in your area. You can get a good idea by browsing the classified ads in your local paper or online. When estimating your income, allow for the amount of time that your property may be vacant. Most landlords factor in about 5 percent per year; however, figures vary depending on the current rental market in your area.

2) Tally up your expenses
Your monthly mortgage payment and property taxes are your largest expenses. You may also end up picking up the tab for utilities, such as garbage, water or gas. Again, check what comparable rental properties are offering in your market. If you do plan on paying utilities, use your own usage as a ballpark estimate.
Property insurance is another cost. Your insurance company can tell you what the premium will be if you utilize the property as a rental.

Rental properties need repairs and maintenance just like any other home. Appliances break, plumbing leaks, fixtures wear out. Figure on spending about 1 percent of the property’s value per year on maintenance, repairs and cleaning.

Finding a good tenant always pays in the long run, but it does take time and money to conduct an effective search. If you use a property management company or rental broker, include those fees. If you are conducting the tenant search yourself, add in any advertising expenses and a nominal cost, usually under $25, for running credit checks on prospective tenants.

The good news about all these operating and maintenance expenses is that they may be deducted from your rental income on your taxes. If you’re thinking about upgrading the property, keep in mind that expenses related to improvements to the property must be depreciated over time, rather than deducted in the year paid. Improvements are defined as actions that add to the value of the property or substantially prolong its life. Examples include adding a new bathroom, remodeling a kitchen, installing insulation or building a deck.

3) Calculate the cash flow
Now total all the monthly expenses and subtract that number from your estimated monthly income to determine your cash flow. To fully evaluate the investment, you also want to factor in the tax write-off benefits of depreciation. Depreciation is an accounting deduction that the IRS allows you to take for the overall wear and tear that occurs on the home over time. Only the building can be depreciated, not the land. The value of a residential structure is depreciated over 27 1/2 years at a rate of 3.64 percent of the building value per year. For example, if you buy a residential rental property for $300,000, and the building is worth $200,000, you can take $7,280 each year as a depreciation deduction ($200,000 x .0364).

In addition, if your rental property shows a loss for the year, you may be able to deduct the loss on your tax return.

Consult with your tax advisor to help determine which deductions you qualify for and other tax implications for your situation.






Lesson learned about maintaining my blog.

As you know, one of the great things about using Blogger is that is pretty easy to use....however it sometimes allows us to wonder into areas we may not be equiped to deal with....like HTML code.

I recently added a button that messed up my blog. I fortunately had a back up to my template but somehow when I copied and pasted it back it changed everything. My posts would not show up even after republishing.

I'm now in the process of rebuilding my page so if you were used to seeing something that is now not there please let me know. I'm in the process of copying the buttons and chiclets back into place. The good news is 1) I had a back up and 2) the main content is still there.

It may take me a little time so please be patient. These things never happen when you have a lot of time on your hands to fix them.

PS I got some good help in the Blogger help group to help me realize what the problem was and to get on track to fixing it. Be patient, it can take time to get a response that is helpful but it does work.

Working with your own real estate team....always pays off!

Whether you are going to be buying or selling a home your first step should always be to assemble your real estate team.

Your agent is the first step. Choose one you can trust, who is knowledgeable and who can introduce your to other team members.

Your lender, if you are buying, is the next critical player. Your real estate agent should be able to give you a couple of choices from which you can interview and make a choice. This person should be of your choosing and they should be local. Someone you can look in the eye and shake hands with. Don’t jump at the bait laid out for you by internet offers or builder lenders. See the attached article about things to watch out for with builders lenders.

Your agent should also be able to tell you about title and escrow companies. Making choices you are comfortable with makes it easier for you to trust and rely on what you learn from them when you have questions or concerns.

Growth, Land Use, Development, issues affecting you and your community regardless of where you live.

Mike Eliason is the Government Affairs Director for the Kitsap County Association of Realtors and a great asset to our organization. States, Cities and Counties are struggling with the issue of land use, growth and development across the United States. Though this article pertains to Washington State and Kitsap County you may find that it resonates with you and your area.

Be prepared and plan for our
state’s continuing growth
By Mike Eliason, Association Executive
Kitsap County
Association of REALTORS®

Washington’s population is on target to grow by a million people during this decade. In 2004 the growth in families — our friends’, neighbors’, and our own — accounted for more than half of the 88,000 new Washingtonians. The rest came here to take advantage of the Northwest’s legendary quality of life: a beautiful natural setting and the jobs and opportunity offered by an awakening economy. Protecting that quality of life should be among our highest priorities. There’s only one way to ensure growing population doesn’t erode Washington’s legacy: prepare now for the growth we know is coming.

The most important aspect of planning is making sure people will have a place to live, preferably near their workplace. Determining where people live also dictates how they — and the rest of us — will live. Families who cannot find homes close to work must commute. Adding commuters to the freeway doesn’t help air quality or freeway congestion. Commuters are less likely than residents to shop in local stores or eat in community restaurants. Because they spend so much time commuting, they are less likely to have time to volunteer in schools, churches, and local government.

Making sure people can find a home means ensuring a supply of homes that is diverse in location, price, and style. Some people want a garden and a lawn where the kids can play, while others prefer the freedom from chores that a condo offers. Some people prefer the peace and quiet of rural life to the hustle and bustle of living in the city. Still others need a flexible floor plan that can accommodate elderly relatives.

Big or little, urban or rural, expensive or modest, all homes require a fundamental ingredient: land. Creating homes means we must plan to make land available for use in the way that residents need it. We must allow consumers the maximum amount of flexibility possible in home styles and uses. That’s the best way to make the most efficient use of what little land is available for homes, and to create choices people want and need.

One of the aspects of new neighborhoods people say they want most is green space. Parks, lawns, and green borders to roads and walks help to create healthy and prosperous neighborhoods. Medical studies show that green space has a calming effect that can reduce stress, blood pressure and cholesterol levels. Parks encourage people to go outside and exercise, which helps reduce obesity. Trees, bushes, and other plants cool us in hot weather, soak up rain water in the winter, and clean water by filtering run-off year ‘round.

Carefully planned growth also is good for our economic health. Growth and development are signs of a healthy community. A growing population helps support community services. That adds up to fewer costs to existing residents for services, such as parks, recreation, schools, and transportation. New residents in a community enhance the vitality of neighborhoods and commercial areas. New and expanding businesses mean more jobs and more choices for goods and services for everyone.

Some hope to stop growth by refusing somehow to admit it or recognize it. But tightening the lid on a boiling pot just guarantees we’ll all get burned when it boils over. Washington families are not expected to stop having children. And as long as our economy thrives, jobs and opportunity will lure new residents to our neighborhoods, our workplace, and our parks. Population will continue to grow and we must plan now to accommodate it in the most constructive way.

Closing our eyes to inevitable growth leaves us unprepared, and that hurts new and current residents alike. Traffic congestion, environmental degradation, economic stagnation and poor housing choices are just a few of the consequences. In fact, most of the negative things people associate with growth are really tied to poor growth planning. Hoping for no growth doesn’t mean the growth won’t come. It just means we won’t be ready when it does.

If elected officials, community planners, businesses, and residents work together we can ensure we have the open space, sidewalks, roads, and utilities our community needs. Jobs and homes should be prominent in plans for improving quality of life. We must encourage a variety of housing choices and provide opportunities for businesses to start up or expand. Then, as families grow and business thrives, we will be able to support and improve our quality of life.


Factors That Affect Home Pricing

Factors that affect home pricing
YES NO
• Location • What the owners paid for the home
• Style, size & condition of the home • Amount of money spent on improvements
• Unique aspects of the property • Redecorating costs
• Time of year & market conditions • What a neighbor’s home sold for last year
• How quickly the owner needs to sell • Amount of cash the seller needs

Deer


Deer, originally uploaded by Frankly Real Estate.

Spring time in the Northwest

Interesting Real Estate Facts

The average buyer buys a home within 12 miles of their previous home.

Where did the average buyer first learn about the house they purchased:
36% From their real estate agent
24% From the internet
15% From a yard sign

81% of Buyers used a Real Estate Agent

Buyers typicaly took 8 weeks to find their home and looked at 11 homes before buying one.

Stay tuned for more real estate facts..........Source is The 2005 National Association of Realtors Profile of Home Buyers and Sellers.

Younger Generations Spend More on Housing

Interesting Article from our Realtor Magazine;

Survey: Younger Generations Spend More on Housing


(May 10, 2006) -- A recent survey of home buyers in three generations — Gen Y (those born between 1979 and 1994), Gen X (born between 1978 and 1965), and baby boomers (born between 1946 and 1965) — show that the two younger generations are outspending boomers in their first home purchase.

Both of the younger generations also devote a larger portion of their salaries to housing costs, according to the survey, conducted by Century 21 Real Estate. The goal of the survey was to understand and compare the experiences of the first-home purchase among members of three different generations.

Unlike boomers who purchased their first homes in response to life events such as a marriage or birth, financial incentives motivate both Gen X and Gen Y buyers with investment value cited as the “key driver” by the Century 21 survey with 42 percent of Gen X respondents and 39 percent of Gen Y respondents citing a “safe investment” as the reason for purchase.

A similar business-like approach is applied to the home search and purchase. “These guys don’t get caught up in the process. They’re very bottom-line oriented and results oriented,” says John Tuccillo, former NAR chief economist and principal of John Tuccillo Associates, an economics and business consulting firm in Virginia.

“Don’t expect them to fall in love with the property,” he cautions. “What matters is whether the house works for them and whether it’s a good deal.”

“Real estate professionals shouldn’t only get to know this group, they should also begin to look at their own materials, particularly Web sites, from the perspective of this demographic,” Tuccillo says.

A higher proportion of younger buyers use the Internet. For Gen Y it ranked as the primary source of home shopping information according to the survey. Experts such as Tuccillo and Melody Bohrer, vice president for education for ERA Real Estate say that being able to remain anonymous while they gather information is a top criterion for younger buyers.

Less relationship oriented than boomers, younger buyers are also more likely than boomers to say “next” if a salesperson doesn’t meet their expectations. However, Bohrer says, “They will be loyal if you work the way they want.”

By Camilla McLaughlin for REALTOR® Magazine Online

Real Estate Statistics for Kitsap County Washington 5/7/2006

Watching stats like these will help you determine what kind of a market you are in.
For Kitsap County Washington as of 5/7/2006

983 Active Listings
59 Homes went Pending last week
61 Average Days on Market

$275,900 Average List Price
$273,560 Average Sale Price

99% List price to sale price ratio

16.7 weeks of inventory

Learn more about Defining Your Market.

When Buying a Home in a Sellers Market......

When buying a home in a sellers market you need to think like the seller and like the listing agent (the agent representing the seller). Here are a couple of things to keep in mind when writing your offer:

1) Make sure you are working with an agent who represents you in your real estate transaction. You may want to sign a buyers agency agreement, this will ensure the agent you are working with will look out for your best interests and will bring their knowledge and tools to bear to help increase your chances of success. Bonus.....Typically the agent is being compensated by the seller so you have nothing to loose.

2) Use a local lender, not an out of state lender or internet mortgage company. When the going gets rough it is easier to walk into their office to ask for help and there will be more leverage from your agent to ensure the transaction closes on time.

3) Maintain the separation of church and state.....what I mean here is there seems to be a trend of real estate agents also wanting to play the role of mortgage broker. This is not in your best interest. The checks and balances that come into play will work in your best interest. Plus if your loan can not go through you want to be able to direct your mortgage to another company without loosing the relationship you've built with your real estate agent.

These are just a few ideas to increase your chances of success when purchasing a home in a sellers market.....check back often for more. Click here for more ideas and how to define the market you are in now.

Homes in Kitsap: Meeting With Kitsap County Tax Assessor, Jim Avery

Homes in Kitsap: Meeting With Kitsap County Tax Assessor, Jim Avery
Dave Jones in his blog, at www.HomesInKitsap.blogspot.com writes about a visit to our office by the County Assessor, Jim Avery. Despite what many might think increasing property values do not equate to increased taxes. Also great information on senior exemptions, check out his blog!