Real estate deals; They are still out there, but we need to be flexible

It still pays to be a real estate investor and landlord

As a real estate investor and licensed Realtor, I get people asking me for advice all the time about investing in real estate and becoming a residential landlord.

First, the bad news; Despite what most have seen on the late night TV infomercials (I don’t have cable, so I do not know what’s on late night TV anymore) being a landlord takes a lot of knowledge and understanding of the marketplace. Moreover, real estate prices have had a nice run, so finding potential investments is tougher and more competitive.

Now, the good news; Anyone can become a successful landlord. All it takes is a lot of upfront work and common sense, but it gets easier over time. There are still deals available if you truly look for them. Moreover, there are a number of tools that did not exist a few years ago that make finding potential properties and tenants much easier. For instance, I do not use the local MLS to find tenants as my fellow Realtors usually do not present acceptable candidates. I advertise on Zillow and Trulia, and use to screen tenants. It’s all free!

I always recommend real estate investing and property management over the flipping stuff as the IRS has given ample tax benefits to long-term property managers and investors. As your portfolio builds over the years you will find yourself doing much less work overall as you will have more money to pay others to fix things and rehab.

Why bother buying life insurance when rental properties can provide you better protection? Here in the U.S., if you ever want to leave a sizable estate to your heirs, there is nothing more powerful than a portfolio of rental properties. For example, if you die and your children get your properties, they receive them with a stepped-up cost basis; their cost basis is based on the value of the properties on the day of your death.

You will never get rich buying rental REITs; the managers of the REITs get rich.  So, invest directly. There is nothing more satisfying than controlling our investments.

There are still good deals out there if we are flexible

The real estate collapse destroyed condo prices in Suburban MD, and many developments lost FHA certification, meaning that owner-occupied buyers could no longer get FHA and HUD mortgages. So, cash and conventional loans were the only ways to buy. Prices dropped from 275k to as low as 60k in 2012.

Yes, that is correct. It was a self-feeding loop, and the carnage was unprecedented. It still lasts today. Common charge delinquencies and large investor ownership were the primary causes of loss of FHA certification.

Chris Pirnak; Real Estate Deals to Be Made – Don’t Be Picky

Those numbers sound crazy, and indeed, they are heartbreaking to many owners (who were then foreclosed upon). But, life goes on. Investors then came in and cleaned up the excess supply. I was one of these people. In one instance, I bought a HUD-owned condo for 61k in which the bank sold back the note to HUD for 235k.

I always recommend concentrating on particular geographic areas as it pays to become an expert in a limited number of zip codes. This makes the up-front work much easier and will make finding properties more simple. Moreover, do not buy where you would want to live. Buy where you can get good deals and find good tenants. I prefer working class neighborhoods. Many of my tenants make $100k and more a year. That may sound like a lot of money, but here in the DC area that is normal.

As I will now show there are still opportunities to find decent deals that provide landlords with satisfactory Capitalization Rates (Cap Rates) and Internal Rates of Return (IRR).

My latest deal; a small price to pay for a big cash flow

I am currently working with the executor of an estate to finalize the purchase a condo. This property is in a well-funded development, but no longer qualifies for FHA financing as the number of investor-owned units swelled in the wake of the real estate collapse. Here are the details:

This is a 2 bed/2 bath condo, built in the mid 1970s. The contract price is $80,000, in an all-cash deal.  At that price it pays to use cash and try a cash-out deal after close.  I will not cash out. I own other units in the development. (Keep in mind that investors cannot bid up these prices as it may be tough to cash out; many hard money lenders want FHA- and FNMA- eligible properties as collateral)

Bank REOs – 80,000-90,000
Standard – 98,000-120,000

The rents for 2 bed/2 bath units are 1,550-1,600/mo.

The amount of money I will need to rehab the unit should be no more than $8,500 and two months of my time. So, my cost basis is about $90,000.

Here are the income and rates of return calculations:

Rent – $1,575/mo
Common charge – 344/mo
Tax and insurance – 140/mo

Rental income – $1,091/mo
Annual NET rental income – $11,782 (1,091 x 12 x.9) [deduct 10% for vacancy and expenses]

Purchase price + rehab – $90,000

Capitalization Rate – 13.1%

Five year IRR – 17.9%

The assumptions of the IRR calculation are as follows;
Holding period is five years.
Rents increase 2% annually.
10% of rental income is deducted for vacancy and expenses
The disposition price at the end of year five equals the current standard transaction price of $120,000.

If you are truly interested in building long-term wealth just start with the first property and build from there.  Just learn how to do the work and understand the carpentry and rehabbing stuff. I did not know much about these things when I first started, but the expertise came naturally as I had fun in the process.


Bitcoin Update – Learning from the past year’s market action; what does the future hold?

I have uploaded a new bitcoin update podcast for June 4, 2018. Click here to go to the show archives page to listen or you can listen on the link below.

-I hope to present a balanced assessment of bitcoin’s prospects, based on its origins. I am not as sanguine with the alt-coins.
-Bitcoin’s chart and market action mimicked that price and market action of oil in 2008 & 2014, gold and especially silver from 2005 to the present, tech stocks in the late 1990s-2003, and real estate from 2002-2011.
-No one can ever tell where the top will be, but we can gauge the market action to determine when to start unwinding a position. There are usually dead-cat bounces that provide second opportunities to unload.
-We were able to profitably trade bitcoin last year and early this year, because of our experience with prior asset bubbles.
-Don’t believe the crypto shilling of unprofitable mining. The same disinfo was put forth with the gold miners and oil producers. They all adjust to lower prices or are sold in bankruptcy.
-Bitcoin traders and regulators are developing a liquid pool of derivatives against the underlying asset. This shows that the globalists are supporting bitcoin. I cannot make this assumption about any of the alt-coins.

Market Update – Is it just a show? Are the elites losing control?

I have uploaded a new market update podcast for June 2, 2018. Click here to go to the show archives page to listen or you can listen on the link below.  I have included links to relevant articles and media on the Show Archives page.  The latest show is on the top of the page.

-Gold holding up as expected, given the rise in the USDX. Commercials were net shorters for the week, however, despite the drop in price.
-The 10-year Treasury continues to hold up. The Commercial longs are at historic highs and the spec shorts are at historic levels, too. Something has to give and the commercials are usually right. This is why longer-dated treasury yields fell this week. More of the same next week?
-The US economy is holding up well, especially when compared to the other developed economies. The USDX is well supported here, but the dollar shorts have largely covered. Perhaps we take a break from further dollar rallies
-Brexit vote took place in June 2016. Nothing has happened as the British politicians have all been co-opted. The Brexit campaign reminds me of the Tea Party movement of last decade. That reminds me of Trump’s America-first campaign. That reminds me of this current Italian political situation. It gets taken over and diffused. The power gets more centralized.
-As long as Trump gives in to the globalists’ demands things will hold up domestically. My thoughts of Trump taking the blame for economic calamity may be misguided as he is giving in to every demand the globalists ask.
-The fact that the EU is being held together is testament to their power.
-Every time we experience a rise in the collapse chatter things go back to normal. Collapse chatter demonstrates the elite’s control and are just opportunities to buy the dips.
-Perhaps I have seen a few too many collapse scenarios from the alt-financial media, but their prediction success is dismal. Count Armstrong as one of those Cassandras. He’s just selling fear.