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What to Consider when Buying a Single or Multifamily Investment!

Many first time investors have the idea that their first investment should be a single family home due to the cost of entry and ease of management, however, this may not always be the best path to go down. One of the main issues that you have to consider is the fact that if the single family homes goes vacant you will have to cover the entire mortgage until you find a new renter, now if you have a duplex, triplex or fourplex that mortgage will be spread out across more units giving you some cash flow to help with the mortgage. Another reason the first time investors tend to like the single family homes is that you can put a lot less down then you can on a commercial loan and the residential loan can be amortized out over the life of the loan. Residential loans can be on properties that have 4 units or less and can be acquired with as little 5% down, however, commercial loans are on 5 units or more will require at least 25% down and you will need to show a business plan plus as well as management experience and cash flow. When shopping for a commercial loan, be prepared to answer a lot of background questions regarding the property. Some of these questions include: Who pays the utilities? What types of maintenance are required? Numerous questions regarding cash flow will also be asked. Commercial mortgage borrowers should be prepared to provide proof ......
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Top 5 Ways To Increase The Revenue On Your Rental Properties

1. Increase Occupancy (Smartly) Each month you have a vacant unit sitting you lose about 8.3% of the potential yearly revenue from that unit, which means that every month it sets vacant it starts to add up quickly. As soon as you find out that you will be having a vacant unit you need to do a market survey to confirm the current market rate on your unit. Have your lead maintenance person that does your final walkthrough prepare the list of repairs/maintenance issues (if any) as they do the walk through so they can order the needed material that day and they can be prepared to start the turn of the unit as soon as it becomes vacant. Once the unit is vacant begin placing your ads so that as soon as the crew has the unit ready for market you can show the unit immediately. Make sure your market survey is current allowing you to set the best price for your available units and know the specials (if any) that are working the best in your area, if you need to fill several units consider running an aggressive special to get your units filled but be sure you don’t give money away that you don’t need to. Always offer your residents a referral for bringing someone.   Most importantly listen to the market, if you are not getting interest in the unit, you may need to lower the price.   2. Raise Rents Smartly Know your market rents, know how you......
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The Impact, a Professional Sports Team, Has on a Local Real Estate Market

Professional sports, i.e., their location and venues, all have a significant influence on the area in which they reside. That’s especially true for real estate. Real estate prices are market driven, and all of that is connected to the outlook the people have. The prices can go up or down depending on the overall social perception. In essence, a real estate investor can have a lot to gain from sports venues as these can cause the prices of surrounding real estate to increase. Studies conducted on the matter support the statement that there is a direct correlation between a sports venue and the cost of real estate in its vicinity. The effect is there, but how does all of that work and what should you as a property owner and investor do? Sports Venue Effect on Real Estate Prices Professional sports are huge industries in the US, and a lot of the money earned goes to the creation of new stadiums and other sports venues. However, the hard truth is that when these stadiums are built, most of the money earned goes directly to those involved with the stadium. Not much goes to the community surrounding the stadium, and neither does it go to the real estate market. The indirect effect, on the other hand, is an entirely different matter. The very existence of a stadium has shown to increase the value of properties surrounding it. The increases in prices falter as you go further away from the stadium, but some e......
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How Do Higher Interest Rates Affect My Investment?

33.jpg  Interest rates always exert a significant effect on any investment one can make. That is naturally also true for real estate investments. In general, higher interest rates have an adverse effect as they go together with a poorly performing economy. Higher interest rates always prevent consumers from buying goods and thus investors lose on investment opportunities. In the end, sales and profits drop as well. But how does all of that affect real estate? How exactly do higher interest rates change real estate investments? Real Estate and Interest Rates The first thing you need to know here is that many often confuse what exactly affects real estate. Many wrongfully assume that the direct factor in real estate evaluation is the current mortgage rate. The influence comes from interest rates, as they have a profound effect on mortgage rates, which then, in turn, affect real estate worth. However, that’s not all. Interest rates directly affect capital flows, which means that they also affect the supply and demand for property, which in turn changes the price of real estate. There are several other factors involved which we don’t have time to go into. The important thing is that all of this is naturally not an exact correlation. With so many factors involved, it’s never possible to predict whether or not higher interest rates will result in a slower real estate market growth, fewer sales, and subsequently lower prices. The Effect of Higher Interest Rates First, it’s important to note that when we look at......
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Are Environmental Investigations Always Necessary When Buying a Property?

The short answer is no, the federal regulations do not obligate property buyers to conduct environmental investigations or in more correct terms, to perform a Phase I Environmental Site Assessment (ESA) in every case that there is a commercial real estate transaction. However, there’s more to this than a simple yes or no answer, which is why we will have to go deeper into this important topic. What Are Environmental Investigations or Environmental Site Assessments? A Phase I ESA is a report made for real estate that suspects potential for existing environmental contamination liabilities. These assessments are performed on both the land and the improvements made upon it. In most cases, these assessments are there to mitigate the environmental concern any side has when a real estate transaction is involved. The fear may be from the seller, the buyer, or even the bank. In rare cases, a Phase I ESA report will find problems that will create cause for another study – Phase II ESA that looks to perform chemical analysis of any hazardous substances that were found in Phase I. As these cases are rare, we are here to look only at Phase I ESA. When Are Phase I ESAs performed? As we previously mentioned, Phase I ESA is performed when there’s worry that an environmental risk might exist in connection to the property. Let’s take a look at the reasons which prompt the initiation of Phase I ESA: If any hazardous material such as gasoline, heating oil, fuel, etc. has or ......
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Understanding Environmental Reports

Understanding environmental reports or environmental reporting is crucial for respecting the law, but more importantly, it’s critical to the ongoing fight to protect the environment. If you value the health of your environment, and its benefits for your health as well, you should understand what environmental reporting is, its purpose, and why it matters. What’s more, these reports do benefit your property business as well, and later we’ll explain why. With all of that in mind, let’s take a closer look at the vital process of environmental reporting. What Are Environmental Reports? In simplest of terms, environmental reports are used by companies and organizations to disclose the information on their environmental performance and the impact their business and services have on the environment. In many ways, environmental reporting is similar to financial reporting, and the reports with information on business performance are very similar to reports on environmental performance. Just as financial performance matters a lot, environmental performance should matter as well. The Importance of Environmental Reports Most importantly, environmental reports play a big part in the preservation of our environment. They are essential for the government, as only with these reports can they determine how your business affects the environment, but also how all companies, in general, affect it. It enables them to decide on their environmental policies and to follow the ecological trends. Additionally, the reports are good indicators of how effective the policies are for the environment, but also if they are cost-effective and practical for everyone involved. The Imp......
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Is Cost Segregation Analysis Worth It?

It has long been a question that has puzzled many commercial property owners. Many accountants suggest it, but it's worth is still rarely clear. Many owners barely even understand how it operates and is thus unable to determine its worth. As that’s the case, we’ll thoroughly explain what it is and what’s it for, but more importantly, whether or not it is worth it in the overall picture. What Is Cost Segregation? First of all, cost segregation is used by commercial real estate owners to reallocate property into personal property, to achieve accelerated depreciation methods and a shorter depreciable tax life. It is a practice that involves determining the exact assets an owner has and their costs, then classifying them for federal taxes. By using cost segregation analysis, you get the chance to determine which of your building’s costs that were classified with a 39 years depreciable life could now count as personal property or land improvement, subject to a 5, 7, 15, or 27.5 (for residential and multi-family buildings) years depreciation rate. All of your assets that get a new classification will enable you to defer taxes and reduce your tax burdens. The benefits of cost segregation are thus: Deferral of taxes Ability to reclaim depreciation deductions from past years Lower tax liability Subsequent higher revenues Looking at the benefits it provides, cost segregation is worth it. However, we still need to take a look at what’s involved and how much it costs to determine with absolute certainty its actual worth to ......
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Should You Invest in an Opportunity Zone?

Let’s start by defining what an opportunity zone is -   Opportunity Zones are census tracts generally composed of economically distressed communities that qualify for the Opportunity Zone program, according to criteria outlined in 2017’s Tax Cuts and Jobs Act.    These zones were designed to promote economic development by providing tax benefits for investors. Up to 25% of low-income neighborhoods that meet the income qualifications of the program (and up to 5% of non-low income tracts that meet other income and geographic requirements) in each state, district, or territory can be designated as Opportunity Zones. In states, territories, and districts with fewer than 100 census tracts, up to 25 census tracts can be designated as Opportunity Zones. Areas certified as Opportunity Zones retain their designation for ten years. Essentially, an Opportunity Zone works as follows:  A provision of the Tax Cuts and Jobs Act of 2017 allows investors to enjoy preferential tax treatment when investing in economically-distressed communities. The opportunity zone program allows individuals and businesses to liquidate a wide variety of appreciated capital assets and to reinvest all or a portion of the gain into qualified opportunity funds within 180 days of triggering the gain. “The gain can then be deferred up until Dec. 31, 2026.” This investment will also allow for deferring capital gains tax during the investment period as well as excluding some of the deferred gain depending on how long the investment is held.  Essentially, there is a 10% exclusion of the deferred gain if the Qualifi......
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Real Estate Contracts and Purchase Agreements Terms Explained

Real estate contracts or purchase agreements contain legal terms like any other business agreement. As they are complicated, get them adequately explained to you.  If you’re new to the business or need to know what these terms mean because you’re buying a property, read on as this article will explain them thoroughly. What are Real Estate Contracts or Purchase Agreements? These contracts or agreements are valid, legal contracts that act as safeguards for everything related to the purchase to work in a way both parties (a seller and a buyer) have agreed. They serve as legal safeguards because, as is always the case, buying real estate involves a lot of money, and everyone, especially the buyer, needs to have assurances that everything will go according to plan and nothing will go wrong. Once a contract or agreement is signed, both parties have assured legal rights and individual responsibilities they need to follow and fulfill. However, the difficulty with these contracts is that they are often very complex and something that only a lawyer can understand. As it’s quite easy to sign a piece of paper, but it’s next to impossible to break a contract without serious repercussions, so it’s crucial for you to understand what you’re signing. That’s why you must ask about anything in the agreement that you don’t comprehend. Ask as many questions as you need until you discern the entire deal. Only then should you sign. Requirements for Validity For a real estate contract or purchase agreement to be valid, some ......
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What Happens to Your Commercial Property During a Downturn?

Benjamin Franklin once said that there are no guarantees in life other than death and taxes but I believe we can also add a downturn in the real estate cycle to that list. Having been in the real estate business for over three decades I’ve experienced first-hand multiple cycles in the market. During these phases I’ve noticed a trend, people who operate their properties with a strong management team typically forecast the market turning and prepare in advance.  The market you’re in will have a lot to do with how properties are effected, Los Angeles and a few other major metro areas typically only see a drop in value of a few percentage points while other areas can take a bigger hit. Know your market prior to making an investment and NEVER make an emotional investment that your numbers cannot support.  During a real estate market downturn, real estate investment businesses which are equipped financially have a better chance of surviving and avoiding bankruptcy. If you’re going to be a successful real estate investor, you need to learn to budget for downturns and difficult times. Here are some tips to help you succeed. 1.       Consider extending your loan term now-it’s easier to refinance with your peak cash flow. 2.       Conduct cost benefit analysis to keep your expenses in check. 3.       Have an emergency fund/reserves to cover unexpected expenses or clients that cannot meet their lease payments. 4.       If you own a commercial property with multiple leases coming up at the same time you ......
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