Iron Guts - An Investor's Paramount Asset...
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Nation's 11th Largest City-Prime Investment Opportunities...
As featured on CNN Money, Detroit area real estate is (by far) one of the most attractive investment markets in the country, with the 'costs of entry' at the lowest point since the 'great depression'.
With housing prices so low, foreclosures so high, and a percentage of involuntarily displaced families; Detroit's rental market is booming - and investors from all over the world are taking notice. Many of these investors are looking to exploit the negative effects of a credit, housing, and economic meltdown; which have placed those with cash (or cash equivalents) in the "driver's seat".
From a position of control, as the market struggles through lenders who have contracted their lending parameters, tightened their credit issuance policies, and down-right forced the market into a remnantof the 1980's (scarcity of credit); investors that find themselves able - should buy wealth while the opportunity still exists with such frequency.
Currently, investors have the option to purchase several 'income generating' properties for what would be the equivalent of purchasing a new car, recreation vehicle, vacation, or comparably priced assets - spawning the question..... what is the wise choice?
'Iron-Guts'; an Investor's Largest Asset...
According to the CNN Money article (Oct. 17, 2009), an investor will need iron guts, a team of professionals, and a realistic plan to achieve financial stability and build wealth. The author simplified the over-view of real estate investing; and gave a five point suggestion list to achieving your real estate investment goals.
- Think Landlord - Flipping Is Not the Goal
- Purchase Price is First Stage of Investment Costs
- You Need Cash (and Sweat Equity)
- Know the Area
- Get to Know the Tenants
Why 'Flipping' is Reserved for HGTV...
Due to the fore-mentioned financing constraints, 'flipping property' should be reserved for the realm of television; not the plan or goal of current real estate investors. Unfortunately as a result of the financial constraints associated with obtaining mortgages, specifically on 'non-owner occupied' properties, 'flipping' (or a quick resell) although not impossible are few and far between.
The primary reasons for this lie within the (once abandoned) qualifying criteria that the majority of lenders are currently using; which requires 'title seasoning' to accompany a highly qualified candidate for credit.
'Title Seasoning', or lenders' requirement that the seller has owned the property for a specific period of time (usually a year or longer); will prevent many otherwise qualified candidates from purchasing homes that have been acquired, rehabbed, and offered for resell prior to the property's title seasoning for the required time-frame. In large part, this is a direct attack on the investment market and aims to regulate the ability of the 'free-market' to generate wealth as expeditiously as most investors would want.
Effectively, the lenders have forced investors to help stabilize the marketplace, and supplement their income - which will then be reloanedfor the profitability of interest payments. If one is fortunate enough, through financial diligence, to obtain a mortgage; as an investor, should expect to pay between 11%-18% interest, along with other criteria that will effect their bottomline.
Long-Term Wealth Building and Management...
Investors should expect to be 'landlords' for 1-5 years, as this timeframe will allow for the property to position itself as a viable investment to acquire wealth. It will simultaneously allow for the properties' title to season, for the investor to 'break-even' for the cash they have spent, and allow the property to appreciate in value.
Accounting for acquisition costs, improvements, taxes, insurance, and property management fees; a 'savvy' investor should conservatively estimate recieving approximately 50% of the monthly rents, as passive income (profitability).
Currently, governmental rent subsidization payments average $800/monthly for a standard three bedrom home; and have a waiting list of qualified candidates from which an investor has a pool of potential (pre-screened) tenants.
In addition to the tax advantages created by real estate investing, the passive income is truly best served through a volume-based business model; as the rents will add up as quickly as the number of investment properties allows.
Squeezing Profitability Out of Real Estate in a 'Down Market'...
If an investor were to have $50,000 in cash or a cash-equivalent (which can be quickly converted to cash); they would have an opportunity to acquire multiple properties, thus, multiplying their passive income - and overall profitability.
In this example, the purchase and rehabilitation of three properties (at our conservative 50% profitability projections); would recieveapproximately $1,200 a monthfrom their tenants after deducting all liabilities associated with the property. This would produce an annum income (net) of $14,400, in addition to the actual value appreciation of the asset:
- Year One: $14,400
- Year Two: $28,800
- Year Three: $43,200
- Year Four: $57,600 (Break-even + $7,600)
- Year Five: $72,000
Presuming (optimistically, but realistically) that the three acquired assets will be worth $30,000 each within the next 3-5 years; the investor would also have assets that could be releveraged through a resell or financing options.
Wealth Generation; Its Simply in the Numbers...
If that same investor were to resell the property in five years, $72,000 in rental income (netting $22,000) would be added to the resell amount of $105,000; thus, making the total return on investment (ROI) $177,000 (gross) and $127,000 (net).
Avergaed over five years, that would generate $25,400 a year in net profitability; which is the equivalent of a full-time, entry level position in today's economy.
Do the Math...
Based on the example above, the actual break-even analysis for the properties will be in two years, discounting the anomaly of rapid value appreciation or market recovery. Regardless of the conservatism within the expectations, the assets will generally appreciate more advantageously over time than a comparable stock or bond purchase; making the return on investment (ROI) far more attractive for some investors.
Investors who have an intense resolve, vision, realistic approach, adept team, and cash will need to rely on all of them to succeed. Of these traits the intense resolve, or 'iron-gut' is the most paramount in achieving the financial goals and realizing the profitability.
For More Information...
Contact me at RealtorRodmon@yahoo.com
