The Top 5 Emptiest Cities in America

With the bursting of the recent housing bubble in the late 2000 comes the spike in vacant homes. According to the Census Bureau, vacant properties have increased by 44% across the nation since the year 2000, most of which belong to the unoccupied rental property category. In fact, the total gross vacancy rate as of 2011 has increased to 10.6%.

So, if you are a real estate investor looking to acquire more properties to generate rental income, then it would help you a lot to know which cities in America have the highest vacancy rate. Below are the top five emptiest cities in the country, based on their 12-month averages.

5. Richmond, Virginia

Rental Vacancy Rate: 15%

Homeowner Vacancy Rate: 2.4%

The 15% rental vacancy rate of Virginia's capital is the fourth highest among major cities in the country. In addition, figures that came out for the first quarter of 2012 show a whopping 19% rental vacancy rate. On a brighter note, home vacancy rate sits lower at 2.4%.

4. Detroit, Michigan

Rental Vacancy Rate: 16.9%

Homeowner Vacancy Rate: 1.7%

With an unemployment rate of 10%, Detroit is definitely gravely hit by the recent recession. Amazingly, the homeowner vacancy rate is below the nation's average of 2.18%.

3. Memphis, Tennessee

Rental Vacancy Rate: 15%

Homeowner Vacancy Rate: 3%

Tennessee's 15% rental vacancy rate is the fifth highest in the country, while its homeowner vacancy rate of 3% is the 13th highest.

2. Dayton, Ohio

Rental Vacancy Rate: 11.3%

Homeowner Vacancy Rate: 5.4%

Dayton City holds the record for the highest homeowner vacancy rate in the country. The good news is, their 5.4% average vacancy rate is much lower than the Q3 2011 rate of 6.5%.

1. Orlando, Florida

Rental Vacancy Rate: 18.8%

Homeowner Vacancy Rate: 2.2%

At 18.8% rental vacancy rate, Orlando in Florida is the nation's most vacant city. In fact the first quarter of 2012 shows a higher figure at 22%. On the bright side, other economic indicators in Orlando seem to be better than the other states. The city keeps $125 million cash as a general fund and has over $1.1 billion total assets.

Evaluating Foreclosed Properties

In this article, I’ll be discussing some techniques you can use in evaluating if a foreclosed property is a good deal or not, specifically for those who are planning on using it to generate rental income. Note than when browsing listings, only basic information are given such as address, lot area, floor area, price, and minimum downpayment. There is no indication on the property’s current state or if previous owners are still residing there. Furthermore, you will not have an idea if the foreclosed property is really selling at a discounted price – you will have to research the current market value of properties in the area to get an idea.

After getting firsthand data, the first thing you need to check is the monthly cashflow that the property will generate. While on mortgage, your net cash flow will be the difference between rental income and your monthly amortization. But how will you determince the monthly rent?

The easiest and fastest way to determine monthly rent is to talk to the people around, especially those who also own properties for rent. This is actually easier for lofts or condominium units since you simply have to approach their office.

After getting the projected monthly rental income, you need to determine how much your monthly amortization would be. This can easily be computed using an amortization calculator, which is readily available in many websites.

Next, compute for the return on investment (ROI). Yes, just like in any business, the ROI shows how effectively the money you used in acquiring the property generated returns for you. The ROI can be computed using the formula below:

To help you better understand the concept, let’s illustrate using an example. Suppose you read about a foreclosed 5-door apartment 5 miles from your residence. The selling price is $61,000 with a minimum required downpayment of 20%. The balance is payable up to 15 years and the interest rate is 10% per annum.

To compute the ROI, you must first determine the monthly cashflow that the apartment will generate. The cashflow is the net monthly rent you’ll get after deducting the monthly amortization. Simply enter the information above to the monthly amortization calculator to get the needed figure.

The monthly amortization is $524. Now suppose after talking to people in the neighborhood, you found that the going rental rate for similar units is at $150/unit per month. The monthly total rental income from the 5-door apartment is therefore equal to $750. Subtracting the $524/month amortization, the monthly cashflow is $226.

The ROI is therefore equal to the monthly cashlow time 12 months, divided by the downpayment:

Comparing against the S&P 500′s 15-20% average annual gain over the past decades, the property therefore seems like a good investment.

Just like in any company, the ROI is a significant gauge of how effectively you are rewarded for your investment.

The Risks Involved In Real Estate Investing

Investing in real estate can really be a rewarding experience once you do your part well. And when I say do your part, it means putting some time and effort in looking for the best deals out there, incorporating some due diligence, and continuously increasing your knowledge about real estate investments.

Here we discuss some of the common risks involved in real estate investingand steps we can do to minimize them.

1. Interest Rate Risk

The interest rate at any given time fluctuates, depending on local and global economic conditions. Therefore, your monthly amortization may either increase or decrease after the set lock-in period. It is therefore advisable to go for the option with a fixed interest rate for the longest period of time possible. This is to hedge you from the cost of sudden increase in interest rates that may leave you unable to pay for monthly dues. After all, you don’t want your property to end up in the foreclosures listing right?

2. Tenants From Hell

This is one of the most common problems that owners encounter when renting out their properties. And this is why due diligence is very important in screening your potential tenants. Always check for their capacity to pay and if possible, do a background check on their lifestyle to see how well they handle their own finances.

3. Going All-in

As investment gurus always say, never put all your eggs in one basket. This is also applicable in real estate investing. Don’t put all your life savings in one property, especially when you haven’t done your due diligence yet. Go for properties that suit your budget and won’t leave a hole in your pocket. Think about what will happen if you suddenly lose your job and can’t pay for your mortgage. Therefore, it is vital that you manage your finances well and invest only what suits your risk appetite.

4 Simple Tips In Getting Started With Real Estate Investing

If you had been planning on making your very first real estate investment for some time already but haven’t put them into action yet, then you’ve come to the right place. Here, I’ll give some simple tips and things you need to consider before making the big move.

1. Ask yourself what your objectives are.

Always begin with the end in mind. Why do you want to invest in real estate? What goals do you want to achieve in doing so? Is it for passive income and eventually for financial independence? How much do you want to earn from real estate? These are just some of the questions you need to answer before starting your search. Concrete goals translate to a concrete plan of action, and with this, the odds of succeeding increases.

2. Knowledge is power.

Before getting your feet wet, try to learn as much as you can about real estate investing. We are lucky to be living in a world where a vast range of information is available over the world wide web for free. Learn the taxes involved in acquiring and selling a property, research on the different financing options available, read about real estate laws that may affect your decision in buying a property. Practically everything you need to know can be found on the net, you just have to be diligent and patient enough to learn.

3. Find your niche.

There are several ways of making money from real estate investments. Renting, flipping, rent-to-own are just among the most common practices. There are people who have built expertise on finding foreclosed properties. Whatever niche you choose, just remember to be an “expert” in that category so that when an opportunity comes, you’ll be more than prepared to grab it.

4. Start building your network.

Finally, you can accelerate your chances of finding good deals by increasing your visibility in the real estate market. Make the properties come to you and not the other way around. How? Join clubs and communities that share your passion in real estate investing. Participating in auctions is also an option.

With these tips in your mind, I’m sure it won’t take long before you acquire your first ever real estate investment.

The Importance of a Property’s Net Operating Income

In the previous article, I showed an example on how to compute the net operating income (NOI) of a property. Expenses such as property insurance, property managament, taxes, and repairs have to be considered. In addition, some allowance for vacancy and collection loss have to be accounted for. Some properties, which may look very attractive at first, may have a low, or worse, negative NOI and may not be a good investment after all.

If you are buying a property thorugh bank financing, then computing the NOI is also important to see the net cash flow the property generates while you are still paying off the loan. This is also a great tool in comparing a property investment versus alternative instruments such as stocks, bonds, and mutual funds.

Note however that the NOI is just a rough guide that you can use in determining if a property is a good investement. The soundness of your decision is highly dependent on the accuracy of your assumptions. It is therefore important to make your assumptions as accurate as possible. How?

Go to the municipality and ask for the latest tax rates of properties located in the area. Get several quotes from insurance companies to get a rough estimate of annual insurance premiums. Ask the neighborhood or property owners nearby how often the units are vacant. Also, make sure to screen your tenants well to ensure a worry-free collection.

As mentioned in previous articles, reaping off the rewards from your real estate investment may take a long time and will involve lots of effort. Nevertheless, I’m sure that by the time you get there, you’ll never regret that you chose to take that first step towards having your own real estate investment.

How To Find Good Properties

In any business, the net operating income (NOI) is a vital measure of a company’s performance and is a clear indication of whether the company has made profits from its operations. The net operating income is defined as the company’s income after all expenses related to operations such as cost of goods sold and employee’s salaries are deducted.

Similarly, real estate properties that are used to generate rental income such as multi-door apartments, duplex, and condominiums also incur operating expenses like real property taxes and maintenance costs. Below is an example of how NOI is computed.

Example. You have found a beautiful 8-door apartment where the monthly rent per unit is $125.

Assumptions:

• Real Property Taxes = $750/year
• Property Management = $120/month
• Property Insurance = $300/year
• Allowance For Repairs and Maintenance = $70/month
• Vacancy Rate = 10%
• Collection Loss (assume not all tenants will be able to pay) = 3%

For this particular example, you will be earning a little less than $600 per month net after paying off your mortgage. Therefore, this looks like a good deal for you as it will put additional money in your pockets. Of course, reaping the benefits will take some time as you have to finish paying the monthly amortizations first.

In the next article, I will show why it is vital for you to compute a prospective property’s net operating income.

Financial Independence Through Real Estate

Have you ever dreamt of the time when you can just quit your day job and spend precious days doing what you really want? Tired of waking up early in the morning and facing the daily hassles of the rush hour? Chances are, you are not alone in thinking that way. Many have thought of financial independenceand many have made plans towards achieving it. But most failed to put their plans into action.

Gaining financial independence through real estate is very achievable. But how come only a few succeed? The answer varies from person-to-person but the common denominator among them is the lack of patience and effort to make it work. Most have ventured thinking that success will come their way instatntly. What these people should realize is that it takes a lot of time and effort to reap the benefits from their property investments.

If you would look at the general trend of real estate prices, you will see that over the years, prices of properties do tend to increase. The capital appreciation may not be as quick as your stock investments but at least, the risks are minimized and you are assured that the value of your property will not plunge overnight.

Rental income from properties such as multi-door apartments, townhouses, duplex, and condominium units are also a great way of earning passive income that can eventually take the place of your day job as your main source of income.

Let’s say that as soon as you got your first job, you have already started saving enough cash to afford the downpayment of an income-generating apartment. You then use the monthly rental payments of your tenants to pay off your mortgage. After a few years, you manage to save some cash again, enough to fund a duplex for sale nearby. You then repeat the cycle and use the rental income as mortgage payments. Then do that again everytime you have saved enough. Eventually, the mortgage payments will mature and the rent you get from tenants will purely be your own passive income.

Those are just a few ways you can escape the rat race. Remember that all it takes is time, patience and effort on your part.

Investing in Foreclosed Properties

Foreclosures happen when lending institutions such as banks repossess a property because the borrower has not made payments for a certain period of time. Once the bank has gone through the processes involved in foreclosures, they put out the property for sale, usually at a discount to market price.

Prices are usually lower because these kinds of properties are considered as non-performing assets in the bank’s books and therefore, they would want to dispose these immediately. In addition, they would want to recoup their losses from these bad loans as quickly as possible.

It is from those reasons that many people have taken interest in acquiringforeclosed properties. The steep discount to market price has attracted many knowing that they can immediately take profit from capital gains.

However, it is not correct to assume that all foreclosed properties are good deals. As with dealing with any other real estate investment, this also entails time, effort, and due diligence. To stress that looking for good foreclosed deals takes time, most gurus would recommend the 100-10-3-1 rule. This means that for every 100 foreclosed listing that you check out in the advertisements, you can find 10 that are worth inspecting. After the inspection stage, you can find approximately 3 properties that will suit your criteria and most probably, you would end up buying one. That’s one property for every 100 listing.

Once you’re done doing due diligence and selecting that one property that has passed all your criteria, the next thing you have to think about is financing. Will you get a bank loan? If so, which bank can offer the best payment options for your budget? You can check out the article I have written about the different types of financing options available.

Just remember that each investment entails risks and much of these risks are minimized if you are willing to invest your time in doing so – foreclosed properties included.

The Hottest Real Estate Investment In Wall Street

After the housing bubble that occurred in the late 2000, investors, both retail and institutional ones, had been very careful in choosing their next investment. Today, the going trend is that house prices aren’t likely to go up that much and likewise, they aren’t foreseen to drop drastically in the next few years. For now the housing and real estate market is stable.

And it is for these reasons that a growing number of investment firms, private equity partnerships, hedge funds, and real estate investors had been acquiring and accummulating foreclosed single-family homes. One example is the Blackstone Group (BX) who had accummulated more than 2,000 single-family homes worth around $300 million. In fact, investment banks have even picked-up the trend and had been restructuring their financing options to suit the current trend.

Even private equity funds and real estate investment trusts (REIT’s) have shifted their focus from apartments and commercial areas like malls and offices to foreclosed single-family homes. A consulting firm director and UC Berkeley professor has confirmed that more than a dozen investment funds are currently scouting the single-famly homes market, each planning to own up to 10,000 homes across the country. In addition, he is predicting an increase in the number of public REITs dedicated to this type of home over the next few years.

However, Blackstone group and the other funds are not really expecting any spike in price. They are looking into buying these foreclosed homes at a discount, make some repairs, and rent them for profit, in the hopes of being able to sell them eventually when the economy has full recovered and has started to improve. They are willing to wait until those who are renting can finally afford to but their own houses and when the banks have picked-up their lending activities already.

Top 3 Reasons Why You Should Invest In Real Estate

With the housing bubble that occurred a few years ago, several people have strayed away from any form of real estate investment and have resorted to keeping cash in their bank accounts. They are afraid that the crisis is not yet over and that there’s still some room for property prices to plunge. They are waiting in the sidelines waiting for the right buying opportunity that may never come.

Here we discuss why you should invest in real estate or stay invested if you already have one.

1. Leverage

The use of what Robert Kiyosaki calls “other people’s money” or OPM. With leverage, you can acquire and control properties even if you don’t have enough cash to buy them in full. This is possible through several financing options that are available. There are some property owners who rent out their properties and use the monthly rent to pay off their monthly mortgages – it’s like having someone else pay for the property you acquired!

2. Capital Gains

People invest in real estate with the hopes that the prices of the properties they acquire will eventually go up. This difference between purchase price and the property’s current market value is called capital gains. Of course this doesn’t happen all the time. Take for example the recent housing bubble that trigerred a global recession during the late 2000. Therefore, the best strategy here is to hold on to your asset as generally, real estate prices do climb over time.

3. Passive Income

This is one stable source of passive income, especially when the property is located in an area near offices and schools. The monthly rental income becomes pure passive income once the mortgages have been completely paid off.

Remember that making money through real estate is not an overnight get-rich scheme. It takes time and effort, the essential requirement that people fail to do when they venture into real estate.

Financing Your Next Real Estate Investment

Buying a property can be both exciting and challenging, especially when it comes to figuring out what type of financing to get. After finding that property that suits your investment criteria, the next step is to carefully review the budget to determine the financing option that will best suit your current financial status. Listed below are three of the most common financing options today.

Banks Offering Traditional Mortgages
This is the most common option of homeowners. It’s easy to avail given you have a good relationship with the bank and have maintained a decent credit standing.

Pros: Generally offers lower interest rate than mortgage loans from other institutions. Easy to get one for people who already have a good and long relationship with the bank.

Cons: Hard to get approved if you’re a new client of the bank and pretty cumbersome to get all required documents. Very low chance of getting a loan if you don’t have a stable job.

Rent-to-Own Scheme
If you are undecided yet in purchasing the property, then this is the perfect option for you. In this scheme, an agreement is signed where rent payments can be credited towards the eventual purchase of the property.

Pros: Provides total flexibility to those who are not yet 100% convinced of acquiring the property.

Cons: Monthly payments are usually higher than the going rental rates so if you decide not to continue with the purchase of the property, you end up paying rent at a premium price.

Borrowing From Family and Friends
If you end up with a disapproved bank loan and can’t seem to find a good rent-to-own scheme, then you might want to consider this option.

Pros: No need to prepare tons of documents like identification and proof of income. Sometimes, if your family loves you enough, you can even get it interest-free!

Cons: The amount of borrowed money may not be enough to acquire the property. In addition, failure to pay the family member may cause strain in your relationship.

Real Estate Investments

Most people, when asked about real estate investments, would almost always mention their own homes as their only real estate investment. After all, their homes are most likely the single largest investment they will ever make in their entire life. But what they don’t realize is that there are numerous ways of investing into real estate. Here, we discuss a few of them.

Income-producing properties

Multi-door apartments, duplex, condominium units for rent – these are just some examples of properties that people buy or build to augment their income. The ever-increasing population and influx of people to highly urbanized areas has established a strong demand and high occupancy rate for these types of properties. In addition, this can provide owners a continuous flow of passive income with minimal effort needed for periodic repairs and maintenance.

Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is a security that is traded on major exchanges much like any other exchange-traded funds but primarily focuses on property stocks. Think of it as pooled funds coming from various investors, individual or institution, invested in a basket of property companies, e.g. Property1, Property2, Property3, that are publicly traded during market hours. Another feature of REITs is profit distribution through regular dividends.

Purchase of publicly-traded property stocks
Another option is to invest directly in individual property stocks by buying publicly-traded shares. This is highly recommendable to people who have the knowledge and time to carefully analyze stocks and can be more rewarding than REITs if one is able to perfectly catch good buying opportunities. These individual property stocks may also give out dividends from time to time, depending on company performance.

Given the options above, there are now many ways you can call yourself a real estate investor. But just as in buying your own home, due diligence must be done in choosing which particular investment instrument to use.