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Should You Manage Your Rental Properties Yourself?

When investing in rental properties, there are a lot of tasks that need to be done on a regular basis if you want to find success.

From placing ads to taking phone calls to showing properties and more, a landlord has a full list of responsibilities to handle if they want the process to return a great profit long-term. However, all that work doesn’t need to be done by you. Professional property management companies can take care of most of the above list and more, but management companies are not a perfect solution either.

So should you manage yourself or hire someone else? Although there is no “one size fits all” solution, there are several key issues that a real estate investor should consider before making the decision.

How Much Does Property Management Cost?

Property management fees vary by location, but typically for a single family house or small multifamily property, you’ll be looking at 8–12% of the rent in a monthly fee and a large, one-time fee each time the unit is rented. This placement fee is often 50% of the 1st month’s rent all the way up to the entire 1st month’s rent. Some managers also charge a “renewal fee” each year, as well as “marking up” the maintenance costs.

For a property owner who doesn’t have a lot of cash now, property management can quickly turn a decent investment into a negative cash-flowing investment.

Of course, the other side of the coin is that by allowing a manager to look after a property, it frees up the investor’s time to do “higher value” tasks, like finding more rental properties. If a management company costs $2,000 per year, but the time saved helps an investor buy one more property per year that nets him or her $5,000 in cashflow, then the savings might be worth it.

Are You Willing to Learn How to Become a Landlord?

People are not born with natural landlording skills. So perhaps one of the biggest questions to ask yourself when deciding whether to manage yourself or hire an outside company is this: will you invest the time needed to learn how to become a great landlord?

But maybe you are simply not interested in learning how to become a good landlord and you are more interested in “just owning.” Nothing wrong with that – and, in this case, it would be better to pay the several thousand dollars per year to avoid losing tens of thousands on your investment.

And yes – if you manage ineffectively, you can definitely lose tens of thousands of dollars.

Property Management Doesn’t Mean The Investment is 100% Passive

Keep in mind that hiring property management is not going to make your investment totally hands-off.

The painful truth is, a lot of property management companies are terrible. Becoming a property manager is not a difficult task, so the market is saturated with managers who have no idea what they are doing.At best, these managers are terrible at getting units rented, horrible at communication with the owner, slow at getting repairs completed, and allow the tenant to let the property fall into disrepair. At worst, they could steal, lie, and cheat their way into the owner’s pocketbook and completely destroy an investment.

Even if you hire a great manager, your job as the owner is not completely work-free. You must continue to manage the property manager and ensure they are doing their job correctly. One of the biggest complaint from owners about property management companies is “they just don’t care about my property.” And with hundreds or even thousands of properties under management, it’s probably the truth. Your property does not stand out to them from the others. When they have 50 vacancies at one time, yours included, they are trying to fill all of them at once.

They don’t have an incentive to get just yours rented, which could cause the property to sit vacant longer. On the other hand, professional property management companies have a much wider reach for finding tenants due to the marketing they run. While you might put up a Craigslist ad or sign in the yard, they may have hundreds of signs and ads all over town, with dozens or hundreds of potential tenants calling every week. They also may negotiate “bulk rates” on their services, which could bring down the cost of some maintenance.

If You Decide to Hire Property Management – Do This

If you do decide to hire a property manager to run your rentals, do your due diligence and find the best manager in your town.

Ask other local landlords for referrals, interview dozens of companies if you have to, ask the hard questions, talk with their current clients, and don’t be afraid to fire a bad manager.

My wife and I have managed our own properties since day one. On the couple of occasions we have attempted to hire a property manager, we leave quickly with the realization that we do things ten times better! We don’t say this to brag; we say this to inspire! You can manage your properties, and you can maximize your returns. It all comes down to knowing that nobody cares about your property or about your investment as much as you do.

Anyone can manage, but managing effectively is a skill that must be learned and perfected.

Source: forbes.com

The Secret to Succeeding in Real Estate Investing

They say there’s no secret to success in real estate investing. They’re wrong. Sort of.

You see, there isn’t just one secret but many secrets or more accurately many repeatable processes all intertwined with hard work, proper planning, and a dash of long term goals that lead to success.

The problem is so many people are looking for the magic bullet or the shortcut to success that that will make them wealthy and successful.

Surprise, it doesn’t exist.

If that’s what you’re looking for, you’re setting yourself up for failure rather than success and if you’re hoping that’s what you’ll find here, you will be disappointed.

You see, the majority of people who build wealth, retirement nest eggs, and successful rental portfolios haven’t discovered new and better wheels.

They didn’t take shortcuts to get where they are and they aren’t rocket scientists with elaborate computer models and formulas to beat the market.

They’re just normal people doing the same smart easily repeatable things over and over and I’m going to share one of them right here (plus give you the opportunity to find out about the other six).

So going forward, rather than calling these secrets, let’s just call them strategies!

Repeatable Real Estate Investing Strategy #1

Ultimately, the reason so many people become landlords is by growing their wealth through the following areas.

• Cash flow from rental income
• Equity through paying the mortgage down and
• Appreciation of the value of the property.

While the first one, cash flow, should start almost immediately both equity and appreciation occur through the repeatable strategy of time.

I know, time, how exciting and obviously not much of a secret as everyone’s hard of time!

Yet time is one of the most important strategies in real estate; the longer you hold onto a good property the more value it gains and the more it rewards you.

First, over 25 or 30 years worth of time mortgages get paid off (if money isn’t drawn out via refinancing that is) giving you a nice little equity nest egg.

The big bonus once you get to this point in time is almost all of the cash flow now goes directly to you, instead of going to cover the mortgage. Imagine that $1,000 monthly payment (or an even larger payment quite often) you used to make to the lender, now coming directly to you.

It brings a smile to my face thinking about it.

Second, the property will also appreciate over time, especially over extended periods of 10, 20 and even 30 years, simply due to inflationary pressures.

Inflation is the increase of prices due to the value of money decreasing. The cost of labor, the cost of lumber, and other supplies to build a new property rise and this all contributes to the rise of home values over time.

It’s part of what’s driven the value of cars up from an average of $3,450 in 1970 to over $33,000 currently and a loaf of bread up from $.25 in 1970 to $2, $3 or even $4 a loaf now depending where you are located.

So repeatable strategy #1 is simply time. If you set yourself up with a good property plan on giving yourself a long window of time, real estate investing can make you wealthy without doing much else.

Unfortunately, this strategy of letting time increase your wealth does go against the get rich quick scheme so many people are after. But as I said, there isn’t a magic bullet to real estate wealth; it’s many repeatable, yet simple, strategies and pieces.

One Piece of the Puzzle

So there’s one piece of the puzzle, but I haven’t provided the entire picture, yet. Would you like to find out some of the other secrets?

If you’ve answered yes, you’re in luck.

What I’ve done is put all 7 Secrets/Strategies in an easy to read guide that you can read through and then start implementing portions of nearly immediately.

Some might require some extra work (which again surprises folks who just want shortcuts), but that work will come back multiple times over in rewards. So who’s ready to start some extra work?

To grab your free copy, come visit me at the following special link for American Apartment Owners Association readers,

http://www.TheEducatedLandlord.com/AOAA7

And one more thing, I’d love to hear your feedback once you’ve read it, so either leave a comment here, or go back to the link above and give me some feedback.

Happy real estate investing and happy land lording!

Bill Biko – “The Educated Landlord” has been an active landlord for well over a decade and during that time has packed more enough experience in for dozens of regular landlords. From rooming houses, to rent to owns, furnished rentals and“regular”rentals, Bill has had around 1,500 tenants which has made him a master of systems and a master of evictions. To find out more about Bill or to get access to additional tips, articles and Bill’s “7 Questions Landlords Must Ask” visit www.TheEducatedLandlord.com

Security Deposit is Not the Last Month’s Rent

Question: I have been renting an apartment, and my lease will expire at the end of November. I have taken a job out of this area, and expect to begin my new position on November 1 of this year. My landlord has a security deposit which is equivalent to one month’s rent. Should I pay for November since I will not be living in the apartment? The landlord will not be hurt, since she can use my security deposit for the November rent. Should I discuss the situation with my landlord?

Answer: The landlord-tenant relationship should not be antagonistic. There is no reason for a landlord and a tenant to get into constant fights and arguments over every conceivable issue affecting the rental property.

However, unfortunately, this is the situation in too many cases. The landlord often presents unreasonable demands, and the tenant counters with his/her own unreasonable requests.

We have to start any landlord discussion with a review of the lease. In every landlord-tenant arrangement, there should be a written document, which is called a “lease.” Once it is signed by the landlord (or the agent) and the tenant, this becomes a legally binding document on all parties who signed it.

Thus, it is important for tenants to thoroughly read (and understand) the lease before signing. Typically, however, it is my experience that most tenants do not bother to review the lease before it is signed. It is only when a problem arises does the lease begin to be scrutinized, and often that is too late.

The security deposit is an amount of money — generally one month’s rent — which a tenant gives the landlord upon signing of the lease. This deposit — which in some jurisdictions must be kept by the landlord in an interest-bearing account — is not to be used for the last month’s rent. It is used to pay any damages which the tenant may have caused to the property during the tenancy.

Landlord-tenant laws differ all over this country; some are stronger than others. In fact, the landlord-tenant laws in the District of Columbia are considered perhaps the most tenant-friendly in the United States. It is to be noted that this article is addressing residential tenancies; there are different procedures (and laws) impacting commercial leases.

You have suggested you want your landlord to use your security deposit for the last month’s rent. I cannot recommend this under any circumstances.

What will happen if the landlord finds damages in your apartment, which were caused by you — i.e., your movers put a hole in a wall or your dog ripped a screen door? Your monthly rent is $1650 and your security deposit is in the same amount. If it costs the landlord $500 to make the repairs, this leaves the landlord only $1150 to be applied to your November rent.

Thus, your actions may cost the landlord to lose money. Contrary to what a lot of people believe, many landlords are not wealthy individuals, and any monetary loss they incur is significant.

You probably believe your landlord will not spend the time — or the money — filing a lawsuit against you for this small amount of money. This may be true. However, the landlord has this right, and one day you may find there is a judgement against you because you failed to appear in court.

More significantly, your landlord can create credit problems for you — which problems can continue to haunt you for a number of years. The landlord can report your delinquency to credit reporting companies, and any lawsuit which is filed may also be picked up by these credit bureaus.

It is not a pleasant experience to explain to a banker or a department store — several years after the incident — why you failed to pay your legal rental obligations.

I cannot recommend you skip your last month’s payment; it is just not worth the subsequent problems — and hassles — you may encounter. Also, assuming you have a conscience, you should recognize that you may have financially hurt another human being.

However, I strongly recommend you discuss the situation immediately with your landlord. He/she may be understanding, and may even be willing to give back your security deposit if the property can be rented out immediately.

The landlord-tenant relationship should be amicable. Communication between the parties is a crucial factor in determining whether the arrangement will be friendly or hostile.

Source: realtytimes.com

Property Manager, because Miracle Worker isn’t an official job title.

#PropertyManager, because #MiracleWorker isn’t an official job title.

#WakeCounty #TriangleArea

6 Reasons You Should Promote Yourself From Landlord to Real Estate Investor

Investors in real estate are not quite the same as landlords. Investors take more business risks and often times get better results and profits. It’s the big leagues of property investments.

The good news is that anybody can join the big leagues. Real estate investment entails more risks than merely leasing and overseeing a house in the case of landlord ownership. But the risks are worth taking as the result of good investment far outweighs any risks.

A landlord is anyone who owns land – a house, apartment or what we generally call real estate. He or she generally rents those houses and apartments to tenants. Meanwhile, a real estate investor is much more – clearly you still own houses — but you don’t have to wear all the hats that come with being a landlord.

I have highlighted six different reasons why it is wise and expedient to metamorphose from being just a landlord to a real estate investor.

1. Investors avoid the hassle of being a landlord.

Marketing the property, vacancy showings, tenant screenings, lease negotiations, rent collection, tenant communication, repairs and emergencies, bookkeeping, coordinating insurance policies and more – these are the hats on a landlord’s head.

Investors exempt themselves from the daily grind and responsibilities and focus more on the business and profit making part. No need worrying how to make a plumber show up on Sunday afternoon. An investor would focus on constant research and smart decision-making.

To do this requires hiring a property management company (PMC) to advertise, negotiate with clients, maintain and generally oversee property and assets on her behalf. This in the short-term might seem like great expenses, but if only to rest from the hat wearing it is worth it, plus a few more advantages as you will see.

2. Investors have the benefit of focus.

Imagine having all the responsibilities above and doing it long-term — which is what many landlords do. It could get really exhausting, to avoid using a stronger word. Investors focus on one thing, and this increases their profit in the long-term and also in the short-term, depending on how quickly they can make a property more profitable.

3. Investors avoid indigent tenants.

Almost every landlord has to face this at some point, especially in economies that are dwindling. Let’s face it, so many people all over the world are living below the poverty line. Most of these people find it extremely difficult to pay their rent when it is due. And many times these tenants would not vacate the premise, which means you can’t get a new tenant. This usually leads to the issuance of quit notice, or even as far as using a court injunction, to get them to leave.

An investor can’t be bothered by such challenges. The firm manages all of that and reports to her. And in the event that a property is not profitable, she can sell it, and move on to better investments.

4. Time, leisure and early retirement.

Good investors acquire properties that have flexibility. This includes the cost of hiring a management firm in their cashflow assumptions so they can vet out any financial deal breakers.

Because of this early planning and wise decision making they can have more time to themselves. They can enjoy vacations and travel, and it won’t affect their jobs, because they limit themselves to about 20 percent of what they would have done as landlords.

Landlords might even be so restricted that they have to live in the same property with the tenants to keep an eye out. Investors on the other hand, keep charge of their time versus money balance.

5. The better end of asset appreciation.

The valuation of property tends to increase over the years as the net operating income of the same property augments as a result of increase in rent and reduction in the maintenance cost. The latter is assured through effective property management work. Investors need only to find the best management firm they can.

6. Investors are in it for the money.

Aren’t we all? Landlords and investors alike invest in property to make profit, but investment is a less tedious way of making money.

To be a real estate investor, you only need to have business at the forefront of your mind. You buy an asset with the intention to offload such property for good profit as soon as it is profitable. This canning ability is called flipping, and it is achieved by smart real estate investors by buying undervalued assets ,or those that are not in huge demand marketwise.

Investors have no sentimental attachments to properties — as selling it doesn’t mean losing their home — as is the case of many landlords.

Source: entrepreneur.com

This is the best time in history to invest in real estate

If you want to hate on the housing market recovery, there are certainly plenty of items to dwell on.

Ads for house-flipping seminars have returned to AM radio and late-night cable TV in many markets — and so have Better Business Bureau complaints. So-called “liar loans” or “Alt-A mortgages” that played a big role in the housing crash are increasing in popularity. And, of course, there are the fears that a low-interest-rate environment has already prompted everyone to refinance and has artificially created demand for housing thanks to cheap access to mortgages.

But while plenty of pundits are sounding the alarm bells — including MarketWatch contributor Michael Brush a few months back — I think the hysteria over another housing crisis is a lot of hogwash.

Particularly if you’re an investor, there has never been a better time in history to get into real estate.

The scars from the Great Recession are real, and many can’t shake the fear and financial pain caused by the housing crisis. I get that. But recency bias also causedmany small-time investors to dump stocks at the very bottom of the market, and caused many to miss out on the 200% gains in the recovery.

If you think we are in the middle of another housing bubble and that real-estate investing is only a sucker’s game, you may simply be letting the past color your perceptions despite continued signs of strength.

And considering the investment potential — particularly in the rental market — you may want to take another look.

This is a healthy market, not a bubble

For starters, let’s talk about the real estate environment. Generally, it’s quite good.

By any measure prices continue to rise. Median home prices shot past pre-recession levels to new all-time highs. National home prices were up 5.7% in June, according to CoreLogic — an even faster rate of appreciation than the 5.3% rate in May and the 5.4% rate in April. New home sales have powered to a seven-year high on strong demand.

Critics will warn that rising prices and rising demand can indicate a bubble the same way they did in 2005. But when you dig deeper, the housing market is much healthier than during the previous run-up. In fact, Realtor.com has created a “bubble index” to show how different conditions are from 10 years ago, using metrics like the prevalence of house-flipping, price-to-income ratios and the share of buyers using mortgage financing. Even in high-growth markets like San Francisco, we aren’t seeing behavior that mirrors the frenzy of the mid-aughts.

Housing starts mirror that change in behavior, with recent “highs” north of 1.2 million still roughly half the bubble-era peak of nearly 2.3 million monthly starts. If this was a bubble, we would see a supply glut instead of a lack of inventory actually acting as a headwind to sales.

Another important data point: Foreclosures are at the lowest level since at least 2000, so it’s not like people are burying themselves in big debts they can’t pay just to buy a home.

Lastly, consider how many markets like Las Vegas or major Florida metros like Miami, Tampa and Orlando have real estate values that still are below pre-crash levels despite the broad improvement nationwide. This proves that areas that were ground zero for irrational exuberance have not gone back to their old ways, but have in fact been right-sized … and are staying there.

Whether it’s stricter lending standards, a shift in attitudes among borrowers or simply the nation getting wiser about the risks of real estate, we’re hardly seeing irresponsible buying in 2016.

What we are seeing is a healthy housing market that continues to steadily and organically appreciate.

Innovation is lowering the barriers to entry

The interesting thing is that while there doesn’t appear to be speculation in the current marketplace, it probably is easier than ever before to speculate on real estate if you’re a small-time investor.

I recently talked at length with Dennis Cisterna, chief revenue officer at Investability Real Estate Inc. Investability is an online real-estate marketplace that helps knock down barriers of researching and investing in real estate with tools like cash flow calculators that allow you to input estimated vacancy rates and rental incomes from potential properties.

“In the past, you might buy a local property and own it forever and pass it on to your kid as a kind of annuity investment. Even though (the real-estate market) is highly fragmented … you’ve seen a number of platforms stand up and become a marketplace for properties,” Cisterna said.

“Historically people invest within a 10-mile radius around their own home,” he said. “But in 2016, people want to invest in markets outside their own neighborhood. Because if you want to buy a rental property and live in Southern California right now you’re going to spend over $400,000 and possibly not even have any positive cash flow in year one.”

Investability isn’t alone, either, with other tech companies and websites includingFundrise and RealtyShares going one step further to allow people with less money to ride this trend. RealtyShares has a $5,000 minimum investment, while those with as little as $1,000 can join Fundrise.

You’ll be charged a fee, of course. Fundrise’s fine print notes that a rash of fees will likely add up to more than 4% annually. These fees make this kind of real estate crowdfunding less interesting to me than direct plays on properties without the middleman. But anyone who has watched financial innovation from discount brokerages to exchange-traded funds knows that we are living in an age when investment fees only go down over time, so these companies certainly are worth watching.

Another less sexy innovation in real-estate investing is the simple evolution of lending.

“The financing options available to investors have expanded dramatically,” Cisterna said. “Instead of an investor being totally tied to their personal income … (lenders) underwrite the loan based on the income of the property based on a traditional commercial real-estate loan.”

Some people will always see all leverage as risky, and point to easier lending as the cause of the previous housing crash. But financial innovation so mom-and-pop investors don’t have to take a typical mortgage out from Fannie and Freddie to buy a rental is simply reducing friction in the market by properly assessing risk — not lowering lending standards the way so-called liar loans did.

Throw in the ease of researching properties around the U.S. thanks to digital MLS listings, cheap online background checks online for prospective tenants and the ability to get rent checks direct-deposited electronically, and there are far fewer headaches to landlords than in years past.

This is an answer to those seeking alternatives

If you think all this analysis of the market and praise for innovation adds up to a shaky investment thesis, then it’s worth considering the alternatives out there.

You think there’s no risk in stocks? Or satisfying returns in bonds?

As I wrote a few weeks ago, investors need to lower their expectations for returns from both developed equity and the bond markets. Yes, a rental property isn’t exactly a conventional income investment … but 10-year Treasurys yield less than 1.6% annually and investment-grade corporates aren’t much better. And sure, house flipping is risky and isn’t for everyone, but the same is true for small-cap biotech stocks and emerging-market equities.

Nobody should put all their savings into one or two properties, but in a diversified portfolio, there is a very good argument for real-estate investments in 2016. And based on recent data, the “smart money” and institutional investors certainly seem to be buying that argument.

A recent report by risk management firm Willis Towers Watson PLC WLTW, +0.67%   found that total global alternative assets under management has hit $6.2 trillion — led, unsurprisingly, by real estate, which makes up about a third of that total.

“The shift away from equities and bonds into alternatives has gained momentum, among most institutional investors around the world, as these strategies have helped to manage risk through diversity,” said Luba Nikulina, global head of manager research at Willis Towers Watson. This interest is particularly strong among those with “secure income strategies where investors are searching for both yield and diversity as an alternative to traditional hedging with government debt securities.”

I am agnostic about all asset classes, and think everything from gold to small-cap biotechs to TIPS can play a role in your portfolio when used properly and with an eye toward diversification.

And given that so many traditional asset classes are facing headwinds, it’s worth taking a serious look at real estate both as a way to find new opportunities and to hedge your bets in a challenging market.

Source: marketwatch.com

5 keys that sway tenant decisions about your rentals

How great would it be if you knew what your tenants or future tenants are thinking about rental properties?

It has been my experience that landlords tend to put all their energy into what they as landlords want without getting in tune with what the tenant wants.

The nice thing about owning my own investment properties, as well as working with hundreds of investors, is we collectively acquire the economies of scale knowledge.

Through this experience we have discovered the key to getting and keeping happy tenants is knowing what they think and the key factors in their decision-making process. Their thought patterns can change with the economy and their own personal financial situation, so you need to constantly keep on top of this.

Through a lot of interviews and surveys here is what we have found:

Top 3 reasons a tenant may move

1. Current lease expiring:  As I mentioned above, most landlords do not try to understand what their tenants want and as a result they are not motivated to renew their lease. So a top reason given as to why they move was, “My lease was expiring.” Sad but true. Do not let this happen to you. I learned early on in the business world that success is all about building relationships. I knew I had to build a strong relationship with my tenants, and those long-term lasting relationships would translate into long-term loyal clients for my real estate investing.
2. Job relocation or new job:  Relocation for jobs tends to be  more common place for the professional white collar workers. I have in the past addressed getting two- and three-year leases at the time of lease. Their response to this may give you clues as to whether they foresee job relocation in the future. People who wish to take on a two or three year lease typically feel pretty secure in their long term stability at the current location.
3. Moving out of parents home: This, now more than ever, is common place. It is suggested that about a third of young adults age 18 to 30 have been living with their parents as a way to save money. Often referred to as the basement kids because they live in their parent’s basement.  These may be great tenants but finding payment history will be more challenging. As an apartment or single family rental home may be a new expense for them, you want to be sure they can afford to make your rent payments.

5 keys that sway tenant decisions about your rentals

1. Price of unit:  One of their primary concerns is price. When probing deeper, we realized that this is better illustrated as value. It may be human nature to look at the price but it ultimately comes down to value. When they compare what your rental offers versus another rental they want the best value. You want to be sure to promote the benefits and attributes that your rental will offer them so they realize the value of your property.
2. Location of the unit:  Convenient location is of utmost importance. Knowing real estate is all about location, you want to sell the location of your unit.  What is the reason you manage the property or why did you buy the property where you did?  Share this within your ads. For example:  near bus stops, near many businesses and places of work, near shopping or close to main roads and highway.
3. Crime statistics: People of course want to feel safe. Assuming you purchased the property because it was in a desirable and safe neighborhood, share this with your tenants. It is what they want and telling them up front will keep them from having to guess or figure it out.
4. School systems: First, remember that housing laws prohibit discrimination against children and  “familiar status”  is a protected class. You do not want to get into the conversation about having children. However mentioning the quality schools in the area is important to them.
5. Community amenities: Tenants too want a home not just a place to live. Share with them what is in the community or the nearby area. The walkability score can be a big benefit to them.

These are things that your tenants are thinking about. When you can address these triggers up front, you will stay ahead of your competition and keep your phone ringing.

Any good business does research and a lot of surveys to find out what their customers want. As renting property is your business, you want to stay on top of what a tenant thinks, so you can stay ahead of your competition. It is the little things that are remembered.

A few little differences can mean a lot to a tenant

These little differences in how we manage our properties have people wanting to stay and rent with us. As families outgrew their homes they would ask us if we had any other properties that were bigger, as they wanted to maintain our relationships. Their friends were always inquiring about renting from us. We have great reputations as property owners who care about their tenants. As a result, the only time people moved is if they left the area or if they bought a house.

You all heard of, or personally live the “Pride of ownership.” When you can create this same type of pride for your tenants, you have created a great partnership that will have them renewing their lease. A person’s home is his castle. It is his independence. Even though they do not actually own the home, you want them calling it their home. When they feel great about where they live and are happy with it, they will call it their home and they will treat it like their home.

When you show you genuinely are interested in a happy partnership where you provide a nice home and maintain the home in turn for happy tenants who pay on time, you have a successful business that is scalable and your investment portfolio can flourish.

Source: rentalhousingjournal.com

Why We May See A ‘Generation Of Permanent Renters’

Following the subprime mortgage crisis from 2007-2009, the United States has seen a slow but noticeable recovery for the housing market but has left behind much of the middle-class.

According to the National Association of Realtors, home prices have risen in the majority of housing markets across the U.S. and are just 2 percent lower than they were before the subprime mortgage crisis.

While this may appear to be great news for the American housing market, many Americans are losing rather than winning from this recovery. Analysis by the Black Knight Financial Services finds that the recovery has actually left behindmany middle-class Americans.

The number of houses that are 30 days past due or in foreclosure is up by 9,000 from last month. Also, the total U.S. loan delinquency rate is by over one percent.

Findings also show that in many American cities, the recovery has “deepened disparities between the rich and everyone else, such as in Boston, where gentrifying urban neighborhoods have thrived and far-flung suburbs have fallen behind,” reports the Washington Post.

Lawrence Yun, chief economist at the National Association of Realtors, said that “the losers are clearly the rising rental population that isn’t able to participate in this housing equity appreciation. They are missing out on [a big] source of middle-class wealth,” according to an interview with the Wall Street Journal.

Homeownership rate is at a 51-year low at 62.9 percent, and is expected to fall as low as 58 percent in 2050.

Susan Wachter of the Wharton School of Business noted that “we have historic lows for young households in terms of ownership,” and she warns the trend looks like it will continue.

It could be that the National Association of Realtors is troubled by this fact, because they came out with a report in June showing the top 10 cities for “aspiring millennial home buyers.”

From the age groups of 30 and under, and 44 to 30 years of age, there are more renters than borrowers and at no small margin.

 

Tenure by Age of Population
Age Distribution	People in Rental Housing	Share	People in Owner-Occupied Housing	Share
Under 30 Years Old	55,916,372	51%	66,868,632	33%
30 to 44 Years Old	25,219,932	23%	35,872,732	18%
45 to 64 Years Old	20,214,476	18%	61,975,072	31%
65 Years and Older	8,421,411	8%	36,304,272	18%
Total	109,772,192	100%	201,020,704	100%
Source: NMHC tabulations of 2014 American Community Survey microdata. Updated 11/2015. Note: Does not include non-housing units.

Home building has been slow to recover also, with fewer homes being built due to less demand for new home purchases.

Homeownership has long been a main asset for American families, and is one of the largest stores of wealth a family can have. Families can use their homes to help fund their children’s college education and many other endeavors. Also, state and local property taxes are deductible which is another incentive for homeownership. With those tax deductions, American families have more disposable income to stimulate the economy in other sectors.

If this trend in declining homeownership continues, it will be interesting to see where Americans find their store of wealth in the coming decades.
Source: dailycaller.com

Why Real Estate Remains The Top Investment Option

Real estate remains the leading long-term investment choice for the third year in a row according to a new Gallup survey.

“Both the housing market and the stock market have recovered from catastrophic losses suffered in the last decade,” said Gallup, “with average house prices and the Dow well above their pre-crash high marks. But Americans have been much more likely to regain confidence in real estate than in stocks as “the best” long-term place to invest their money. The split between the two investment options grew again in the last year as the stock market’s volatility increased investors’ concerns.”

The Gallup study showed that 35 percent of all Americans see real estate as the best long-term investment option. The real estate results compare with 22 percent for stocks and mutual funds, 17 percent for gold, 15 percent for savings accounts/CDs and 7 percent for bonds.

The huge importance given to real estate is surely understandable if it is considered as everything but an investment. A home represents a tangible accomplishment, it’s an index of not only our personal wealth but our individual taste. It has dimension, it’s tactile – you really can reach out and touch it – and most of all it reflects our ego and who we are. While shares of stock and gold bars may be identical the same is not true with real estate. It’s technically a nonhomogenic commodity, a fancy term which means that no two pieces of property are like.

But while real estate may have many social and psychological values the Gallup survey did not ask about such things. Instead the pollsters wanted to know about investment options and when it asked that question it was real estate that came out on top.

Why Real Estate Is A Favored Investment

Why is it that real estate is thought of so highly?

There is no universal answer but surely there are three factors which impact the status of property ownership as an investment.

First, real estate is a controllable asset. You as the owner can buy, sell, rent, or paint the inside puce if you elect. Alternatively, if you own a thousand shares of Microsoft Bill Gates is not on the phone asking for your opinion about the latest version of Windows.

Second, if the value of your home rises you get a benefit in the form of more equity plus it’s still a place that you can live in or rent. If the value falls you still have somewhere to live as long you make your monthly payments plus you have the opportunity to rent the place if you like. This is important because unlike stocks or bonds, real estate has a utility value, you can live in it or rent it.

Third, real estate is the last opportunity for most people to make a substantially leveraged investment. A qualified buyer can readily purchase a home with 3.5 percent down through the FHA mortgage program. First-time purchasers can get financing with just 3 percent down from Freddie Mac (Home Possible) and Fannie Mae (HomeReady) while millions of buyers have financed with nothing down through the VA program.

What these programs tell us is that it’s possible to have enormous leverage with real estate – 33-to-1 in many cases. What other financial opportunity with equal risk offers such leverage and is so widely available?

Tax Benefits Fade

However, because of low mortgage rates one traditional real estate attraction has been diminished.

You can’t get a deduction for credit card spending or auto loans but mortgage interest, property taxes, and mortgage insurance are generally deductible from federal taxes.

“The effect of these deductions is to make real estate ownership more attractive and affordable,” said Rick Sharga, executive vice president at Ten-X.com, an online real estate marketplace. “If you combine the value of property deductions with the impact of inflation the net result can be financing with an effective cost that is pretty close to zero.”

Renters don’t have such deductions but with changes in interest rates and the tax code the traditional financial advantages of homeownership may be eroding. For example, in 2007 the standard deduction was $5,330 if single and $10,700 if married. By 2015 the same deductions were $6,300 and $12,600.

Meanwhile, while the standard deduction was going up, real estate write-offs were largely going down. Housing debt in the US totaled $8.74 trillion at the end of 2015, a substantial drop from the $9.75 trillion in mortgage debt that was owed in the fourth quarter of 2007, a trillion-dollar drop.

Not only is there less debt, the interest on that debt has fallen substantially. The typical mortgage rate in 2007 was 6.34 percent versus 3.85 percent in 2015. Not only that, but by refinancing many people are able to get rid of mortgage insurance costs. Combine less debt with far-lower housing expenses and the result is that a growing number of homeowners are using the standard deduction, just like renters.

Will real estate continue to be a favored investment in the future? For what it’s worth the view here is yes because, after all, what other investment provides so much shelter in a storm, whether the storm is physical or financial?

Source: nuwireinvestor.com