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Public Transportation & Real Estate Values

the_man_agement — Thu, 28 Jan 2010 19:49:00 -0800

In my home town of Baltimore, every few years its proposed that the City install a comprehensive metro subway system (it has one now, but it $ucks more on this later). The ensuing argument is filled with name-calling, accusations (the best Ive ever heard uttered is “You want black children to starve!”), and general political jabs and taunts. But lets take a closer look at the arguments for and against, because theyre politically telling.

The Idealists Argument: Improve Neighborhoods and Quality of Life for Residents

Its not hard to imagine the rationale behind this argument (especially if youve ever been aboard a Baltimore bus you have to brush the AIDS needles off your seat before sitting down). A metro system would reduce car traffic, reduce emissions and air pollutants, increase mobility for the carless, and would probably even reduce the incidence of DUI arrests. It would provide affordable, safe, and timely travel between neighborhoods, and would make commuting far more possible and passable for many people.

The Pragmatists Argument: Spreading Crime and Crushing Real Estate Values

Its true: what remains the citys only metro line, which runs from downtown to suburban Owings Mills, has caused an explosion of crime in Owings Mills, with all that easy access from the Underbelly. The result, of course, was a steady decline in the safety and real estate values of Owings Mills, which was once a proud, haughty area, and then a young professional area, and then an “up and coming” family area, and now just an up and running area (literally). The pragmatists perspective is that urban ghettos, for all their cost to society generally, can be at least contained, if we dont go out of way to spend money on spreading the contagion of crime.

My Argument: The Real Estate Shuffle

One look at fully mobile cities with excellent metro systems (Paris, New York, Washington DC) shows that they do in fact export their dregs to the suburbs. But, the cause of that shift is actually displacement: wealthy, educated young professionals suddenly want to be closer to their jobs, and so they encroach and take over neighborhoods once ruled by gangs and thugs, which are now suddenly attractive because they have metro stops. To be sure, there are still ghettos, but gradually the professionals reclaim much of the downtown areas, and the cities themselves flourish, while the surrounding areas suffer the consequences.

You wont solve the problems, (no top-down approach ever will, because the problems arent originating at the top), youll merely move them, which would be a boon for the City, but would hurt the surrounding areas.

I dont know about you, but my moneys tied up in city property, not county property. I say build the d@mn subway so I can become a millionaire and retire!

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Conclusions of Investing in Turnover (or Flipping) Properties

the_man_agement — Wed, 07 Oct 2009 17:08:19 -0700

In many ways, real estate investing for quick, turnover profits is much more surgical form of investing. It involves choosing a property in an area that is attracting a lot of buyers, whether homeowners or rental investors, and making extremely specific improvements to the property for very thoughtful reasons. There's no room for error with turnover properties; you have to know exactly what improvements you'll make, what the property will cost to improve, who you'll sell it to (generally speaking), how long it will take to market and sell, and for how much you can expect to sell it.

In business, the best method of doing almost everything is systematically. So, take a few moments to calculate your costs and expectable profits from any given deal, with predetermined minimal profit margins. Add the following costs to estimate potential profits on a turnover real estate deal:

Cost to Purchase (including referral or bird dog fees):
Closing Costs (to purchase):
Renovation Costs:
Carrying Costs:
Marketing Costs (fees paid to realtor, etc):
Closing Costs (to sell):

Total Costs:

Estimated Selling Price (low end):

Total Profit (pre-tax):

By way of advice, I recommend only doing turnover deals with a bare minimum of $10,000 estimated profits. Only by following this very specific formula can you calculate a reasonable estimate of what your true costs will be, and what kind of profits are reasonable to expect from a deal.

It's not as easy as some real estate investors make it sound, but with the right people in place, these deals become easier and easier. Good contractors can do the work inexpensively and effectively, good realtors can find you buyers and good deals, good lenders can help you settle immediately to take advantage of that last-minute deal. Which brings us to the next chapter: real estate networking.

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Alternative Real Estate Investment Scenarios

the_man_agement — Mon, 21 Sep 2009 14:36:44 -0700

There are as many investment scenarios as there are clever and ingenious real estate investors in the world, but here are a few that are worth mentioning, either because they're practical or they're so daring as to be brilliant.

One of the most interesting investing strategies I've heard in the last year is cash investing in "dying" blue-collar cities. In fact, the gentleman who told me about this particular investing strategy made his investments in no less than Flint, Michigan, poster child of Midwestern post-industrial decline.

His investing strategy went something like this: he'd buy houses in blue collar neighborhoods for $3-5,000 apiece, in cash, and put another $1-2,000 into each to put them into reasonable rental shape. He would then rent them out for $3-400/month, and cross his fingers that he could keep the property rented for at least two years. Assuming an annual cash flow of roughly $3,000, he breaks even around the two year mark, and every month after that he collects pure income. At the end of the third year, he's earned a 50% return on his investment; at the end of the fourth year, a 100% return.

If this strategy sounds risky to you, that's a good sign for your own investing acumen. The risk, of course, is that he can't find a tenant for these properties, due to the declining population. Worse, he could go through a series of tenants who go bad, and be forced to serve eviction notice after eviction notice, and spend half his time and money in rent court. His argument was that every property can be rented for the right price, and that his purchase investments were so minimal that he could afford to accept low rental income if he absolutely had to.

Another alternative real estate investing scenario that is popular in some areas of this country is trailer parks. While there's no glamour in it, the returns can be impressive, as the initial investment is minimal. Buying parceled land, with appropriate zoning (pay special attention to the zoning!) and setting up water, sewer, and electric grids in the park is essentially the only investment required, for an area with potentially dozens of tenants.

Risks include a financially unstable clientele, which means higher turnover and eviction rates. However, look into your state's laws regarding eviction from trailer parks, as the eviction notice and removal process may be easier for a trailer than evicting a tenant from a stationary home. Moving someone's home outside your grounds is not the same as dumping all their belonging on the sidewalk, and some state laws allow towing trailers outside your park instead of the traditional eviction process for erstwhile tenants.

Finally, it's worth noting that storage units can make for excellent investments, for similar reasons. Without having to comply with minimal living standards (as no one lives in storage units), the costs of construction and ownership can be extremely low, as are the costs of serving an eviction notice and tackling bad tenants. However, marketing to find new customers takes on a central role in the storage business, as each customer only pays minimal rent for their units, and high vacancy rates can bankrupt your storage business. Before investing in storage space, be sure to do a VERY careful market analysis of your area, to determine your competitors, their pricing, and the demand for storage space. You may consider talking to a commercial appraiser or two, to help you look into the market.

Resources:

Eviction Notice

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How NOT to Lose Your Ass(ets)-A Real Estate Investor's Guide

the_man_agement — Thu, 21 Aug 2008 11:50:05 -0700

Introduction

The market is soft, so you might be thinking now's the right time to buy a rental property and hold it. And you'd be right, it IS a good time to buy and hold, but there are a few things you should know before writing any big checks and diving in headfirst. Here are few ways to protect yourself from litigation and other legal issues related to real estate and being a landlord.

Legal Protection Strategy 1: Real Estate Ownership Type

All too many smart people make an easy mistake when they first start buying real estate as an investment: they buy it in their own name. This has some serious legal implications, as it will immediately show up as an asset if someone decides to sue you. Furthermore, if the tenant of that property sues you, they can legally go after all of your OTHER assets, which is clearly a problem.

Solution: Create a legal entity (e.g. an LLC) to purchase property under, and make sure someone else (like a spouse) owns it with you. This will make it harder, though not impossible, for someone to take your hard-earned assets from you in litigation. As a final note, restrict how many properties each of your LLCs owns, as anything owned by that LLC is vulnerable if the LLC is sued.

Legal Protection Strategy 2: Use An Airtight Lease Agreement

If anything goes wrong with the tenant or property, EVER, then the first piece of paper produced in court is the lease agreement. What makes a good lease agreement? Well, that's the subject of an entire article in itself, but first and foremost it must conform with state and local laws. Try here for a good database of state-specific lease agreements, that can be customized to contain the legal language you want to include.

Legal Protection Strategy 3: Issue Proper Real Estate Legal Disclosures to Your Tenants

This cannot be understated: if you don't issue to your tenants the legally required real estate disclosures, THEY CAN SUCCESSFULLY SUE YOU LATER. The most common example is lead-based paint disclosures, which legally must be given to tenants (typically along with a lead-based paint inspection certificate) when they sign the lease agreement. However, each state has different laws regarding what must be disclosed and when, so use the State Assist in the site above to check local real estate and landlord laws, and if need be contact a local real estate attorney, specializing in landlord - tenant law.

Here are some landlord - tenant legal disclosures, that may be useful in your state.

Legal Protection Strategy 4: Screening Tenants and Good Property Management

How to Screen Tenants is an art that needs more attention than I'll give it here, but read the linked tutorial, as this is one of the best way to prevent a legal suit.

Property management is also a nuanced and tricky beast, but to be brief, an attentive landlord who responds to his tenants when they call will be drastically less likely to be sued. When your tenants call about a problem, call them back. When there's a problem with your real estate investment property, fix it. Establish a personal, first-name relationship with your tenant. They'll appreciate it, and be less likely to sue you for your legal assets if there's a problem.

Conclusion

No one likes to be sued, so do everything you can to avoid it by finding good tenants and keeping them happy. And, of course, prepare for the worst by being protected in your legal ownership of your real estate investment property. Good luck, and hopefully, you'll never experience the nightmare of a real estate landlord lawsuit.