Rent or Sell? What to Do When You Leave Your Home.

You've decided to move, but you have a home to consider. Do you sell or rent? While an investment property can generate a nice income over time, you have to figure out if keeping this home is part of your long-term financial plan and if you want that added responsibility.

“There are so many considerations if you’re looking at renting or selling your home,” says Allison Turk, realtor associate at EWM in Miami Beach, “and it comes back to the data.”

Having a tenant pay your mortgage is a great way to build equity, but home prices may not increase in years to come, which can be a problem once you do sell. Sometimes, depending on your financial goals and how long you plan to live in a new area, selling the home is a better choice.

What's important here is to take your emotions out of the decision. Instead, here’s what to think about as you go through the process:

1. What are your goals?

Owning an investment property isn’t just about collecting an income -- you have to budget for maintenance, repair and carry costs. No matter how easy the home is to manage or how much income it generates, consider how this fits into your financial plan and whether you have the time to manage the property.

“You have to weigh the cost of future appreciation and the [rental] income you’re getting now, or if it’s better to get the money from your house [by selling] and put it in your bank account,” says Cara Ameer, broker associate and Realtor at Coldwell Banker Vanguard Realty, based in Ponte Vedra Beach, Fla. “In most cases, the money you’d get from a rental is more than [you'd get] if you put that money in a CD.”

2. How’s the real estate market?

Your home’s location is key, since this is what will attract buyers or renters, depending on what you decide, and how much people will pay for your home. Homes in areas with good schools, shopping and other amenities will likely attract strong tenants who will pay enough to cover your costs.

Research your market and how fast homes sell -- if you can break even or make a profit, you may want to sell. On the other hand, “If the selling conditions aren’t great, renting could offset your expenses,” says Turk.

3. Do you want to buy a new home?

A mortgage on your old home is considered debt as part of a lender’s debt-to-income (DTI) calculation, but any rental income that you currently receive can offset this debt. Unless your income is high enough to afford both mortgages, selling your old home will wipe the slate clean when it comes to your mortgage debt.

Owning a rental property also means other expenses, and your budget needs to be prepared for them. “Add into your emergency fund six months of mortgage payments for your second home in case the home is empty [because you can’t find a renter] or someone trashes your home and you have repairs,” says Kelley Long, certified public accountant in Chicago.

4. Will you recoup your costs if you sell?

Depending on how long you’ve lived in your home, if home prices haven’t appreciated enough, turning your home into an investment property may be a good idea for the short term. “How long you have to hold a home to [get to] break-even depends on how much you’ve put down and your purchase price,” says Ameer. In most markets, the break-even time period is seven to 10 years, but this time period could be shorter or longer, depending on how fast or slow prices appreciate in your market.

Even so, there’s risk that you may not break even no matter how long you wait to sell an investment property. “You can’t predict what the market will look like when you need to sell,” says Turk, “and you can’t think about money you may lose because the home hasn’t appreciated.”

5. What do the numbers look like? 

If you decide not to sell your old home, you want to make sure that the rent you collect is sufficient to cover your expenses, which will include your mortgage, property taxes, any home ownership association (HOA) fees, certain utilities and maintenance.

Investment property has different tax considerations from a primary residence too, and the accounting can be complicated. Your mortgage payment, property expenses and rent play into your cash flow and whether you have taxable income or a loss. “The math isn’t always that simple when you want to figure out how much income you’ll have to report for taxes with rental income,” says Long.

Keeping accurate records, then, is key to making sure you know what deductions you can take. Deductions include the depreciation, since you can write off a portion of what you paid for the home every year; mortgage interest; property taxes; any HOA fees; and other costs associated with maintaining the home.

6. Who will rent your home?

“You are taking a risk on somebody [when you rent your home],” says Ameer. “You have to worry about the financial stability of someone else. Just because they signed the lease doesn’t mean they’ll make good on their rent.”

Consider the profile of potential tenants -- you'll want to find someone who earns enough to afford the rent you’re planning to charge. You can enlist the help of a real estate agent to find and vet potential tenants and check their credit, verify their income and employment, conduct background checks for any criminal or civil arrest and check references. Or you can do this work yourself.

7. Will you be able to sleep at night?

Investment properties are great ways to build long-term wealth, but only if owning a home in another city won’t cause you stress because of the maintenance and repairs involved. It’s also a commitment, and you have to stick it out until the mortgage on the property is paid off and the home makes you money every month.

“Before you do anything, do a gut check,” says Long. “What price would make you happy if you sold your home today? See if you can get it. You may still decide to sell it at a lower price, too.”

source : https://www.entrepreneur.com/article/253612

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 : https://www.entrepreneur.com/article/279245

8 Ways Real Estate Is Your Smartest Investment

Inflation is defined as, “a general increase in prices and fall in the purchasing value of money.” Your money doesn’t go as far -- simple. The $30k you made at your job 10 years ago and lived comfortably with barely gets you by now. You can’t control inflation (the Federal Reserve does that) and the government has doubled their debt since 2008. It’s now at $18.3 trillion and grows every day.

The government cannot save you or your family, or ensure your financial freedom. Set your mind right about earning money. More cash = more freedom! Money itself won’t make you happy, but it will give you the ability to provide a better life for yourself and your loved ones. You must invest with income streams that give you positive cash flow, learn to leverage your debt, learn to handle inflation and take control of your physical assets.

Do you currently have commercial real estate assets in your investment portfolio? Are you scared to have your money in the stock market (like I am) but also fed up with almost no return on investment with your money at the bank? Do you instinctively like the idea of being invested in income producing real estate with results you can see?

Here are eight reasons why investing income producing real estate is an excellent choice for protecting and growing your wealth:

1. Positive cash flow.

One of the biggest benefits to income producing real estate investments is that leases generally secure the assets. This provides a regular income stream that is significantly higher than the typical stock dividend yields.

2. Using leverage to multiply asset value.

Another important characteristic of commercial real estate investing is the ability to place debt on the asset, which is several times the original equity. This allows you to buy more assets with less money and significantly multiply asset value and increase equity as the loans are paid down.

3. Low-cost debt leveraged to multiply cash flow.

Placing “positive leverage” on an asset allows for investors to effectively increase positive cash flow from operations by borrowing money at a lower cost than the property pays out. For example, if a property generating a 6 prcent cash-on-cash return were to have debt placed on it at 4 percent, the investors would be paid 6 percent on the equity portion and approximately 2 percent on the money borrowed, thereby leveraging debt.

4. Hedge on inflation.

For each dollar that is created, there is a corresponding liability. Real estate investments have historically shown the highest correlation to inflation when compared to other asset classes, such as the S&P 500, 10-year Treasury notes and corporate bonds.

As countries around the world continue to print money to spur economic growth, it is important to recognize the benefits of owning income producing real estate as a hedge against inflation. Generally speaking, when inflation occurs, the price of real estate, particularly multi-tenant assets that have a high ratio of labor and replacement costs, will also rise.

5. Capitalize on the physical assets.

Income-producing real estate is one of the few investment classes that, as a hard asset, has meaningful value. The property’s land has value, as does the structure itself, and the income it produces has value to future investors. Income producing real estate investments do not have red and green days, as does the stock market.

 6. Maximizing tax benefits.

The US Tax Code benefits real estate owners in a number of ways, including unlimited mortgage interest deductions and depreciation accelerations that can shield a portion of the positive cash flow generated and paid out to investors. At the time of sale, IRS allows investors a 1031 provision, allowing investors to exchange into a like-kind instrument and defer all taxable gains into the future. (See your tax advisor for full explanation.)

7. Asset value appreciation.

Over time, more and more inflation has made it into the economy, drastically reducing purchasing power. However, income producing real estate investments have historically provided excellent appreciation in value that meet and exceed other investment types. Properties historically increase in value as the net operating income of the property improves through rent increases and more effective management of the asset.

8. Feeling the pride of ownership.

The right property in the right location with the right tenants and ownership mindset can produce a tremendous pride of ownership factor that is highest among all asset classes. Homeownership is out of reach for most people. Imagine owning thousands of multi-family housing units instead?

No one can ensure the future of rental of income properties’ values, but this asset class seems positioned to continue to benefit from many other socio-economic issues that I will save for another time.

Source : https://www.entrepreneur.com/article/250759