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Category: Retirement (page 1 of 2)

August 24, 2020

Eight reasons to own vacation rental properties

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

While we earn most of our money from our mortgage brokerage business, I started helping investors buy real estate some 5 years ago.  Working in San Diego, I have seen just how profitable vacation ownership has been for long-term investors.  If you follow me on any of my social sites, you will see that we just traveled to the Florida Panhandle to look at some of the best areas to own a vacation rental property.   Subsequently, we entered into a strategic partnership with Vacasa, the nation’s largest vacation rental property manager.

Here is an incomplete list of reasons why we think vacation rentals make sense for most investors:

1- Landlords get paid up-front.  When this COVID panic hit, politicians in every level of government instituted eviction stays, denying landlords the right to remove tenants who couldn’t afford the rent.  When you own a vacation rental, the typical stay is 7-30 days and you get paid by the renter before they occupy your property

2- The capitalization rates are better than long-term leases.  Properly managed, vacation rentals produce between 1.6 and 2.1 times the annual income which a long term lease would produce.  A vacation rental requires much more active marketing and management and, for that, vacation rental property managers take a healthy management fee but, after that is accounted for, the net operating income is still better than a long-term tenant.

3- Vacation rental properties are maintained better than those with long-term leases.  This seems counter-intuitive but, because of the active management, the properties are kept cleaner and repairs are addressed immediately.  The housekeeping service is usually passed on to the vacation renter and many of the repairs are covered by that renter if they break it.  Routine maintenance is addressed immediately because the vacation rental needs to be in top-condition to be rented again– tenants don’t “hide” small problems (which can become big problems)

4- Owners can take a vacation in their property.  While using the property can eat into profits, there are seasonal vacancies which can be expected and, if the property is within driving distance, the owner can use the property for leisure Read more

August 3, 2012

Primary Home – Investment or Liability

by

Real Estate Investor

Author website

Pre-2007, I am not sure this topic would have even been controversial; people not only regularly utilized their home as their “primary investment”, but often, treated it as their personal piggy bank.  In hindsight we can all judge others as we secretly lick our own wounds from a vicious downturn no saw coming, but that experience left a visceral taste in many mouths.

Most experts would suggest that your primary residence is not an investment.  Why, you ask?  First, you purchase a home based on need.  Your buy and sell decisions rarely spring from analytical thinking around market timing.  Instead, most times, they are rooted in your changing life needs.  Second, investment strategy wages a secret war with your personal desires.  For example, I want a tricked out man cave equipped with a full wet bar, bathroom and other appropriate amenities.  Am I thinking about the return on my investment, or the endless joy my friends and I will have watching football on Sunday, Monday and Thursday?  Sure, I will likely increase the value of my home with these upgrades, but the anemic return on investment, if any, would never be worth the money.  Said differently, would you make the same upgrades to your rental property; probably not.

If it was that easy, I wouldn’t write the article.

I will start with a question.  Is it easier to invest in stock or buy a house?  Right now, Berkshire Hathaway Inc. (NYSE: BRK.A) trades at $128,175 per share.  Its five year performance has been strikingly similar to the performance of many real estate markets.  If you have a job making $50k and $7k in the bank, do you think you will ever in your lifetime own a share of Berkshire Hathaway A outside of a very lucky lotto ticket?  The answer is unequivocally no.  You don’t qualify for the right to buy on margin and even if you did, where would you get the 50% required to do a margin buy?  And how would you live on the prison food when the margin call comes?  All important questions to consider…

Now, let’s take that same fellow Read more

November 30, 2011

Revestor.com is live now. Revestor.com searches current listings by cash flow and capitalization rate.

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I received an email, from BHB Anaheim presenter Bill Lyons, that Revestor.com is live now and will be announced to the public tomorrow.  Bill knows that the Bloodhound way is to fly under the radar, sneak in the back door, and quietly win so I appreciate the chance to break the news.

Revestor.com is a new property search site.  It’s unique proposition is that it allows users to search by either capitalization rate or cash flow.  Revestor believes it will become a useful tool for both investors and primary residence home buyers.  Bill Lyons suggested that its unique ranking display, offers data to a home buyer, which is currently unavailable.  Incorporating the income potential of a property offers another valuation model for home buyers to consider.

I ran a search for an area with which I’m familiar; Oceanside, CA  zip code 92056.  I searched for properties listed from $150,000 to $250,000, by cash flow, and ten current listings were displayed.  The top two listings appealed to me:

3906 Marvin –  a 3BR 2BA, 1064 s.f. SFD with $902 of free cash flow, with an 80% LTV loan, listed at $169, 767

3132 Glenn –  a 4BR 2BA, 1302 s.f. SFD with $533 of free cash flow, with an 80% LTV loan, listed at 249,900

Revestor offers a “launch” blog post and I’ll insert Bill’s comments from there (italicized), as I offer my ideas  here.

Here is what I like about the site:  I like the map display of the listings and I love the fact that it ranks the listings by investment potential.  The financial data offered, on individual listings, is pretty comprehensive.  It drills down on expense data and allows the user to customize it.  The mortgage data is cool because it allows you to slide the down payment tool and see real-time figures.  The exit strategy information is unique but I’m unclear as to how they determine the potential resale value.

Bill offered:  While San Diego is just a starting point we are still very much a “work in progress“. The site is not perfect (especially for a perfectionist that is striving for simplicity). We launched Read more

July 9, 2010

Re-Entering the Real World of Real Estate Brokerage

by

Real Estate Investments Broker

Author website

As many of you know, I stopped doin’ business in my local market, San Diego, at the end of 2003. Since then I’ve done two transactions here, both as listing agent — both gettin’ the sellers Outa Dodge, so to speak. I haven’t bothered to market here cuz, well cuz I thought the prices were gonna keep falling, which they did, big time. Since I avoid short sales and REO’s like the plague, that pretty much ensured I’d not be doin’ any San Diego business. How dumb is it to buy income property in San Diego even now? You can see an example — where I present my answer to those whose only reason for holding on to the crappola they call income property there, is “I gotta be able to drive by my investment properties”. For the record, that example uses the lowest priced duplex in the neighborhood, and I used high projected rents.

My response to local real estate investors when they’ve called or emailed objecting to my stance, is to ask them, “Well now, how’s that whole ‘drivin’ by’ thing been workin’ our for ya lately?” The ongoing market correction, and there’s more to come IMHO, has reduced well located duplexes that sold in late 2005 in the neighborhood of $550-600,000 to hoping to find a buyer while now asking $300-400,000.

And their numbers still suck like a turbo-charged Dyson.

In spite of these empirical facts of life, I’m makin’ my official return to the San Diego investment market next week. Office is set up, except for the internet connection which will go hot by Wednesday. Yet it didn’t feel real ’till I picked up my new cards and letterhead this afternoon. Haven’t had either for many years. There’s literally been no need. Everything I’ve done since 2004 has been out of California, and everything sans referrals since July of 2006 has come from my 2.0 efforts.

It’s a good thing, cuz I had no other choice, unless it was to return to selling local homes to owner users, something I’ve happily abstained from doing since Carter’s Read more

December 29, 2009

Appreciation Is A Luxury – Invest Accordingly

by

Real Estate Investments Broker

Author website

Here’s an example, using real properties recently purchased by real clients. I’m gonna modify some of the numbers, but the modifications will not in any way make the bottom line better by an inch. (Worse in fact.)

What if you paid $245,000 apiece for four properties, each with an annual gross scheduled income of $28,800. The renters sign year long leases, and tend to stay a little longer than two years. We’ll set the operating expenses and vacancies at just under 40% — $10,950 a year. This results, when using currently available loans, in a negligible cash flow of less than $250 monthly — essentially a break even.

The down payment used will be 20%, though I’ll use 22% for any return figures. In these transactions you’ll be credited up to 2% of the sales price for your closing costs. The first year’s cash flow will be just under $3,000 or so for each property. We’ll assume any increases in expenses will serve to cancel out any rent increases. The loans are fixed rate, amortizing over 30 years, with a 6.5% interest rate.

If in five years the value is still $245,000 — what will you have gained? Of course, you didn’t invest to find yourself in a non-appreciating asset. Since your crystal ball is in the shop, we’ll just consider it your time in Murphy’s barrel. 🙂

So, what will you have gained in this scenario?

  • Income tax savings of around $7,500 a year, or $37,600 over 5 years
  • After tax cash flow of almost $12,000 annually, or $59,800 over 5 years
  • Principal reduction of just over $50,000 over 5 year holding period

    • It took about $54,000 +/- to close each of the four purchases, meaning you’ve invested a total of $216,000. In 5 years without values increasing, here’s what happened.

    Add up your 5 year total for tax savings — $37,600. Your after tax cash flow for the same period is a couple hundred less than $60,000. What that means to you is simple. Your Levi’s garnered just under $20,000 ($19,520) annually in spendable cash. That’s an after tax cash on cash return of roughly Read more

    December 22, 2009

    Real Estate Investing For Retirement – 2 Schools of Thought

    by

    Real Estate Investments Broker

    Author website

    There surely are more than just a couple schools of thought when it comes to using real estate as a vehicle to get them to an abundant retirement. The two that almost always garner most of the attention are Buy & Hold for cash flow from Day 1, and Capital Growth First THEN a transition to cash flow upon anticipation of imminent retirement.

    Will either one get you there? Yep.

    The real question is — do you want your Social Security check to be used for groceries, or spending money? And yeah, I know, what SS check? 🙂

    Proponents of the Buy & Hold school are from the Old Old School. Don’t try to talk them outa their strategy. Show their results side by side with the Capital Growthers though, and they really get loud.

    I urge you to check out a comparison I’ve done over at my place. Caveat: It’s over 1,600 words of reading. It goes into clear detail. So far, folks who’ve read it, have been pleasantly surprised at how much solid info they understood and can now apply.

    If you’re a real estate investor, or wanna be one, this ‘case study’ is for you.

    Merry Christmas!

    December 15, 2009

    Retirement Ain’t For Everyone

    by

    Real Estate Investments Broker

    Author website

    Just because you’ve found yourself in a position to quit your day job, and sail into the sunset, should you?

    If we assume you’re financially set and your Purposeful Plan has found the cool end of the rainbow, what will you do? So many of us use artificial rest stops in our lives as an excuse to do one thing or another.

    My dad sat down one weekend and set a business goal for himself with a 10 year time period for its accomplishment. Big problem. He was one of those guys born with only one gear — overdrive. For nearly five straight years he worked with less than a total (not counting a few sick days here and there) of 30 days off.

    He was definitely a thinker, but once he believed he’d figured something out, either lead the way, follow, or get mowed down, ‘cuz he was gonna get to Point B. His motto was given to him by his sixth grade teacher when he pointed his finger at 11 year old Dad and said, “Don’t make excuses Brown, make good!” And he did. I’ve given this a lot of thought, and at least for Dad the problem was simple.

    He never seemed to ask himself about life after achieving a goal. Like so many investors who read books and buy videos to learn how to buy investment property, he never asked a crucial question, much less come up with the answer.

    Then what?

    Just like buying real estate investments — anyone can buy something. Is it the right something? If so, and it rises in value — then what? Uh oh. Planning for retirement begs the ‘then what?’ question like a puppy happily wagging his tail who won’t go away. Figure out what your ‘then what?’ is and you’ll be way ahead of the game.

    There was the story he told me about having some drinks after work one evening with some friends. They got to talking about business, as they all owned their own real estate firms. Before he knew what was happening, the conversation had veered sharply into Read more

    July 12, 2009

    Halfway Through The Year (And Then Some) What Next?

    by

    Instigator, anthill kicker.

    Author website

    [[Crm notes: OK, I’m not gonna give a green light to Infusionsoft, not yet.  I HAAAATE the interface. But… there are triggers & action sequences that do a lot.  It might be the real deal.  This said, especially since they are ditching or have ditched most of their upfront fees.]]

    So we’re smack dab in the middle of july.  5.5 months left in this year.

    How’s it going?

    Making enough?   Was talking to Tim and Alexis McGee the other day.  They tell me that loads of Realtors are not chasing dreams and in are survival mode.  But, that they don’t wanna leave the business that’s not making enough anymore.

    Look, 5.5 months are left.  165 days.  120 workdays.  Tick Tock.

    Time is the enemy right now.  And not go go all Purcell and Brady on you, but is it gonna be EASIER, EVER to build wealth than it is today?  Tick Tock.

    How many closings have you had?  If you double it, is it enough?  If it’s not, what will you do differently to get more business in the door?   Tick Tock.

    Most of the industry, like it or not, makes it harder to do deals past Thanksgiving.  There are 137 days till then.  And only 106 work days, based on a 5.5 day workweek.   Tick Tock.

    Now, I’m saying this because we gotta be cognizant every day that it’s go time.  Time is finite.  It’s every one’s tendency to spend some time, “planning to get ready.” Tick Tock.

    Now is ready time.

    Every month has an excuse not to do jack in real estate sales:

    • January- “All my clients Just got over the holidays.”
    • February- “All my clients Waiting for the spring rush.”  (Deus ex machina).
    • March- “All my clients are getting their houses ready.  Mmm doggie, summer’s gonna RAWK!”
    • April- “All my clients are waiting for summer.”
    • May- “All my clients are priced too high.”
    • June- “All my clients are expecting a deal that just doesn’t exist.”
    • July= “All my clients are on vactation.”
    • August= “None of my clients want to take their kids out in the middle of a school year.”
    • September- “You can’t get ahold of anyone around labor day.”
    • October- “This fall is unseasonably cold.”
    • November- Read more
    January 9, 2009

    Silver Lining of Real Estate Market Correction Hiding In Plain Sight

    by

    Real Estate Investments Broker

    Author website

    Gonna be down and dirty today with a strategy real estate investors aren’t using nearly as much as they should. I wrote a post on the subject on my own turf, but thought it important and valuable enough to give it some visibility here. The results this strategy can potentially produce are, in my experience, sometimes pivotal in getting retirement goals back on track, or even more dramatically, raising them from the dead.

    So many real estate investors own many properties. They’re located in different areas. sometimes different parts of the country. Some were acquired long ago, some, not so long ago. Some in areas blessed with ungodly appreciation — some that dropped like the anchor on the USS Ronald Reagan 20 minutes after escrow closed.

    Earlier this week I spoke to an investor wanting to know how to get out from under some losing income properties. They were worth less than he paid for them, but there was still some equity there if he were to sell them. Further questioning revealed his portfolio also had some long term winners that had increased in value impressively over the years, even after nearly four years of the current brutal market correction.

    This is one of those silver lining strategies that should really be looked at as the perfect silver lining storm.

    Told this investor he should sell ’em all this year, and to get started around 4:30 yesterday afternoon. Now, of course that doesn’t mean everyone should take that route, but the strategy is as follows.

    Long term capital losses (held more than a year) offset long term capital gains. Simple as that. If, for example, you own a couple props bought with bad timing, that will produce losses, those losses will offset the gains on your gold medal props. This approach will yield many different very positive results — the escape from capital gains taxes being just one — and sans the use of a tax deferred exchange. How cool is that? The various perks are listed in the linked post. Not all of the cool potential results are listed, as Read more

    December 20, 2008

    Joe Strummer: My thoughts on the looming crisis

    by

    Suburban Phoenix Real Estate Broker

    Author website

    “Joe Strummer” is the pseudonym of a frequent commenter on BloodhoundBlog. He runs a weblog of his own — under a different pseudonym — and leads a life of joy, contemplation and undisturbed privacy under his real name. But no matter how he is denominated, Strummer is an expert in the Austrian School of Economics, a colloquium of great minds who are, alas, the eternally unheeded Cassandras of the decline of Western Capitalism. In this essay, penned yesterday, Strummer shares with us his reflections upon the burgeoning economic crisis:

     
    My thoughts on the looming crisis

    by Joe Strummer

    This is a graph of the nominal value of the assets that the Fed has “owned” over time. Notice the fairly flat, slightly rising line until September/October of 2008.

    Two points about this graph. First, the Fed did not get value for the $1.2 trillion it has purchased in “assets” since October. The $1.2 trillion in nominal value is actually nearly worthless. That’s because these “assets” are the mortgage backed securities backed by now- or soon-to-be-broken promises to pay by individual homeowners.

    Second, the Fed has merely pumped about 1.2 trillion of dollars into the market place free. In other words, it has taken nothing out of the economy of value. When the government adds currency – what Jim Cramer calls, dropping wads of cash from helicopters – without getting anything in return, it’s called inflation.

    Now, $1.2 trillion in new currency is bad, but not nearly as bad as when the Fed loans money to banks at a .5 interest rate. The Fed simply is printing money for any bank that wants to borrow it at .5 percent. Consequently, banks are now borrowing to 1) cover the losses they incurred to make themselves solvent, and 2) to have cash reserves that they can then use when the economy picks up to lend at future, higher interest rates.

    All of this inflation hasn’t hit the real economy because banks are hoarding that money to wait for better borrowers or because borrowers simply are hunkered down right now trying to wait out the storm.

    When the economy starts Read more

    October 21, 2008

    The Verdict Is In

    by

    Real Estate Investments Broker

    Author website

    Last year on these pages I wrote posts extolling the benefits of EIUL’s. Back then I called them FIUL’s. The common usage for awhile has been the former, which we’ll stick to here. What’s an EIUL? It’s permanent insurance, designed, in essence, to deliver tax free retirement income. Some have called it investment grade insurance. It also has many other benefits, including the ability to pass the entire value of the policy tax free to heirs upon the insured’s death.

    My point in the previous posts was that if folks would just be objective, they’d realize 401k’s are a trap, baited by government with paltry annual tax savings to lure us in. What folks don’t know, I wrote, is that upon retirement, a disciplined saver finds out that in 4-6 years they’ve already paid back 30 years of ‘tax savings’. Such a deal.

    Why would anyone do that on purpose?

    It created a barrage of comments, some seemingly personal, but most disbelieving the information imparted. What’s so ironic, is whenever we guide our clients into these vehicles, it’s at a loss to us. We make not a penny on anything done by the EIUL experts to which we refer our people.

    Then why do we advise many of them to separate some of the real estate investment capital from their pile in order to acquire an EIUL? Simple — it’s the right thing to do. Yesterday I posted what happened to those who refused to believe me last year.

    Those who manage their company’s qualified retirement plans? Please, pretty please, at least check into this? If you’d at least done your own objective research, you would’ve discovered I was simply tellin’ you the way it was, and was gonna be. And now, the way it is.

    Those who saw the information for what it was, did not get hurt in the stock market crash of the last couple weeks. It’s been significantly hurtful to most, and absolutely devastating to a majority of American taxpayers heavily invested in mutual funds through their 401k’s.

    Those who chose EIUL’s? They not only didn’t lose a penny, Read more

    June 5, 2008

    Planning to retire at 50? Good on ya! Have you made plans for living a hundred years beyond that? In a world that changes like dreams?

    by

    Suburban Phoenix Real Estate Broker

    Author website

    Unless you come down with a fatal disease or find yourself in a gun battle, you’re probably going to live a lot longer than you ever imagined. This week’s news is interesting, but life-extension is a secondary consequence of everything associated with free markets. That trend is centuries old by now — better food and water, personal hygiene, continuous improvements in medicine, the widespread availability of something as mundane as fresh cow’s milk.

    And just think how much longer and richer your life could be if you weren’t carrying 50% or more in parasitic government weight on your back. The interesting thing is that the rate of change is increasing far faster than governments and other misanthropes can drag it down. My own personal dictum has always been, “They can’t enslave us if they can’t catch us.” The literate third of the globe is at that point now. The other two thirds are just a few years away. If we can navigate the next few years without blowing ourselves up, we will reach a point where the average middle class household in the United States will control more real wealth than entire countries would have owned just a few centuries ago.

    I’m sure I’ve cited this before, and this version of the film is an antique by now — it’s almost a year old — but this is a very compelling presentation:

    Of course you cannot make any detailed plans about living decades longer than you expected with everything changing constantly — and at an ever-accelerating rate of change. The truth of the matter is, if you live to be 150 years old, you have a decent chance of living forever. The even more startling truth is that the ever-accelerating rate of change in all branches of technology is racing us toward a singularity, a point where all of our models of understanding break down and we have no rational means of predicting what will happen.

    No one can predict the future more than a few years out, but what you can do is reprogram your mind. In omnia paratus — prepared for everything. If Read more

    June 3, 2008

    Who Should Use EIUL’s — 401(k)’s Aren’t Cutting It For Most

    by

    Real Estate Investments Broker

    Author website

    Equity Indexed Universal Life is, when simplified, investment grade insurance. It’s a tool, a vehicle used by folks to create retirement income. I’ve written of this before, much to the chagrin of Mr. Swann. I’ve since put many clients into them using industry experts. Why? ‘Cuz it’s the right thing to do. Every dollar a client spends on this vehicle is a buck they’re not spending with me. I make zip, nada, zilch. They understand this, and appreciate it. They’ve come to rely on our consistent congruency when it comes to keeping their agenda #1. And their agenda is a magnificently abundant retirement. We make use of what i’ve called a Purposeful Plan. Sometimes that Plan includes investment vehicles other than real estate. We do what works.

    EIUL’s work.

    As a favor to Greg, though he didn’t ask, I’ve moved this party over to my place. Last time I think his head almost exploded when this subject came up here. People tend to get upset when it’s their ox being gored. Heck, I’m goring my own ox with this one. But again, it’s the right thing to do much of the time.

    David Shafer is the guy who will answer your technical questions for this post. He recently wrote a guest post on BawldGuy Talking explaining why and when taxpayers would opt for an EIUL over their qualified retirement plan.

    Soon, I’ll be writing a piece referencing a recent 20 year study showing mutual fund returns inside 401(k)’s have been less than 5% annually. And this study is used as a marketing tool. Go figure. I’ll make the study available, probably in dual form with David’s site. This study sheds light on the dirty little truth about mutual funds and their performance inside taxpayers’ qualified retirement plans.

  • Folks aren’t starting with realistic numbers. Mutual fund returns in 401(k)’s not good.
  • Front loading EIUL is best — drives down the cost of the insurance.
  • Your combined income tax rate is over 15%? Then numbers skew toward EIUL.
  • The higher the combined retirement income tax bracket, the more the numbers favor EIUL
  • EIUL never tells you when you Read more
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