Connecticut Real Estate

Real Estate Investing – It’s More than Buying Foreclosure…

timdenbo — Sun, 19 Apr 2009 03:40:15 +0000

I have over the years invested in stocks, stock options, collectibles, gold, stamps, art and real estate. So, why should a person invest in real estate? Well, for me it is my passion first and foremost. If you knew me in high school you would have never guessed it, but I enjoy math, analyzing statistics and graphs and then the negotiations required in a real estate transaction. There is of course also, the people! I enjoy working with people and if I can, helping people. This could come from a foreclosure, short sale or allowing someone to move on to something else they want to accomplish in life or retirement after disposing of a property. Or, as a Realtor specializing in investment properties, helping someone else locate a property to acquire. But what are some of the other reasons?

According to the National Association of Realtors (NAR) second-home sales (for vacation homes and investment homes) accounted for four out of 10 homes sold in 2005. And now with the current economy and the historic level of foreclosures, these numbers are growing even higher. While vacation-home buyers purchase primarily for enjoyment, investment-home buyers are looking to generate income in the following five ways.

#1: Appreciation

#2: Cash Flow

#3: Less volatility

#4 Tax Advantages

#5 Value-Added Improvements

Now is one of, if not THE best time in generations to get involved in real estate. If this is your passion as well or if you just want to learn more, read all you can, join your local REIA (Real Estate Investors Association) and network with other investors. To find a REIA near you, go to www.NationalREIA.com.

If you want to know more about the Five Reasons to Invest in Real Estate and much, much more, visit my website at REInvestmentPartners for a free newsletter and additional resources on real estate investing and buying opportunities. You can also sign up for a free daily HOT SHEET on just listed foreclosure, bank-owned real estate and short sales.

Real Estate Investing 101 – Part II

timdenbo — Sun, 29 Mar 2009 23:42:29 +0000

continued from RE Investing 101 – Part I

In this discussion we will talk about CAP Rate in more detail as well as COCR or (Cash On Cash Return).

CAP Rate - The CAP rate is a common term and method used by investors and commercial real estate brokers/agents to identify the rate of return on your capital investment. In simple terms, the CAP can be arrived at by using the following formula:

NOI / Selling Price = CAP (Net Operating Income divided by Selling Price equals capitalization rate)

So, what is an acceptable CAP rate when looking for investment properties. Well, this will depend on several factors beginning with demographics and supply/demand for particular types of properties in specific areas of the country. You may find in Denver, Colorado that a “C” property in a “C” (working class) type neighborhood is selling in the 6-8 CAP range while the same property in Little Rock, Arkansas is selling at a 10 or 11 CAP (these are just examples and not actual numbers). The first thing you want to do is find a reliable commercial broker or agent in the area you want to invest in (or several) and ask them what the regional CAP rate is for certain types of properties.

Now let’s compare this to Cash On Cash Return (COCR)…

COCR - Since the acceptable CAP rate varies by region, quality of property and neighborhood being purchased I prefer to use the COCR method to determine if a property will meet my investment strategy before I research the property any further. I like to describe COCR simply as “what’s left over to go into my (or my investors) pockets”.

COCR Formula:

NOI – (down pymt+debt service+closing costs+points+repair allowance) / Selling Price

NOI minus (all expenses of the transaction including down pymt, debt service (mort),closing costs, etc.) divided by Selling Price.

Since the COCR is what is going into “The Bank of Tim Denbo” or in other words… your pocket, this is a good measure of the value of an investment. However, also keep in mind that this number is influenced by the amount of down payment, the interest rate and many other factors. But, the bottom line is that this is what you will have left over after all the expenses, mortgages (debt service), etc. are paid. And isn’t that why you are investing in the first place!

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More posts coming on such topics as 1031 Exchange, the NEW First Time Home Buyers $8000 GIFT!

Real Estate Investing 101 – Part I

timdenbo — Fri, 27 Feb 2009 02:36:06 +0000

If you are considering getting into real estate investing and/or specifically multi-family investing, you need to understand some basic terms. In this article I will help you understand a few of the basic investing terms used in multi-family property evaluation. These may not be the dictionary or legal definition and are indeed a very simplified definition to give you a general idea of the meaning. To fully understand the terms and uses of these terms, you should obtain additional information and counsel.

Multi-family: Defined as any dwelling or property with two or more legal family residences including separate kitchens or efficiencies and at least one bathroom.

Residential Multi-Family: Residential is generally defined as any dwelling with 2-4 units.

Commercial Multi-Family: 5 units and above all the way up to very large apartment complexes

Financial Analysis:

Residential property is generally evaluated using a CMA or Competitive Market Analysis to compare like properties in the same neighborhood, in a similiar style, use, size, age, etc. Investment property on the other hand is evaluated on an ROI (Return On Investment), or Cash Flow basis.

CMA = Competitive Market Analysis – an evaluation usually done by a licensed real estate professional of the neighborhood homes similiar in style, age, size, condition that have recently sold. A CMA is NOT the same as an Appraisal and is subject to opinion and is therefore subjective. A CMA is done to come up with “Market Price”. A qualified and licensed real estate professionals who is familiar with the area, neighborhood and property type (residential, investment, multi-family) should be able to provide a realistic “market price” for the property.

Appraisal = An Appraisal is done by a state licensed Appraiser with stringent and legal guidelines and consequences. An Appraisal is usually done or requested by the lending institution and will cost in the neighborhood of $300-$500. The Appraisal is done to arrive at a lending value or bank value of the property and may be different from the Market Value as noted above under CMA.

ROI = Return On Investment – The cash you put in your pocket after all expenses, but before taxes

NOI = Net Operating Income (Total Income minus Expenses but before financing or “debt-service”)

CAP = Capital Rate of Return (Return on capital investment. NOI divided by Purchase Price)

In my next blog we will discuss “Cash-On-Cash” return and the relationship between CAP Rate, ROI and COC Return.

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Tim Denbo is a Licensed Realtor in Connecticut specializing in Residential and Commercial Income Property. For more information or to contact Tim, please visit www.TimDenboHomes.com or email me at Tim@TimDenboHomes.com