Sunday, January 13, 2008

Top 5 Ways to Get Out of Real Estate Investments

Beth Anderson writes:

When entering into a real estate investment, investors should have multiple exit strategies for a variety of circumstances. But sometimes investors run into unanticipated circumstances, or fail to plan altogether. Here are some tips for leaving a real estate investment or avoiding foreclosure with minimal damage when planned exit strategies have fallen through.

The first and most obvious exit strategy investors should consider is selling the property outright. Investors should calculate the price at which they have to sell the property for in order to break even, including paying off all outstanding liens, commissions and other closing costs.

Once that necessary price is set, investors should look at the selling prices of comparable properties on the market. If the market supports the investor’s price, this exit strategy may work. Ideally investors should aim for being the lowest priced comparable property in the area. Investors may also want to consider home staging, as staged homes tend to sell quicker and for higher prices than un-staged homes.

If a full 5 to 6 percent real estate commission is not in an investor's budget, they should consider looking into companies such as MLS4Owners that list homes on the MLS for a small fee. While the investor will likely lose out on marketing and consulting services performed by the listing agent, getting the property listed on the MLS is the highest priority.

Income from Residential Investment Properties

Bruce Swedal writes:

The current real estate market has created an increase in the number of people that are purchasing residential real estate properties for investment purposes. If they are purchased and managed properly, these properties can provide a source of income or a chance to build equity over time.

The difference between commercial properties and residential properties is that someone will be living in the residential home. That will mean that you are the landlord and as such need to keep the property in a good and livable condition. As maintenance issues come up you will need to address them promptly.

That alone can deter some from taking on the landlord responsibility, but there are options for those that just don’t want to manage the property. Property management companies will rent out and ensure maintenance on your investment when a vacancy or problem presents itself.

Maintaining an additional property can sometimes seem like a hassle or big financial responsibility. Take a moment to think about the benefits of keeping a rental home in good repair. If your home is run down in disrepair no one will want to live there. That means no rental income to cover that mortgage payment. Another reason for keeping the maintenance on the home up to date is that when you go to sell the property a well maintained home will return a better profit from appreciation.

With a rental home you need to be prepared for the commitment and be dedicated to your responsibilities as owner and landlord. It will take an investment of your time and in some cases personal capital to have a property that generates revenue. In the best case scenario the rental income will return a profit, but should minimally cover the homes maintenance.

When it comes to rental properties there are a couple types of income. Those are appreciation and yield. They appreciation you realize when you sell the home for more than you paid for it. The yield is your annual rental income. These concepts usually work inversely. That means that a property that has higher yield will generally have a smaller appreciation and vice-versa. The best situation would be a balanced approach to achieving moderation with each.

When you are considering a residential investment property the first step in the process is getting comfortable with the landlord responsibilities and the next step is obtaining financing. Ideally you will have assets available for a down payment, but if not there are programs available for that scenario also.

Financing a residential purchase has differences from a commercial real estate loan. With a residential property you are not usually expecting a profit on the scale of a commercial real estate deal. The residential mortgage terms are typically longer term which will allow you more payment, term and interest options. Many investors that already own a home will secure a home equity loan that helps them with the down payment on the investment property.

Residential property investors can turn a good profit on properties. It really depends on the time, capital and effort that you put into it. The residential investor that manages these aspects of the investment well will see the chances for success increase. Find additional real estate resources at the Authority Real Estate Directory.

Looking for investment properties

Here's the essay:

While the investment game is never a sure thing, one of the most solid investments a person can make is real estate. As the old saying goes, "God's not making any more land, so the price is only going to go up."

But if the real estate game were that easy, everyone would be a millionaire. Because of the expensive nature of real estate and the uneasiness many people feel when they decide to invest in it, consider the following tips before taking the plunge.

It's always important to remember that buying an investment property isn't the same as buying a home you're going to live in. But some of the same rules apply. One such rule is location. While those looking for their own home will likely look at privacy, the local school system and other things, when buying an investment property it's best to look in a high traffic area that's close to public transportation. The high traffic means more prospective renters will see your "For Rent" signs, while accessibility to public transportation will increase your pool of potential tenants.

In addition, it goes without saying that a desirable locale can often rent a place on its own. Rental properties in trendy neighborhoods often rent the fastest and landlords can often charge more for less.

New tax breaks provide relief to homeowners

From the Review Journal:

Homeowners found three attractive tax breaks among their holiday presents, thanks to the federal Mortgage Forgiveness Debt Relief Act of 2007, which was enacted in December.

The first tax break concerns forgiveness of debt, which occurs when a lender forgoes repayment of principal and/or interest the borrower owes.

Typically, discharged debt is considered ordinary income to the borrower for income tax purposes.

The new law allows taxpayers to exclude this amount and thus escape the tax liability.

"When you're worried about making your payments, higher taxes are the last thing you need to worry about.

"So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive," President Bush said in his remarks upon signing the law.

Three new tax breaks:

1. Homeowners who experience a foreclosure, short sale, deed in lieu of foreclosure or loan modification may be able to exclude lender-forgiven mortgage debt from taxable ordinary income.

2. Homeowners may be able to deduct the cost of mortgage insurance.

3. A homeowner whose spouse has died may be allowed up to two years to exclude $500,000 of profit from the sale of a principal residence from capital gains tax.

Commercial real estate caught in slowdown

Katy Bishop writes:

In 2005, developers built shopping centers and the tenants came knocking.

But now, Southwest Florida’s robust commercial real estate market is slowing. Retail and office vacancies are increasing and rents are decreasing.

Commercial properties are valued largely on how much income they produce, so property values are affected, according to about a dozen Collier and Lee Realtors, developers and property appraisers interviewed for this story.

Commercial real estate shadowed residential real estate on the way up, and developers built shopping centers to catch up to the area’s population boom.

But some of that population growth indicated by new home construction turned out to be speculative, and the residents – and business customers – never came.

Commercial projects that opened in 2007, and those slated for 2008, were planned two to three years ago when the residential market was booming and it was hard to find a commercial space empty.

Now that the residential market has slowed, commercial property owners face a more challenging rental market because tenants have many more options.

Investment Property Market Stays Robust

Gavin Dawson writes:

DESPITE discussions about the national and local economy being affected by the "credit crunch", Gavin Dawson says demand for investment property in the North-East, from both national and local investors, continues to be robust.

Our firm has recently been involved in a number of transactions where - despite most of them being agreed before the summer - they have all subsequently completed without reductions in prices.

We believe this is a sure sign that demand is still strong, whether it be from investment funds, private property companies or private individuals.

The position is supported by investors who are willing to pay net initial yields of sub 7% for 1970s and 1980s refurbished industrial stock, and further sustained by vacant possession values from owner occupiers and investors.

These groups still regard the North-East as a safe bet where comparatively low base rents offer good prospects for rental and capital growth in the future, boosted by a lack of supply of new buildings and scarce land supplies.

To reinforce the point, we have recently disposed of four multi- let units at Harvey Close, Washington, where the majority of leases were secured for three years, certain to local covenants, achieving a net initial yield of 7.4% and a capital value of pounds 50 per sq ft.

U.K. Property Funds Prove Difficult To Leave

From the WSJ:

LONDON -- With commercial real-estate values falling, investors in many open-ended United Kingdom property funds are clamoring to cash out.

Many are finding that it isn't that easy. Fund managers can't meet redemption requests and are enforcing waiting periods because sales have slowed to a crawl. Because the funds hold property, not cash, they can't honor redemption requests until they sell some assets.

For example, U.K. asset manager Morley Fund Management, which is owned by Aviva PLC, UBS AG's Triton property fund and Deutsche Bank AG's RREEF U.K. open-ended core funds, has imposed 12-month waiting periods on investors in recent weeks. Fund managers said the limits aren't new and were always part of the terms of the fund. In the past, managers were willing to relax their deadlines, and now they are rigidly adhering to them.

Meanwhile, returns on U.K. commercial real estate in November hit their lowest level since records have been kept, falling by 3.4%, according to data released Friday by independent research body the Investment Property Databank. This brings the year-to-date return to minus 1.8%. It is the first time the U.K. annual index has recorded a negative return since 1992 and is the worst monthly performance since records started in 1990.

However, the fundamentals of many commercial properties remain healthy. Rents are stable and the vacancy rate isn't rising in most markets.

Commercial real estate sales jump in Chicago in 2007

(Crain’s) — Sales of Chicago-area commercial real estate spiraled up in 2007, but what a difference a credit crunch makes.

“The most amazing thing about the investment market in 2007 was that it started out with so much investor confidence and ended in a near panic,” according to a report issued in December by New York-based real estate research firm Real Capital Analytics Inc.

The credit crunch that hit with full force in September was “one of the most abrupt disruptions to ever hit the commercial real estate capital markets,” the report says, “marking the end of an incredible five-year bull market.”

Under such circumstances, it would be easy to offer dire predictions about the coming year. But Real Capital cautions against such knee-jerk reactions, noting that nationwide rents are “solid” for the four largest commercial real estate sectors: apartment, industrial, office and retail.

“Don’t forget to look at the positives in the new year,” the report says.

Investment Property Mortgage Loan Comparison Software

Here's the report:

Getting the most from your investment is a primary goal of real estate investment. If your property investment loan has a high interest rate and fees, your profit is greatly decreased. Comparing your options can get you the best deal.

Article Anyone that wants to get into the real estate business is likely going to need some sort of investment property mortgage loan, unless they have a large amount of money that is free for investing. Lots of banks offer special financing for people who want to make a property investment.

These are called investment property mortgage loans, and they have been helping people get started in the real estate industry for years. If you have any property of your own paid off, then you will be able to use it as collateral and get a mortgage loan with good terms and a decent principle that will allow you to follow your real estate dreams.

You should contact all of your local banks to find out what they offer in terms of property investment loans. Keep a notepad with you, and write down the basics of every financing option – the initial interest rate, the maximum available amount, the term, monthly payment plans, the recourse, the fees, and anything else that will have an effect on your borrowed amount. If they have any literature on their financing offerings, be certain to get that as well.

Most of the time, the terms will depend on your credit, and what you have to offer as collateral. Once you've got all of this information gathered, you can make use of various tools to analyze your financial prospects.

Initially, you will have to enter all of the data that you gathered into a chart to help you easily compare your available opportunities. First, you should go through and figure out if any of them will be simply unviable for whatever reasons – for example, if you aren't sure you'll be able to make the payments on time, you should not consider that deal.

Next, you can use your analysis tool to compare all of the loan options, and figure out which one will be the most profitable, and take the least amount of money from your profits.

Once you've determined which property investment offer will be best for you, you should start creating a plan that will outline your investment intentions. This may even be required by the bank, and a loan officer will look over your proposal to ensure that you have a solid business plan. But whether it is compulsory or not, a solidly formed plan will give you personal satisfaction knowing that once you have your investment property mortgage loan, you know exactly what you are going to do with it.

As for tools that will help you compare your financing alternatives, you should investigate all of the options that are available to you. If you use a program that can easily compare your options, then you will save hours of manual work which would have involved performing endless calculations. Using investment software can help you find the best loan and profit as much as possible from your real estate ventures. The technology is available, so make the most of the software.

By: Getting into real estate for yourself takes a great deal of work. One of the first steps is to check out your investment property mortgage loan options. KISCL offers software to help you along.

Buy-to-let property remains robust

Here's a report from the UK:

Sentiment in the buy-to-let sector remains buoyant despite growing concerns for the wider property market.

That is according to the latest research from the Association of Residential Letting Agents (ARLA), which finds 90 per cent of landlords have no desire to sell property during the next two decades.

Furthermore, up to 40 per cent of landlords are seeking to buy further properties during 2008.

"This is good news for the whole of the private rented sector and for the housing market, particularly as it comes from surveys carried out well after the credit crunch had begun to bite," commented ARLA's head of operations, Ian Potter.

"The rental sector is the lynchpin for all our housing requirements and needs continual investment from private individuals as it still suffers from a lack of investment from the institutions."

According to ARLA buy-to-let landlords borrowed an average of 70 per cent of the value of a property when setting up a new investment during the final quarter of 2007, down from 74 per cent in the previous quarter.

UK sales of commercial property plunged in Q4 2007 because of credit crunch; Market set for biggest annual losses in more than 25 years

FinFacts reports:

The value of transactions fell from £15bn in the third quarter to £5.5bn in the fourth, according to data provider Property Data. The dismal figures contrasted sharply with £20.1bn value of deals that were transacted in the last three months of 2006.

The last time quarterly sales dipped below £5.5bn was in 2002, during the traditionally low activity first three months.

According to IPD (Investment Property Databank), a leading index provider for commercial property, prices have fallen by nearly 10% since their peak last summer. IPD says that owners may record losses of at least 11% in 2008, according to prices of derivatives contracts pegged to indexes its maintains.

The fall would be the largest since IPD introduced its annual total-return index in 1981, which combines data for rental incomes and changes to appraisal values. The benchmark index covers £200 billion of investments and excludes debt, which can multiply property gains or losses.

Housing crisis fosters drop in local sales as prices rise

Jessica Foster writes:

Turmoil in the housing market spurred double-digit drops in sales of houses and condos along the Grand Strand last year, though prices inched up, according to year-end figures released this week.

Condo sales plunged 37 percent compared to sales in 2006, while single-family home sales dropped 21 percent.

Those are the biggest percentage drops since the statistics started being recorded in 1993. The statistics, compiled from the Multiple Listing Service, represent about 80 percent of the listings in Horry and Georgetown counties.

High insurance rates, a new property tax law, stricter lending policies and rapid appreciation have made it difficult to buy and sell property, said Tom Maeser, president of the Fortune Academy of Real Estate.

"Those four things are kind of like the perfect storm, and it severely impacted our investors," he said.

Plus, as the national real estate market tumbles, many people who want to move to the Grand Strand can't because they're unable to sell their homes elsewhere, he said.

The decrease comes after a housing boom the area experienced in 2005, when condo sales leaped 48 percent and single-family home sales rose 27 percent.

British property plunges as buyers for buildings vanish

Simon Packard writes:

London - LaSalle Investment Management put Condor House, a seven-storey office building facing London's St Paul's Cathedral, on the market for £130 million (R1.8 billion) six months ago.

Last month the building sold for £117 million, 10 percent below the asking price.

Appraisal values fell at a record 4 percent rate in November, increasing the cumulative 11-month decline to 7.8 percent, according to research firm Investment Property Databank (IPD). In the last property crash, values dropped 27 percent from 1989 to 1993.

"The UK market is falling apart," said Peter Hobbs, the head of research at Deutsche Bank's RREEF Real Estate. "There's a risk that this cyclical downturn turns into something worse."

Britain's £700 billion commercial property market would perform worse this year than the rest of Europe, the US and Asia, Hobbs said.

Australian House Properties Through The Roof

Natalie Craig writes:

ONE man's housing affordability crisis is another man's lucrative investment market.

Escalating house prices show little sign of abating and long-term figures confirm Australian residential property is a strong, stable investment — sexy qualities in these shaky times.

The ANZ property market outlook for 2008 was unequivocal in its recent forecast: "A severe and potentially intractable shortage of housing will continue to drive house prices and rents sharply higher in the years ahead."

This was despite Bureau of Statistics data on Tuesday showing total building approvals rose 8.9% — on a seasonally adjusted basis — and were up 14.6% last year.

Property investors urged to do homework

Here's an essay:

Those looking for investment property need to concentrate more on buying well than on external economic factors such as the credit crunch, property firm Young Group has advised.

Managing director Neil Young said: "It is buying well that ensures a good investment," adding that this was as true now as it was in 2007.

Mr Young stated that buy-to-let remained a "solid medium to long-term investment class" and advised the key was for buyers to do their research and assess each property on its merits.

Investment Property Tips

MSN reports:

As one experienced landlord put it: "You make your profit when you buy a property, not when you sell it." Pay too much, and you'll never recoup as much as you could have had you driven a better bargain.

The rental real estate market is generally tougher on investors who overpay than on homeowners who do the same thing, several landlords said. While a home is often an emotional purchase, which can lead to "I must have it!" offers and bidding wars, most landlords look strictly at the numbers to see if their investments will pay off. If you pay too much for a rental, you can't count on a "greater fool" coming along later to bail you out.

Not overpaying can be tough in a hot market, however. Apartments in New York, for example, currently sell at a 60% premium over their "inherent" value. In other words, they're selling for much more than the income streams the apartments generate, according to Reis, a national real estate research firm. In San Francisco and Los Angeles, the premium is 10%.

Some landlords use formulas, such as not paying more than six to eight times the rents they expect to make the first year. Others try to estimate what the property could be worth after needed repairs and upgrades are made, and they don't pay more than 70% of that price, less the cost of those repairs, CPA Berning said.

Finding Investment Property

MSN reports:

The longer you plan to own the property, the more you'll probably need to invest in maintenance, repairs and improvements, Cain said.

"If you're keeping it for 20 years, at some point you're going to be putting a new roof on that property. You're going to be putting in new appliances and doing some major repairs," Cain said. If you're only planning to own a property for five years, by contrast, you'll probably want to avoid making any major improvements unless you're sure you can recoup the cost with a higher sale price.

You also may face more investment risk with a shorter time horizon. Although your rental will almost certainly appreciate over 20 years, it could easily lose value in the next five, particularly if you're buying in an overheated market. You'll need a bigger potential annual return to make up for that risk.

For many small investors, long-term ownership makes the most sense, said Pat Callahan, an attorney, landlord and founder of the American Association of Small Property Owners. You'll have plenty of time to ride out any swings in the market, and rental income can make a nice supplement to your day job. Find enough rental properties, and being a landlord may become your day job.

How to find good investment property

By Liz Pulliam Weston

The idea of owning rental real estate seems to be gaining popularity as investors tire of the swoops and swoons of the stock market. As I pointed out in a separate column, not everyone has what it takes to be a landlord. But those who do may find rentals to be a good way to build wealth.

Once you've made the decision to buy rental property, your real work begins. Finding a profitable rental property usually takes time, connections and plenty of research.

Here's what you need to know to get started:

As with any other investment, you should have a good idea how long you plan to own a rental property before you buy it, says Robert Cain, publisher of the Rental Property Reporter newsletter.