Archive for the 'Investment Real Estate' Category
Bay Area investors check this out!
Jeff Brown shows the way on real estate investing for retirement income.
I worked with Jeff on my investment purchases in Austin Texas area.
If you have good equity but low or no cash flow on your Bay Area rentals, let me show you how to increase your cash flow greatly with newer low maintenance properties.
Here is a good example of how $500,000 can turbocharge your income.
I have been to Austin three times in past 6 months, contact me for more information on these investments.
REO market tightens for fix and flip investors
Over the past several years, a significant percentage of my business has been working with investors who buy, fix, and flip REO properties primarily in East Palo Alto and Menlo Park.
Over this time, this market has become much more competitive – “good deals” are much harder to find. Profit margins have sunk. Attractive investment opportunities can still be found but it takes a little longer.
Bigger Pockets reports on the increasing competition for REO investments on a national level.
Search for REO foreclosure properties
Please contact me if you want to learn more about REO opportunities on the SF Peninsula.
Menlo Park small income properties
Let’s take a look at a typical small residential income property in Menlo Park.
We're sorry, but we couldn't find MLS # 81210267 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
This property consists of four 1 bedroom 1 bath units priced at $1,325,000.
Current rent for all four units is $4,650 per month or $55,800 per year. This property is priced at $1,325,000/$55,800 for a gross rent multiplier (GRM) of 23.75 – asking price is 23.75 times current annual rental income.
Market rents for all four units is estimated at $,6100 per month or $73,200 per year. This results in a GRM of 18.1 ($1,325,000/$73,200).
Property operating expenses – property taxes, insurance, utilities, gardener, management, and repairs, etc. (loan costs are not property operating expenses) are estimated to be $31,250 per year – (42.7% of gross scheduled rents). This is a pretty typical operating expense ratio – should generally be at least 35% to 40% of gross scheduled rental income.
Gross scheduled income ($73,200) less operating expenses ($31,250) less vacancy and credit loss ($3,000) results in a net operating income of approx. $38,950 per year.
This is what will be left over to pay debt service or loan payments.
Investor loans for residential rental properties are currently available to approx. 5%.
$38,950 per year or $3,245 per month will pay loan payments on a $605,000 loan which means a purchaser would need $700,000 cash down payment to reach a break-even point.
This property is located in a very nice area of Menlo Park near the Civic Center and Burgess Park – one can easily walk to either downtown Palo Alto or Menlo Park.
An investor would need to forecast an increase in rents and property values over the next 1o to 15 years for this investment to make sense.
Own rental property? Perhaps it is a good time to 1031 exchange into other rental property?
Unlike primary personal residences, where single folks get up to $250,000 gain tax free and married couples get up to $500,000 gain tax free upon sale.
When one sells a rental property and receives the cash proceeds of sale; the gain on that property is taxed. In order to defer taxation on this gain, which allows the investor to use the entire proceeds of sale towards the purchase price of the new property, a 1031 exchange needs to be executed. Please note I use the word defer and not tax free. Executing a 1031 exchange allows the investor to defer paying taxes on that gain but does not forever eliminate the tax due on that gain.
Most 1031 exchanges are executed through the use of an exchange intermediary.
Under this scenario, the investor puts his property up for sale and tries to find a buyer just like any other sale. No difference. This contract will include an addendum indicating the seller wants to complete sale via a 1031 exchange and that the buyer will co-operate with seller in doing same. No additonal cost to buyer, just a few additional documents to sign at close.
At close, instead of a check being sent to the investor, the proceeds are sent to a 3rd party intermediary to hold until the new purchase property is located. The investor can not touch that money or a taxable event will be created.
The investor then attempts to locate the purchase property. The investor typically has 45 days from close of the sale property to locate the purchase property. A property is located, contract negotiated and included a clause indicating that the investor now the buyer wants to do an exchange ansd that seller agrees to co-operate in doing so.
The rules governing exchange are quite complicated and legal and tax advice should be obtained. That being said, a real estate broker experienced with investment property and exchanges can guide the investor client in the right direction. An investor still needs to find a buyer for his property and then still find a property to purchase. All of that is the same as ay other purchase or sale. The paperwork in contract and closing is different.
If you have owned a small rental house, duplex, triplex, or 4plex for many years, chances are the property has gone up in value and you have paid down loan – both increasng your equity in property. Using this equity to buy a bigger larger higher income property may prove to be a good thing.
So if you own rental property and want to know what your investment options are, please let me know. I have clients looking for investments in the SF Bay Area as well as in Texas and North Carolina. Some of the investment opportunities that can be found out of state can be very attractive. I am looking at new duplexes in Dallas Fort Worth area that cost around $250,000 and rent for $2,500 per month. The cash flow from the property will pay off the mortgage in 15 to 20 years.
Here are some guides to 1031 exchange. Just let me know if you have questions.
1031 Exchange Identification Requirements 06 08
1031 CLOSING COSTS in a 1031 Exchange 08 08
1031 Restrictions on Receiving Cash in a 1031 Exchange 06 08
Use Retirement Funds to purchase Real Estate
More and more investors are using their retirement funds from a 401K, IRA, Roth IRA, and SEP IRAs to invest in real estate.
The stock market has done well over the past few years but self-directed IRAs allow you to diversify and invest in many other types of assets including real estate not available through traditional avenues.
The rules which govern real estate investments purchased through the use of retirement funds are detailed and somewhat complicated. Before embarking on any purchase with self-directed retirement funds, an investor should consult appropriate legal and accounting professional as well as working with a qualified intermediary and a real estate broker familiar with these purchases.
Top 50 Questions about Self-Directed Investment
ABCs of Self-Directed Investment
Daily Update of New Foreclosure Listings
This post will update daily with new foreclosure listings in San Francisco mid-peninsula locations. Below you will find an introduction to buying a foreclosure property as a personal residence or investment.
- There are foreclosure properties available on the San Francisco Peninsula. In the mid-peninsula, many of these can be found in Menlo Park, Redwood City, and East Palo Alto – typically areas near and on both sides of Highway 101.
- More specifically, the majority of foreclosures are located in neighborhoods where the average price at the peak say 2006 was $700,000 and below. There have been very few foreclosures in neighborhoods and cities were average price was over $1,000,000 at the peak.
- Some are good buys, some are not. Some houses are totally destroyed and others are in reasonable condition. They can be a good opportunity for first-time buyer or small investor.
- Like any investment, one needs to understand that particular market to do well. Any buyer interested in considering buying REO foreclosure homes, should find an agent who knows the market in the specific neighborhoods where foreclosures can be found. For investors, finding an agent with local specific neighborhood of rental values who performs property management functions including Section 8 rentals is of high importance.
- Foreclosure REOs are currently priced (depending on area) around 50% of previous sale price.
- Most REOs receive multiple offers, many of them cash offers. Most properties go quickly.
- REO banks require SOLID pre-qualification, proof of funds to close (bank or investment statements), both for offers that are financed and for all cash offers, and a copy of earnest money deposit check (EMD).
- If the condition of the property is poor, property probably will not qualify for FHA loan.
- Buyers of foreclosures need to understand any REO purchase contract is prepared by the REO bank, no changes allowed. Contract is totally structured to protect REO bank - we, the seller know nothing about the property, totally as is, no warranty, no repairs, buyer beware.
That’s OK. Buyer needs to do his own due diligence.
Below you find find new foreclosure listings on the San Francisco mid-Peninsula.
Showing properties
1 - 5 of 5.
See more Only Foreclosures.
Listing information deemed reliable but not guaranteed. Read full disclaimer.
(all data current as of
5/25/2013)
Use retirement funds to purchase investment real estate
Many believe the local real estate market is close to hitting bottom.
Some will say the bottom has been reached on the San Francisco Peninsula as close to 50% of all sales now involve multiple offers.
If one believes that this might be a good time to invest in real estate, one option to consider is to use retirement funds in your IRA to purchase investment real estate.
Just like any other IRA that invests in stocks, bonds, or mutual funds; any income or gain is tax-deferred until withdrawal.
With a Roth IRA, since taxes are paid on the funds prior to investment, any income, gain, or future withdrawal is tax-free.
Like most rules involving the IRA, there are complexities that should be reviewed by your CPA or attorney prior to entering into a decision to use retirement funds to purchase investment real estate.
That being said, if you wish to consider making real estate investments, you should work with a broker who understands the local market and has a working knowledge of the process and potential pitfalls of using retirement funds to invest in real estate.
Click below for more information.
Intro to Real Estate Investment with IRA funds
90 day FHA flip rule
The past 18 months I have been quite active with investors who typically pay cash for a foreclosure REO in either East Palo Alto or east Menlo Park.These investors typically fix the property up and place back on the market for sale. These transactions are known as flip due to the short turn-around time from original purchase as an REO and then re-sale to the “end user” – either an owner occupant or long-term investor who wishes to rent the property out.
Last year, FHA had a rule that stated they would NOT fund any purchase of the property that was originally purchased within the past 90 days. In fact, they would not fund a loan on a property when the contract for sale was entered into less than 90 days after to the last purchase date. Read the rest of this entry »
Additional opportunity to use Retirement Funds to buy real estate
I have written on several occasions about the ability to use retirement funds to purchase real estate.
There is a window of opportunity to convert IRA funds into Roth IRA funds and spread the tax impact out over two years.
As you probably know, for “regular” IRAs, before-tax funds are placed in an IRA where it grows tax free until the funds are withdrawn and taxed at withdrawal. In a Roth IRA, “after” tax funds are placed in a Roth IRA and they grow tax free and are TAX-FREE upon withdrawal.
The general theory on IRAs is to put money in and then withdraw after retirement when theorectically your tax bracket will be lower. Of course, with all our government borrowing and defecit spending, who knows tax rates may be higher 10 to 20 years from now than they are today.
Currently, most individuals due to a new law are able to convert IRA funds to ROTH IRA funds and pay the tax due on said conversion over a 2 year period.
Foreclosure Opportunities in East Palo Alto and Menlo Park
One of the most active and strongest markets on the San Francisco Peninsula can be found in the Belle Haven area of Menlo Park and in East Palo Alto.
Most of the listings in these areas are either short sales or foreclosures.
Run-down fixer uppers can be found sometimes below $200,000 and generally between $200,00 and $250,000.
These homes when repaired can rent for $1800 per month or perhaps sold for $300,00 or more.
Buyers need a fair amount of cash to compete in this market but good properties can be found.
I have helped numerous buyers this year in East Palo Alto and Belle Haven area of east Menlo Park purchase REO foreclosure homes and attractive prices.
One client used funds from his IRA to pay cash for a rehabbed home that generates about a 6% cash return on purchase price.
Others clients have purchased REO fixers, rehabbed them, and sold at a profit.
One of my clients, a former tenant, was able to buy their first home in East Palo Alto with FHA financing – amybe $10,000 total cash investment – will receive $8000 first-time buyer credit – and have total fixed ownership monthly payments of like $1700. They are quite happy.
Whether buy, fix and flip or buy and then rent or buy to live in, all present good options in today’s real estate market.
Please contact me at 650 566-5329 or [email protected] to learn more.
I am happy to discuss your options with you – no cost – no obligation.
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The data relating to real estate for sale on this website comes in part from the Internet Data Exchange program of the MLSListings™ MLS system. All real estate listings in the MLSListings MLS system are marked with the MLSListings Internet Data Exchange icon (a stylized house inside a circle), and detailed information about them includes the names of the listing brokers and listing agents.
Listing information is deemed reliable, but not guaranteed. Listings last updated 5/24/13 11:58 PM PDT.
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