GUEST POST: Extreme Homes Group

As a result of the changes in the real estate market and economy over the last few years, several new real estate trends are appearing. Here are four of them you might want to take into consideration when searching for homes for sale in Brooklyn.

Buy a home you can afford. In the past, some buyers bought more home than they could really afford. Today’s trend is to buy within your means (or even below your means). You still want to get pre-approved for a loan so you know the maximum you can spend on your piece of Brooklyn real estate, but don’t let that be your only guide to determining how much home you can afford. Consider your lifestyle. Do you want to spend your hard-earned income on vacations, hobbies, clothing, charity or your children rather than spending it all on mortgage payments? Do you prefer to live frugally now so you can save for your retirement? Or is your home where you prefer to spend the majority of your earnings?

1. Consider live-in value as well as resale value: Buy a home that you’ll enjoy living in for the next five to seven years, rather than focusing exclusively on the future resale value of the home.  The rule in the past was that you needed to own a home for about five years in order to break even when you sold it. Now that real estate values are increasing at a slower pace, you may need to stay in your home up to seven years in order to break even or earn a profit when you sell it.
2. Search for Brooklyn homes based on proximity: With the increasing price of gas, your daily drive to work can be very costly if it’s a long commute from your home. Consider buying a home that’s close to your work place or close to inexpensive mass transit. If you can find a home you enjoy that’s also close to where you shop and play, even better. You’ll save travel time and money.
3. Compare the benefits of a well-planned smaller home to a rambling McMansion: According to Sarah Susanka, architect and author of Not so Big House, you can comfortably live in one-third less space than you think you can. Buy a home that you find beautiful and functional, and the size won’t matter.

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GUEST POST: Carter Froelich, CPA http://www.thepropertyledger.com/

In  our series of articles to date  we have focused on the elements which are included in the calculation of  net  operating income (“NOI”) and why NOI is so  important in the determination of operational performance and value of a rental property.  However, NOI is not the end point of your journey to determine the response to the question “how much money did my property make this year?”  To answer this question you have to determine the property’s taxable income.

Taxable Income

Taxable income a rental property’s NOI less that certain costs which are allowed as additional deductions for federal tax purposes.  The additional expenses on your real estate investment property which are deducted from NOI to arrive at taxable income are interest on mortgage indebtedness, depreciation and amortization.

Interest on Mortgage Debt - If you have utilized a mortgage in the purchase your property, be it a first, second or third mortgage the federal government allows you to deduct from NOI that portion of the mortgage or mortgages which related to interest payments.  For instance, if you took out a $120,000 mortgage to  purchase a property and paid a 6.5%  interest rate amortized over 30 years, you have made payment equal to $9,189 of which $7,800 of these payments would have represented interest on the mortgage. When calculating taxable income this amount ($7,800) may be deducted from a property’s NOI.

Depreciation - In order to allocate a rental property’s costs over its useful life the federal tax code allows you to deduct a portion of the rental property’s cost each year from NOI to determine taxable income.  After making an allowance for land costs as land costs are not depreciable, the resulting amount is your deductable basis for tax purposes.  Generally land costs are assumed to be approximately 20% of a residential home’s purchase price but this amount may vary by location so please consult with an appraiser in your area to determine the land value on your real estate investment property. The tax code allows residential property to be depreciated over 27.5 years while commercial property is depreciated over a 39 year period.  As such, assuming that we purchase a $150,000 single family rental property the annual depreciation allowance which would deduct from NOI is calculated as follows:

The important thing to remember is that this $4,364 deduction is not costing you any money. It is merely an accounting provisions which allows you to deduct a portion of our property’s costs against the income generated in that particular year.  In a nutshell, the depreciation deduction allows you to not have to pay taxes on $4,364 of net rental income produced by the property.  Remember also that if your are making capital improvements to your property which prolong the life of the property such as adding a new roof, these costs must be accounted for and depreciated over their useful life.  Make sure consult with your tax advisor in relation to this matters.

Amortization –Amortization is similar to that of depreciation however rather than applying to a physical asset such as a rental property, it applies to “soft costs” which pursuant to federal tax code you are not able to expense in one year.  A good example of a cost which is required to be amortized is that of loan origination fees which are required to be spread over the life of the loan.  Thus if you paid $2,500 in order to secure your financing for the 30 year mortgage, $83.33 per year may be deducted from  the property’s NOI to recognize  this cost.

If you using The Property Ledger™ to perform your investment analysis you are aware that these calculations are performed automatically for you.

Investment Property Cash Flow Before Tax

Cash flow from a rental property is much easier to calculate for a rental property than taxable income.  In fact, if you use a checkbook to pay for you rental property you already understand the concept of cash flow.  Cash flow is merely the difference between what you take in and what you pay out.

Again we start with NOI as our starting point and deduct debt service along with capital expenditures which were made in the current year.

Cash flow and taxable income are similar in some ways but they are different, cash flow for instance is real, it is the money you have left in your checking account after all of the bills have been paid and capital expenditures made to the property.  Taxable income on the other had while it begins with NOI has many “phantom” adjustments which must be made to NOI and do not reflect the actual expenditure of funds for the year on your real estate investment property.  Taxable income is an accounting function, not reality.

The relationship between taxable income and before tax cash flow is illustrated below:

Cash Flow After Tax

Cash flow after tax requires the combining of the two concepts shown above.  The first step in the determination of after tax cash flow is to calculate the tax which is due by multiplying taxable income by your tax rate.  To the extent that one has positive taxable income a tax payment will be required. The extent that one has a negative taxable income, a tax savings will be created.  Once the tax has been determined, this amount is either subtracted (tax payment) or added (tax savings) to the before tax cash flow to determine the after tax cash flow.  While this discussion of taxes related to rental property is overly simplistic, this should give you an understanding of the basic concept of after tax cash flow.  As always, I strongly recommend that you speak with your tax consultant in relation to matters surrounding tax planning.

Now that we have discussed the basics of cash flow analysis, in our next issues we will  look at investment return metrics.

Carter Froelich, CPA is the founder of The Property Ledger™ a web based real estate investment software.  To get a free 30 day trial  of  The Property Ledger™ see our web site.

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GUEST POST: http://www.certifiedseller.org/

Nowadays, the landscape of business has taken a new paradigm shift due to the advent of internet and specifically the social media. The internet and the social media on internet have given a new medium to businesses to carry out their operations in an efficient and effective manner. However, not all businesses are able to take due advantage of the various beneficial aspects of internet and the social media. It is a harsh fact today that if a start up business is not well integrated into the social media, it becomes detrimental to the business’ existence. This is where we come in to the salvation of such businesses. We, at Certified Seller organization, pride ourselves to provide various services to businesses which allow them to capitalize on the opportunities which the internet extends to the world of business.

Certified Seller provides many cloud based apps to its clientele. With our apps, our clients can achieve new fronts in the operations of their businesses. Apart from this, the clients can track a lot of information through our various cloud based business solutions at an unbelievable low cost as compared to other corporate solutions.

One of our most famous internet apps is the free listing app for facebook. This app is integrated into facebook and lets our clients manage and work with their real estate listings with unprecedented ease and speed. This app is an essential bit of technical wizardry for everyone who is associated with the real estate industry online, through facebook.

The free facebook real estate app has helped many people in their real estate endeavors on facebook. Facebook is teaming with pages of various real estate companies and brokers and the competition is intense among them to get the most people to like their respective pages which add to the public awareness about their respective businesses. Our free facebook listing app allows our clients to set up various real estate listings and gather important analytical data about their industry.

Certified Seller organization offers three subscription packages to its clients. These packages include free, professional and enterprise packages. The clients can choose the packages according to their own particular needs. Certified Seller organization also provides free 24/7 live support to the subscribers of its “enterprise” package.

Internet and particularly facebook has changed the landscape of online marketing and data collection endeavors. Our free listing app provides an opportunity to the clients to set up an all-in-one tool which helps them to manage their real estate activities without having to shell out huge amount of money on other corporate tools and software. Thus we invite you to take advantage of this amazing app in order to expand your reach on facebook.

About the Author: CertifiedSeller provides companies with enterprise-grade applications at a fraction of the cost. Customers use CertifiedSeller Apps to run their business pages, manage their information and be more productive while at the office or on the go, without having to worry about expensive or outdated software.

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GUEST POST: Carter Froelich, CPA www.thepropertyledger.com

Now that you have estimated the Effective Gross Income and your operating expenses,  you can now estimate a property’s net operating income (“NOI”).

NOI is calculated as follows:

NOI represents the amount of funds the property is expected to produce after the payment of normal operating expenses.  Here again, mortgage payments, capital improvements and depreciation are not part of the calculation of NOI.Why is NOI Important?We have spent the last 3 articles explaining the steps required to estimate a property’s NOI.  Why is the estimation of a property’s NOI so important?NOI is one of the most important “numbers” in cash flow analysis in that:

1. Real estate investors are not purchasing an asset, they are purchasing an income stream and the NOI is the main component of that income stream. If you think that this is a crazy idea, when was the last time you purchased you a stock for the look of the stock certificate?  The answer is “never”; you purchased the stock for the anticipated economic benefits which the company stock would provide you over time.  The same is true for real estate investing.

2. NOI  represents the return that the investor will receive on their investment if they purchase the property utilizing a 100% cash purchase.  For instance, if a property’s NOI is $10,000 and the investor purchased the property for $100,000 cash, the investor’s cash-on-cash return (before taxes) is 10% ($10,000/$100,000).

3. NOI represents the maximum amount of funds available to service debt on the property should you desire to finance the property with a mortgage.   For instance,  the NOI of $10,000 could pay the mortgage on a $124,000 mortgage assuming a 30 year amortization  period  and a 7% interest rate or it could fund the a $150,000 note over a 15 year period at a 0% interest rate.  Do you see how important this figure can be in the negotiation of the terms related to the purchase of real estate?  We will be exploring this concept in more detail in later issues.

4. A traditional lending institution will utilize a property’s NOI to estimate the property’s debt service coverage ratio (“DSC”).  The DSC ratio is the ratio between a property’s annual NOI and the property’s annual debt service.  A DSC of 1 means that there is exactly enough NOI to support you annual debt service and not a penny more.  A DSC of less than 1 indicates that the NOI is not sufficient to cover your debt service, while a DSC of more than 1 indicates that NOI is sufficient to cover your debt service with additional funds remaining.

5. NOI determines the value of the property in question when applying a capitalization rate (“Cap Rate”).  A Cap Rate is defined as the anticipated rate of return produced by a real estate investment.  The formula for a Cap Rate is:

Cap Rate = NOI/ Purchase Price

Thus if the NOI is $10,000 and the purchase price is $120,000, then the Cap Rate is 8.33% ($10,000/$120,000).  In short, NOI is an objective measure of a property’s income stream, while the Cap Rate is a subjective measurement of how an investor’s capital must perform at a point in time. We will explore the concept of Cap Rates in detail in a future article.

6. NOI represents the starting point for the question, “How  much money  did I make this year?”  This begins to get us into the discussion of taxable income which is calculated as follows:

NOI is one of the most important calculations a real estate investor can make as it is at the heart of so many other calculations which provide the investor with an indication of the performance of the investment.  These calculations can then be compared to other real estate investments in order to select the investment which best meets the return requirements of the individual investor. In our next issue we will get into more details related to the calculation of taxable income.

Carter Froelich, CPA is the founder of The Property Ledger™ a web based real estate investment software.  To get a free 30 day trial  of  The Property Ledger™  see our web site at www.thepropertyledger.com.

SEE ALSO: The Property Academy™ Video Tutorials

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Guest Post By Carter Froelich, CPA

Introduction

Let me begin by saying how grateful and humble I am to have been selected by Personal Real Estate Investor Magazine to provide on-going articles in relation to real estate finance and investment analysis.   It is my intention to provide information which will be not only informative but also will be able to be utilized immediately by the reader in their day-to-day real estate investment activities.  Over the course of the next issues I will be providing articles relate to: (i) preparing real estate cash flow analysis; (ii) explaining various financial return metrics and why they are important; (iii) providing tips on how to secure financing when traditional lending sources are not available; (iv) how to estimate market values; (iv) how to become a bank to assist others in purchasing property in addition to other relevant real estate investing topics.  With that serving as a brief introduction, let’s discuss why it is so important to be financial literate and have a basic understanding of cash flow analysis.

Financial Literacy and Cash Flow Analysis

You can make a lot of money by investing in real estate.  You can also lose a lot of money investing in real estate.  There is a right way to invest in real estate and there is a wrong way to invest in real estate.  It is my intention to provide you with information related to the right way to invest in real estate.

Investing in real estate is a numbers game and I do mean that you have to know to the numbers.  If you are not interested in learning the numbers, and there a lot of them, you may as well stop reading and find another investment vehicle to get to where you want to go (if you can find one as powerful as real estate investing).

Numbers are at the heart at of real estate investing and connect to the four critical elements that surround income property investments which I refer to as the four basic returns of real estate investing which include:

1. Cash Flow
2. Appreciation
3. Loan Amortization
4. Tax Benefits /Tax Shelter

If you are to be successful in real estate you have know numbers in relation to the market in which you are investing.  These numbers include: sale prices, rental comparables, days on market, capitalization rates, vacancy rates, rental concessions, average expenses per square foot, expense ratios,  property tax rates, insurance rates, loan  terms, loan origination costs, interest rates, amortization tables, depreciation  rules, recapture provisions, ordinary income tax rates, capital gains tax rates, as well as  passive loss rules just to name a few.

I have been involved in the analysis of real estate investments  for over 25 years, I am a certified public accountant and a former state certified general real estate appraiser, I have managed an office of a national real estate consulting firm for the last 17 years and have developed the web based real estate investment software called The Property Ledger™ which is designed to assist real estate investors evaluate prospective real estate deals and track the growth of their investment portfolio over time.  During this time I have run across investors many who have   neither had a working knowledge of the “numbers” nor an understanding of how to evaluate a potential real estate transaction.  While some of these individuals have managed to hold on to some portion of their net worth, the great majority have not and would be great case studies as to what not to do in relation to real estate investing.

It is my goal and solemn wish to make sure that you are not one of these case studies but rather a successful real estate investor who is knowledgeable of their local market and of real estate cash flow analysis. When you know how to crunch the numbers your chances of success are greatly improved and you will have the ability to be reasonably certain of the outcome of your real estate investments and the resulting investment returns.  Try and say this about the stock market (i.e. GM, Enron, Lehman Brothers).  Once you begin the learning process and begin to run the numbers you will see how easy this process can be.  While the process may be easy, it will take a commitment on your part to learn the aspects of your particular market, understand the basics related to the tax implications of real estate investing and yes, crunch the numbers.

Crunching the numbers can take many forms from something as basic as a piece of paper and a pencil, a real estate financial spreadsheet application or a sophisticated financial software program like The Property Ledger™.  Whatever tool you decide to use, you have to make the decision to “decide” that whatever it takes, you will stay the course to become financial literate as it relates to real estate cash flow analysis. In our next issue we will begin to get into the basics of cash flow analysis.

See Also: Common Investor Mistakes and Finding Private Investors

Carter Froelich, CPA is the founder of The Property Ledger™ a web based real estate investment software.  To get a free 30 day trial  of  The Property Ledger™  see the web site at www.thepropertyledger.com.­­­­­­­­­­­­­­­­

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Guest Post by:  Realytical

Realytical is a powerful and exciting tool for realtors, leasing agents & real estate investors. This online tool can help anyone in the real estate business to create floor-plans, executive summaries, offering memorandum package, QR Codes and more in a matter of minutes! Try Realytical free for thirty days—you won`t want to miss this opportunity to easily manage and produce amazing marketing flyers and property reports in minutes!

Using the available tools on Realytical is fast and easy. Create professional real estate marketing flyers and property profiles with just a few clicks. Just click on the appropriate links and begin filling out the form menu for an executive summary, offering memorandum, or complete 2D or 3D high definition floor plan. There are also video demonstrations available for a quick tutorial of each of the tools features and abilities.

The Floor Plan Sketcher tool allows for a quick sketch of a floor plan. Users can update to either 2D or 3D high definition plans. You can even add furniture, light fixtures, and flooring to your sketches. These features allow you to create a bold, fresh, and exciting view of your properties to potential clients. Just imagine the benefits, excitement, and professionalism this feature could add to your sales potential.

The Executive Summary tool helps you create a professional looking investment report for potential real estate investors. These reports can also be used as a marketing flyer to distribute in various locations to catch the eye of potential clients. Created by investment brokers with vast marketing experience, this tool allows you to add two photos, property income and expense reports, tenant information, and your company logo, to name a few of the tools pertinent menu items.

The Offering Memorandum tool is used primarily for commercial real estate properties and can quickly and easily help you create a property offering memorandum & marketing package. The tools menu allows you to add up to fifty tenants and show potential buyers important information such as: Property comparisons, potential investment income (including ratio reports that show cash flow vs. expenses), demographics, and up to eight photos of the property. These tools can be used on all types of properties including: Single dwelling, multi-family, duplex, commercial and industrial properties. Your sales potential will be maximize using this tool—try it for 30 days free!

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Guest Post by Jacksonville Wealth Builders

Venturing into the real estate investment business is exciting and is one of the few types of investments that can return large gains year after year. When you are first starting out, getting the best value for your investment takes more strategy than buying a property for the right price. There are elements that exist in successful investment properties and knowing what to look for will help you to choose the best investment.

The right location can take a property that is acquired for the right price and turn it into a complete money machine. The best properties are ones that are in populated areas and are marketed to working class residents. Locations that are in growing economic markets near major cities always produce higher returns compared with an average property beyond the city limits. If you think more like a tenant, it will be easier to spot properties in lucrative locations.

A property that has been recently renovated or that will not take too much construction work to turn it into premier living space is a sure winner. Construction costs vary widely depending on the budget and working schedules that are decided after negotiations with contractors. Avoiding expensive repairs and remodeling will mean more profit in your pocket faster because the property will not be delayed by construction work or upgrades. A property that has already been converted into ideal living space can be rented out faster.

Properties are sold due to a variety of reasons. A property that sits vacant on the market for extended periods of time may have liens or structural problems that stop knowledgeable investors from buying it. A little research into the background of a property can reveal the cold hard facts about why a property is actually up for sale. Things like annual property tax, the school district, the exterior appearance and previous monthly rent are all important elements that must be uncovered to judge the value of the investment.

The size of a home is always a factor when considering the purchase of a property. A home that is just a starter home could be too small for a growing family that is actively searching for a vacant home to rent. The quality of the kitchen, number of bedrooms and the floor plan are all things that should be figured into an investment strategy. You might find a great deal on the wrong property and get stuck trying to rent it out to help cover your mortgage payment.

The last factor to consider when searching for a winning investment property is the purchase price. Too many investors are more concerned with the price instead of evaluating the other important details that make a property complete. Gauging the risk of buying a property versus your expected monthly rental income can quickly show signs of a problem that points to you avoiding the property purchase. Learning to buy an investment property is a skill that you can master to reach your real estate goals.

Learn more about Investment Properties in Florida.

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Download Free How To Guides for real estate investors: How to Raise Private Money, Find Deals, Best Markets, Highest Returns, Lease Options, etc -

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The modern marketplace is changing at a rapid pace. Demographics are shifting, technologies are advancing, information is expanding and new goods and services are in demand. Capturing a comprehensive view of customer behavior is now more important than ever. Companies have to pay attention to the trends and correspondingly update their business processes in order to take advantage of the opportunities these changes present.Holding Head Frustrated on papers Screaming Phone

Thankfully, customer satisfaction research and loyalty research methodologies have rapidly matured in recent years. The relationship between service / product quality and customer satisfaction and its importance to the bottom line have been demonstrated; the impact of even small improvements in customer retention rate on revenue has been confirmed; and the reasons underlying repurchasing behavior, switching propensity and customer loyalty have become easier to identify. So the tools and metrics necessary to keep abreast of market transformations are available. What corporate researchers need is help carrying the burden of tracking and measuring these changes.

Today’s managers are very focused on return on investment, so research and quality assurance programs must now be conducted within tighter budgets and with heightened scrutiny about cost reduction and spending. Thus, the economical outsourcing of data collection and analysis for customer satisfaction research is an important concern.

Responsiveness is another big concern for research departments. Compiling internal and external secondary research, choosing an interviewing methodology, designing questionnaires and determining sample takes a lot of time. Corporate inertia and the diffusion of responsibility for business processes also slow the implementation of organizational change. Delays in the completion of data collection projects by outside firms should not add frustration. Ideally, researchers should be able to view results as they are being collected. Tables, computations and other reporting related to these results should be almost immediately available for further analysis, manipulation and development. Researchers can’t research when they are busy collecting, compiling and disseminating findings.

Flexibility, effectiveness, the ability to garner honest feedback that can be translated into action to achieve optimal organizational growth and development, confidentiality and security are also key factors to consider when contemplating whether to utilize a third party vendor’s services for satisfaction research.

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