Introduction to Residential Investment Property-Cash on Cash Return

There are a lot of websites and individuals who are promoting get rich quick real estate methods.  Although these methods have worked, it's a very small percentage of reality.  It's kind of like winning the lottery, we all hope it happens but the fact is its not likely.

Cash on cash return is probably the most important thing to consider when purchasing an investment property.  If your money will work better somewhere else it may behoove you to invest in whatever that may be.  Rental properties do have benefits that many investments don't.  Owning a hard asset!  You can literally drive by your property, or move into it if need be.  You don't have this option with stocks or bonds.

It's not unlikely to get 15-20% cash on cash return but when looking for investment properties its more likely to be in the 8-10% range.  In todays market this is a great return on your money!!  You also have the opportunity for appreciation which could easily catapult your earnings.  Real estate investing is a great way to put your money to work for you.  With the right property manager and the right property you will have little headaches and will consistently receive your rent payments.

If you were to invest 150k into a rental property in Colorado Springs you could likely get 13200 gross return.  This does not factor in tax write offs or appreciation which are very difficult to gauge.  These are conservative numbers.  If the right deal is found you could easily get 15000 or more per year.  Within 10 years your investment has paid itself off and you still have the hard asset sitting there.  Wouldn't it be nice to wake up in the morning and make 1100-1200 dollars to month for virtually nothing?!

Like anything, real estate has it's risks and some properties offer higher risk for a higher return on investment.  It's up to you to decide how "risky" you are willing to be.  If you are in your younger years it could be beneficial to find some higher risk higher return properties.  If you are getting close to retirement it's probably a better idea to be conservative with your investment and keep a consistent income.  Remember, all investments are a risk!  One of the most reliable forms of return is to put your money in a bank account and leave it there.  Unfortunately your money will grow at a snails pace and the chances of being able to get enough interest to live off of is unlikely. 

In my opinion, investing cash into real estate is rewarding and profitable.  Make sure you have an expert property manager and the funds to keep up with the property and you will be pleasantly surprised by your returns. 

Sincerely,

Daniel Muldoon

Introduction To Residential Investment Property Purchasing in An Association

Purchasing a Residential Investment Property in an Association

In the last post I left off with discussing pre 1978 properties.  Don't rule out these properties just because of the potential for lead paint.  Spend the money to get the property tested, and rest easy knowing you don't have to deal with it!

Many investors and REALTORS are under the impression that owning rental property in a homeowners association is a good thing.  Although it's not always a bad thing, it does create some additional things to consider.  Does the HOA allow rentals?  What do they require from the tenants and the landlord?  Will they work with a property manager who manages your home?

You'll also have to remember that you have dues monthly, yearly, or quarterly.  In our area it's customary that the landlord pay the HOA dues.  This equates to less of a profit margin and could mean more headaches.  In my experience HOA's are not always  "tenant friendly".  Many times they know the rentals in the area an they will pay closer attention than they do with other property owners.

When considering the HOA dues at the time of purchase also consider the fact they will increase.  In many years of dealing with HOA's I have never seen a decrease in dues.  You would hope the increases are inline with rent increases but that's not the case.  Many HOA's require yearly increases despite what the rental or sales markets are doing.  I have also seen very expensive special assessments in cases where the HOA did not have the funds to cover a major project or major damage.

There are some benefits to an HOA, many times they maintain the exterior of the building, roof, common areas, etc.  They also offer amenities that may not be available outside the HOA.  Pools, conference room, workout facility, rec room, etc.  If your area calls for these types of amenities and people are willing to pay to get them, then it's a viable option for an investment property.

Make sure you ask questions of the HOA, review the financials and governing docs, discuss their policy for landlords and tenants, and crunch the numbers before you purchase a rental property.

Sincerely,

Daniel Muldoon

Introduction To Residential Investment Properties Part 1

Hi There,

Today I will be discussing how to get into residential investment properties.  If you do not currently own an investment property this will give you some great tips on how to avoid a mistake.  Remember, not all properties are created equally!  Age, purchase price, location, condition, and rent price should be considered before purchasing an investment property.

It's imperative that you work with a REALTOR who is an experienced property manager or has connections with one or more experienced property managers.  Since renting properties and selling properties are not always synonymous you will want the expertise of both.

The numbers I will be working with are based on cash on cash return and assuming you do not have a mortgage on your residential investment property.  There are too many variables to consider when looking a mortgaged investment properties.  I realize not everybody has the cash to purchase a residential investment property so you will need to use your numbers and the numbers I provide in this blog to decide if the risk is worth the investment.

In my local area, Colorado Springs, our average sales price is around 180,000.  This is a large investment and you will need to make serious considerations before taking the plunge.  You will want to make sure you purchase a home that will give you the best return for your money.  Please understand your rental property will take as much or more maintenance and upkeep than your personal residence.  This will need to be adjusted for when purchasing your property.  A good rule of thumb is plan to spend 2% of the homes value each year in upkeep and upgrades.  There will be years where you have no repairs, and years where the major systems will fail at approximately the same time.  2% is an average and based on my experience is a good indicator.

Many people make the mistake of believing people will maintain your rental property the same you way you maintain your personal residence.  This is a fallacy!  Although properly vetted, quality tenants do not typically abuse the property, they are not responsible for most major upkeep this is your responsibility.  Homes built before 1978 could potentially be more costly to maintain and update due to the possibility of lead paint.  In Colorado, contractors have to be certified to deal with lead based paint properties and the cost is substantially higher.  A great way to know what you are getting into is to hire a company prior to purchasing the home to thoroughly test for lead paint.  If no lead paint is found you do not have to worry about the lead based paint laws.  In our area, lead paint was used in mostly high end homes and on the exterior.  Lead paint is scarce in homes built after 1960 but all pre 1978 properties should be tested so you know for sure!

That's all for today.  This is going to be lengthy so I will break it into multiple parts!

Sincerely,

Daniel Muldoon

Introduction to Residential Investment Property-Considering a Properties Age

Newer=Better may be a natural thought process but don't just assume a property is better because of it's age.  In fact, many times the old adage "they don't build em like they used to" applies to homes as well.  If you look at a 2x4 in a 1950's home and you look at a 2x4 in a new build, you will see the older 2x4 is much stronger and sturdier.  Unfortunately this type of wood is no longer available and like many things in todays day in age, you get less and pay more.

Older and newer properties each have their pros and cons and they will need to be considered before you purchase.  An older home could be more maintenance intensive (depending on what's been updated) but it could offer a lower purchase price.  If you are handy, or have a crew of your own, purchasing an older home could get you more home for the money.  In Colorado Springs which is an arid desert climate, the older neighborhoods have mature trees and shrubs which appeals to some people.

Newer homes on the other hand usually require less day to day maintenance but will cost more up front.  If you purchase a new build you will need to consider the cost of landscaping, fencing, blinds, etc.  These costs can ad up quickly and are easy to overlook when purchasing.

If you are looking at an older home it's important you have the sewer line checked.  It's common for low spots and collapses to have happened over the years without any one knowing.  This could end up costing upwards of $10,000 to correct.  You are more likely to find an older home on a slab foundation.  This means there is no basement and no crawlspace.  A lot of the plumbing and electrical are run under or even in the concrete!  The cost for completing repairs will skyrocket if you need to jackhammer out concrete to access the problem.  I strongly suggest purchasing a home with at least a crawlspace.  This will usually give you or maintenance personnel access to the major plumbing, heating, and sewer lines.

Age is not much of a factor when purchasing a residential investment property as long as you do your homework first.  Don't rule out old homes assuming they are maintenance nightmares, and don't get caught assuming a new/newer home won't have maintenance problems.

Sincerely,

Daniel Muldoon

Introduction To Residential Investment Property Blog

Hi There,

My name is Daniel Muldoon and I'm a REALTOR and Property Manager in Colorado Springs, CO.  I have created this blog to spread news, statistics, and personal thoughts about investing in real estate, purchasing residential investment properties and much more!  I hope you will visit my property management how to blog as well as my companies real estate webpage.

Although many of my posts will be directly related to property management in Colorado Springs, I will also post about nationwide management, Apartment news, and general real estate information.  I am happy to answer any questions or concerns you may have about purchasing and owning residential investment properties and hope to make this an interactive forum.

If you are looking to purchase residential investment properties in and around the Colorado Springs, CO area be sure to check out our current inventory of foreclosed properties on www.muldoonassociates.com!

Sincerely,

Daniel Muldoon