Real Estate as a Retirement Tool

4 Ways to Make Money on Real Estate Investments Many real estate professionals use their experience in buying and selling properties to finance a comfortable retirement. "As real estate professionals, we're uniquely qualified to implement various investment strategies and to see opportunities that many people are never exposed to. Those who don't participate are missing a golden opportunity," says Dan Bohlke of Bell-Key Properties Inc. in Hampton, Va. Consider these real estate investment strategies.1. Buy and hold for rental income. For the last 14 years, Bohlke and his business partner-wife, Karen, have been systematically buying well-located single-family homes at or slightly below the current median sale price for their area—from $80,000 to $120,000. Most are acquired by assuming existing mortgages of former owners or through owner financing. Once the properties are paid off, they generate about a 7.5 percent to 8 percent annual rate of return. That means a $100,000 house that is paid for should produce about $7,500 to $8,000 a year in spendable cash flow after paying real estate taxes, insurance, maintenance, management, and other fees. "You need just $1 million in paid-for real estate—or 10 homes costing $100,000 each—to produce a real retirement income of $75,000 to $80,000 per year," Bohlke explains. "It self-adjusts upward with inflation, so you won’t be living on a fixed income. And as the properties increase in value, so does your net worth.”TIP: Buy properties near each other; it’ll make management easier.TIP: Using a professional property management company to manage your investments creates a liability barrier between you and your clients because the property manager handles all day-to-day operations and assumes a portion of the risks from issues such as lead-paint disclosure and fair housing practices. —Daniel Bohlke, Bell-Key Properties Inc., Hampton, Va.2. Buy, hold, and eventually sell. Another strategy used by Dan Bohlke is what he calls “the real estate garden concept." Periodic, sequential investing involves acquiring properties at the rate of one or two per year and then systematically reselling them after 12 to 15 years. "The soil is your local real estate market, the seeds are the properties you acquire, and the fruit is rental and sale proceeds," he explains. "When your crop matures after 12 to 15 years, you can start selling the properties each year in the order of their purchase, using a portion of the proceeds of each sale to reseed your garden (acquire more properties) and using the remainder to live on in retirement." With this approach, two properties acquired per year and sold after 15 years should produce a perpetual income stream of more than $100,000 a year, even after setting aside enough money to continue acquiring two properties per year. Another choice is to sell off half the properties you've acquired over the years and use the sale proceeds to pay off the other half. This would create a cash flow from the remaining paid-for properties as in the buy-and-hold strategy above.3. Buy and resell. Real estate professionals often have the advantage of recognizing changing markets or houses with untapped potential and are able to capitalize by buying low and selling high. Eric Goosen, Goosen Realty Services, St. Clair Shores, Mich., buys two-to-four-unit rental buildings. Because he lives at each property, Goosen’s often able to put only 10 percent down, as opposed to 40 percent or more for investment property. Often he holds the property for two years, so he can take advantage of the $250,000 capital gains exemption on the sale of a personal residence to avoid a portion of the taxes on the sale. Goosen also renovates the properties to increase their value. TIP: Institute a guaranteed sales program to buy the homes that don't sell by the end of the listing period at your company; it can create a ready made pipeline for new real estate investments. —Bill Watson, Watson Realty Corp., Jacksonville, Fla. TIP: Don’t take advantage of a buyer’s plight and buy a home at an unfair price. It will damage your business reputation in the community. 4. Build and sell. Developing properties isn’t for everyone, but your market knowledge often helps you identify up-and-coming areas where in-fill development is justified. In New Orleans, Bill and GiGi Burk of Burk Realty use a computer-based analysis program he developed to determine the highest cost-per-square-foot price the market will bear. He then compares that cost to the actual estimates for buying land and completing construction and determines if he can sell the property for a high enough return (15 percent to 25 percent or more) to justify the risk. Equally tough is paperwork and patience needed to obtain permits and local zoning approvals. Downtimes in the market are a great time to execute a develop-and-sell strategy, says Bill Burk. “We’ll be ready when the market comes back.”TIP: You can use pre-tax retirement dollars to investment in real estate through a “self-directed” IRA. All income and expenses from the property are paid for by the IRA, but you can make buy and sell decisions with the approval of the account’s custodian.

Reprinted from Realtor Magazine Online (April 2008) with permission of the National Association of Realtors. Copyright 2008. All rights reserved.

Did You Know it's a Buyer's Market Out There?

Unfortunately we keep getting inundated with negative news about the housing market. There is no question that in some areas of the country the market is bad. Home loans made to borrower’s who could not afford them in the long run coupled by depreciation in value are fueling the vast majority of the problems. But not in our area! The Rochester area has been fairly insulated from this mess.
In Rochester, I think, our housing market problems continue to be a result of the media reports which have made both buyers and potential sellers extremely skittish. But, out of this adversity comes an incredible opportunity, first for buyer’s and then for sellers.
What I have been noticing lately is the affordability of the existing inventory and the value that can be found in every corner of the community. When a buyer joins this affordability with low mortgage interest rates, opportunity abounds!
The Rochester real estate market provides buying opportunities for both owner-occupants and investors. If you are thinking about buying a first home or a new home, NOW is the time to buy! If you want to increase your investment holdings, NOW is the time to buy!
Contact me today so that I can help you take advantage of the Rochester Buyer’s Market Today!

Wealth Effects of Homeownership

A recent survey showed three out of four homeowners said their home represents a large portion of wealth, and many use the value of their homes when making important financial decisions.

The buildup of home equity provides Americans with both financial resources and security. Homeowners use their home equity to get cash for emergencies as well as the purchase of big-ticket items. In addition, the capital gains people realize from the sale of their home are a significant source of downpayment funds for most repeat buyers, but are used for other purposes as well.

For owners who clearly understand the value of the wealth in their homes as opposed to the value of their stocks, bonds and pension plans, the survey found that three out of four home owners say their house wealth is greater than their stock wealth. Given the stable growth in home values over time, especially when compared with other kinds of investments, it gives people the confidence to use that equity for various needs.

Given the increasing volatility in the stock market over the last few years, this underscores the importance of homeownership as the primary nest egg for most Americans.

Nearly two out of five repeat home buyers chose a more expensive home to further improve their standard of living and increase their potential for building even greater household wealth in the future.

30-Year Mortgage Rates Fall to 4-Year Low

Daily Real Estate News January 25, 2008
Housing industry observers are hopeful that the recent decline in mortgage rates will lead to a recovery in the market. Freddie Mac reports that interest on 30-year, fixed loans fell for the fourth straight week, landing at their lowest level in nearly four years. Economists say mortgage rates averaged 5.48 percent for the week ended Jan. 24 -- down from 5.69 percent a week ago -- because of the latest reports about the economy and because the Federal Reserve made its biggest cut in 20 years to a key interest rate. Freddie Mac also reports that rates on 15-year mortgages declined to 4.95 percent from 5.21 percent, rates on five-year adjustable-rate mortgages dropped to 5.13 percent from 5.4 percent, and rates on one-year ARMs slipped to 4.99 percent from 5.26 percent. Source: Baltimore Sun (01/25/08) © Copyright 2008 Information Inc.

Reprinted from Realtor Magazine Online, The Weekly Real Estate News, December 2007, with permission of the NATIONAL ASSOCIATION OF REALTORS. All rights reserved. http://www.realtor.org/realtormag

Sanity-Saving Tips for New Landlords

Daily Real Estate News October 26, 2007 Thinking of becoming a landlord? It's not as easy as you might think, experts say. Here are six rules that will help you find good tenants and make money. Rule 1: Don’t be deluded about the market. Joseph Cooper, vice president of Massachusetts-based Monument Mortgage, cites "underestimating the cost in time and the cost in money of actually owning property" as the biggest mistake investors make. To overcome that weakness, he and others suggest studying local vacancy rates, getting a good appraisal and gathering information about any construction in the area that could change the status quo.Rule 2: Get out your calculator. To get a good estimate of the initial rate of return: Take the first-year revenue minus estimated first-year expenses (including some value placed on your time) divided by the full cost of the property when purchased (essentially price plus transaction costs minus mortgage). To calculate the rate of return in later years, divide by estimated equity in the property (what you could sell it for after deducting transaction costs and the remaining mortgage), taking into account price appreciation or depreciation. It’s also wise to consult an accountant on how much of a tax and cash-flow benefit depreciation will provide.Rule 3: Choose tenants carefully. Prospective tenants who respond promptly and conscientiously to calls or e-mails and who show up on time to see units likely will be responsible when it comes to paying rent and taking care of the property. And be careful to observe discrimination laws. Landlords can choose among prospective tenants for economic reasons that arise after credit, employment, and reference checks. Set financial standards for prospective tenants that make you comfortable that they can cover the monthly rent.Rule 4: Avoid getting sued. An aspect of the landlord-tenant relationship that can lead to litigation include mishandling of security deposits. If a tenant pays a security deposit, in many states several conditions must be satisfied, including placement of the money in an interest-bearing account and inspection of the property. Other issues include lead paint levels and failure to provide a minimum standard of habitability.Rule 5: Get Expert Help. Keep an electrician on speed-dial — as well as a plumber and handyman. It also helps for landlords to know a good lawyer, financial adviser, mortgage broker, and real estate professional.Rule 6: Forget about flipping. "Anybody who buys something and says to you, 'I'm going to make a ton of money in two years and sell this thing' isn't being realistic," says mortgage banker Joseph Cooper. "That does happen, but it's extremely rare. You should be buying real estate with the idea that you're going to hold it for five to 10 years. That will take you through a cycle of up and down." Source: Boston Globe, Shira Springer (10/21/07)

Reprinted from Realtor Magazine Online, The Weekly Real Estate News, December 2007, with permission of the NATIONAL ASSOCIATION OF REALTORS. All rights reserved. http://www.realtor.org/realtormag