Colorado Springs Real Estate Blog

Monday, 28 September 2009

Hi Folks, in order to understand what I am talking about Fix and Hold we need to review simple rental investment. Buying a rental is in my last blog.

When buying a rental investment one must look at the cash return on investment. That is the net profit divided by the initial cash investment. As exampled in our last blog, the yearly profit after paying the payment was $2,400. The investment was $28,000. Divide the profit by the investment and the return (ROI) was 8.39%. In addition to the cash return there was appreciation and tax advantages that could bring your return as high as 40%.

When doing a “Fix and Hold”, follow the same formula. The only difference is adding the costs of improvements into the initial investment. Using our previous example let’s look at the same property but assume it needed $8,000 of improvements for yard, paint and carpet. This is how the formula would look:

Home Price = $130,000

20% Down Payment =$26,000

2% Closing Cost = $2,600

Repairs =$8,000

Total Investment = $36,600

Loan Amount = $104,000

Rent = $950 per month

Payment 5 ¾% =$750 per month

Profit = $200 per month

=$2,400 per year

Cash on Cash = Yearly Profit = $2,400. The investment w/repairs is $36,600. Divide profit by investment - $2,400 divided by $36,600 = 6.56% return on investment (ROI). Not bad but there is more.

You also get to add appreciation which I average at 3%. Add 3% to $135,000 (assuming the improvements improved value) = $4,050.

Add profit to appreciation $2,400 profit

$4,050 appreciation

$6,450

Now your return is $6,450 divided by $36,600 = 17.62% on investment. Pretty nice but that’s not all!!

In addition to hard cash as shown above there are tax deductions that are allowed that will really make your profit grow. Once again know your numbers. Call me, I do!!

Thanks,

Brian

POSTED BY: Brian Maecker AT 07:53 am | Permalink | 0 Comments | E-mail this

Monday, 21 September 2009

Buying an Investment Property: Part 1 - Rental

BUYING AN INVESTMENT PROPERTY

PART I – RENTAL

This is the first of 3 part blog about buying investment property. There are many different styles, methods and philosophies. I will be covering Straight Rental- Part II will be Fix and Hold and Part III will be Fix and flip.

Buying an investment in real estate is tricky at best. The biggest mistake I see is folks who don’t know how to figure true cash flow, otherwise known as Cash on Cash. C.O.C. is the return on the down payment, closing costs and any other initial investment. An example is as follows:

Home Price $130,000

20% Down Payment $26,000

2% Closing Cost $2,600

= Total Investment $28,600

Loan Amount = $104,000

Rent = $950.00 per month

Payment @ 5 ¾% = $750.00 per month

Profit = $200.00 per month

Cash on Cash = Yearly Profit = $2400.00 Now the investment is $28,600. Divide the profit by investment: $2,400.00 divided by $28,600 = 8.39% R.O.I (Return on Investment)

This is a real life scenario that one of our investors bought. He is making a 8.39% on his investment, but that is not all!!

You need to add appreciation. Yes the market is not appreciating today, but the 20 year average is over 3% per year. Using that number, add 3% to the $130,000 Sales Price that is $3,900.00

Add $3,900.00 to Net Profit $2,400.00=

Total Return $6,300.00

Total Return on Investment = 6,300 divided by $28,600 = 22.03%

Where are you making 22.03% return on your investments? But that is not all!!

In addition to hard cash as shown above there are tax deductions that are allowed which may make your profit jump to 40%. When you consider buying a rental, know your numbers and be realistic. I bought my first rental at 19 and as they say “The rest is history”

Thanks,

Brian

POSTED BY: Brian Maecker AT 01:37 pm | Permalink | 0 Comments | E-mail this

Thursday, 10 September 2009

Cancer

Today’s Blog is varying from where I usually speak to. Recently a couple of good friends and my uncle have been diagnosed with cancer. Last year I lost a close friend to Bile Duct Cancer. At that time I found this poem. My hope to all of you is that we never experience cancer, but if we do we find some inspiration. I hope you like it.

Thanks,

Brian

What CANCER Cannot Do

Cancer is so limited…

It cannot cripple LOVE

It cannot shatter HOPE

It cannot corrode FAITH

It cannot destroy PEACE

It cannot kill FRIENDSHIP

It cannot suppress MEMORIES

It cannot silence COURAGE

It cannot invade the SOUL

It cannot STEAL ETERNAL LIFE

It cannot defeat the purpose that

GOD put us on the planet to do.

It can make you a better person,

and you are now able to support

others who are going through this

trial by sharing and supporting

another person such as you.

Take care of yourself, smile, laugh,

share, be happy and encourage some

one else along the way.

GOD gave us the Gift of life, but what

We do with it is our Gift to GOD

HAVE A GREAT LIFE

POSTED BY: Brian Maecker AT 10:16 am | Permalink | 0 Comments | E-mail this

Tuesday, 01 September 2009

TAX CREDIT

The tax credit is coming to an end. At the end of November 2009 the $8000 tax credit will no longer be able to be used.

What is the $8000 tax credit? The tax credit is exactly what it says, “It’s a tax credit”. It cannot be used for down payment or closing costs. It does not come to you in the form of check. It comes to you as a credit when you file your 2009 tax return. The U.S. Government as part of the stimulus package instituted the $8000 tax credit to first time home buyers. If you are a first time home buyer then you can file for the credit.

All of us in the real estate community have been lobbying our Congress to extend this credit. We have also been asking that this credit be used for all buyers as long as they are owner occupants. That is also true of the first timers is that be owner occupants. Since home prices have fallen and interest rates are low, it’s a great time to be a first time buyer.

So why are so many of you waiting? Are you waiting for prices to go lower? Are you waiting for rates to go lower? I don’t know! I do believe that in my 25 years of selling real estate I have never seen such a perfect scenario. The prices are low, the interest rates are within ½% of record lows and you get a $8000 tax credit. Call us now before it’s over. I know you will be happy you did.

Thanks,

Brian

POSTED BY: Brian Maecker AT 07:42 am | Permalink | 0 Comments | E-mail this