Adjust Net Income For Determine Cash Flow Is Correct Real Estate Investors – Get Off The Sideline And Get Into The Game In A "Slow" Market

You are searching about Adjust Net Income For Determine Cash Flow Is Correct, today we will share with you article about Adjust Net Income For Determine Cash Flow Is Correct was compiled and edited by our team from many sources on the internet. Hope this article on the topic Adjust Net Income For Determine Cash Flow Is Correct is useful to you.

Real Estate Investors – Get Off The Sideline And Get Into The Game In A "Slow" Market

Now many Realtors are wondering where their next sale is coming from. Bad news drips from the front pages for all to see how bad the real estate market has become. A thicket of real estate signs pops out of the ground like the peak of any mushroom season. Sellers are now buying into the story, assuming the market is slow. For buyers who were suddenly snapping up prices six months ago with a property with very little cash flow, the same property has turned ugly overnight.

Smart investors always look for buying opportunities. Whether it’s stocks, coins, gold, bonds, collectibles, antique cars or real estate, investment principals apply. A typical successful opponent looks for spots to make a move. If there is no profitable action, they simply remain liquid and go to cash. Astute investors begin to lean forward on the edge of their chairs and focus their collective attention on potential opportunities when the general public starts wringing their hands. Currently, there is a large inventory of properties on the market listed on Multiple Listing Services (MLS) in many areas. Some of these potential opportunities have motivated the seller while others have not. The focus must be on listed properties that have a motivated seller.

A lot of cash is coming back into the stock market with the likes of Google pushing $500+ per share. Many “hot” stocks don’t have high earnings, but they have great stories and a lot of promise. Like the dot com companies in the 90s there was a lot of splash and a lot of broken hearts in the wake of the hype. After the stock market crash, crores poured into the real estate business as an alternative to the stock market frenzy. The ENRON and WORLDCOM scams made the decision to get into real estate too easy for many investors. Who can you trust at that time? The answer for many is to buy and manage their own real estate portfolio. Many disillusioned investors are now turning to the stock market after healing their wounds and getting ‘treated’ by asset management. As many investors purchase single-family homes, some areas have increased vacancy and reduced utilization of these properties. A combination of high vacancies and the thrill of asset management started the stock market’s return. For many new to the game, real estate investors desperate to get back into the stock market cause cloudy thinking, and many will accept an offer unheard of six months ago. A smart investor will target those motivated sellers and make multiple offers to secure a real estate deal that has the potential for cash flow and appreciation.

The initial axiom of real estate investing is based on making money on BUYs. Paying more for a property that has little or no cash flow with little appreciation is not a good idea. When the market is overvalued, like the stock market, the smart money looks for other opportunities or sets on their cash and waits. Opportunity is knocking in many markets. Interest rates are currently at record lows for some time. Real estate investment trusts (REITs) learned soon after the 1986 tax law that high leverage properties yielded low cash flow without the previously low depreciation benefits. The same is true of real estate investors. 80% loan-to-value financing is asking problems without highly commendable areas. There are some pockets, however, they are currently far and few between.

Looking at the fourplex as an example, it would be better to focus on properties that have the potential to command higher rents with little change in the market place. Two bedrooms would be most desirable. There are many rental clients who need home office space and/or additional bedrooms for starting families. One-bedroom units are limited to rent orders in the market place. In some markets, for example, fourplexes can be on the market for $375,000. Rents are said to be in the $850/month range. This will yield a gross rental income of $3,400/month. Adjusted gross income with a 5% vacancy factor is $3,230/month. Tenant customers pay their own electric, gas, cable and water and sewer with separate meters. Taxes are $350/month and insurance is $220/month. For this example let’s use 10% of the rent collected for management costs whether self-managed or not. Regardless of investment it is essential to carry yourself. This would be $323/month for management. Use $200/month for maintenance and lawn care. The idea is to maintain the property well and position it that way to get the highest rent. This would result in: $3,230 adjusted gross income less $350-$220-$323-$200=$2,137/month available for debt service. At this point, if the seller pays up to 6% of the closing costs and prepaid, there will be some left over to help the buyer lower the rate. With 375,000 x 6% = $22,500. Closing costs and prepaid with full escrow for taxes and insurance can be in the $12,000 range. That leaves $10,000 for rate purchases. With 80% loan to value, the mortgage amount is $375,000 x 80% = $300,000. Investor loan on four units based on fully documented loan at 6.25% rate, 1% lender bump on cost of 3-4 units at 80% LTV.

So with a buy down the buyer can get a 30 year fixed rate at 5.75%. Principal and interest payments will then be $1,750.72/month for principal and interest. This will leave initial cash flow after debt service excluding interest and depreciation of $2,137-$1,750.72/month = $386.28/month cash flow. The interest deduction will be $17,250/year. Depreciation on the land with $75,000 is an improvement of $300,000/27.5 = $10,909.09/year. Thus our after-tax cash flow net operating income would be: $25,644/year – $17,250 interest deduction – $10,909= ($2,515) tax loss. If the owner is in the 30% tax bracket, this will save $754 in federal income tax.

Thus the total after tax refund is $386.28 x 12 = $4,635.36 + tax savings of $754 = $5,389.36. Cash down payment of $75,000 with seller assistance plus closing costs and rate buy down return $5,389.36/$75,000 = 7.19% after tax return. If a conservative 4% appreciation rate is allowed, an initial investment of $375,000 x 4% would theoretically appreciate $15,000 over time. Then the total adjusted return would be $15,000 + $5,389.36 = $20,389.36/$75,000 = 27.18% less say 4% for inflation or a net return of 23.18%. It should be noted that this return will be subject to capital gains tax and ultimately some depreciation recapture and thus muted. If you’re self-managing, that money can go toward extra upgrades or out of pocket. That’s not a bad thing for the long-term minded investor. This is an example of a benefit at work.

If a certificate of deposit is paying 6% on $75,000 it will earn $4,500 and again in the 30% tax bracket the return would be $4,500-$1,350 = $3,150/$7 Total return would be $4,500 x 30% = $1,350. By comparison, however, if inflation is 4%, the net profit will be .2% without risk. The above investment has been planned by the management.

Now is the time for many astute investors. Buying an investment property can make some sense from an investment standpoint because of good pricing and seller help on closing costs and interest rates. The key is to find a motivated seller and a property that can command the highest rent and multiple offers. For buyers with challenging credit, asking the seller for a second mortgage at a lower rate can also work the numbers. In any case, it’s time for many real estate investors to get off the sidelines and dive headfirst into this soft real estate market with the primary goal of finding and acquiring “make earth” properties with cash flow. The market is begging for offers.

Video about Adjust Net Income For Determine Cash Flow Is Correct

You can see more content about Adjust Net Income For Determine Cash Flow Is Correct on our youtube channel: Click Here

Question about Adjust Net Income For Determine Cash Flow Is Correct

If you have any questions about Adjust Net Income For Determine Cash Flow Is Correct, please let us know, all your questions or suggestions will help us improve in the following articles!

The article Adjust Net Income For Determine Cash Flow Is Correct was compiled by me and my team from many sources. If you find the article Adjust Net Income For Determine Cash Flow Is Correct helpful to you, please support the team Like or Share!

Rate Articles Adjust Net Income For Determine Cash Flow Is Correct

Rate: 4-5 stars
Ratings: 2402
Views: 23996032

Search keywords Adjust Net Income For Determine Cash Flow Is Correct

Adjust Net Income For Determine Cash Flow Is Correct
way Adjust Net Income For Determine Cash Flow Is Correct
tutorial Adjust Net Income For Determine Cash Flow Is Correct
Adjust Net Income For Determine Cash Flow Is Correct free
#Real #Estate #Investors #Sideline #Game #quotSlowquot #Market

Source: https://ezinearticles.com/?Real-Estate-Investors—Get-Off-The-Sideline-And-Get-Into-The-Game-In-A-Slow-Market&id=374100

Related Posts