Friday, April 25, 2014

Tax Liens for Real Estate Investors

With a large numbers of Americans now looking for safer investments for their long term wealth building programs. Most want higher returns than they can get from putting their hard earned money into Bank CD's, many are seeking information about Tax Liens and Tax Lien Investing. Investing in Tax Lien and Tax Deed certificates will enable you to realize safe, annualized returns all guaranteed by the United States Government.

The collection of Real Estate property taxes is a major priority in every taxing district in the USA, as all home owners know all to well. If a county were unable to collect those taxes in a timely fashion, it would be unable to provide the public with important services such as the police and fire departments and schools for our children. To avoid this problem, all counties in 26 states across the US will place a Tax Lien on any property with delinquent property taxes and then sells the delinquent tax debt to investors. The county gets their money, the tax delinquent taxpayer gets more time to pay their already past due property taxes and the investor gets a Real Estate secured high yielding investment.

Tax Liens are often called the “Fort Knox” of investments. Government issued Tax Lien certificates are a safe investment for the following reasons. The constant rise and fall of interest rates do not have any affect whatsoever on Tax Lien Certificates because the interest rates of Tax Lien Certificates are mandated by State law. Basically, you are investing in the Government. When they have collected the past due taxes, you will send them the Tax Lien certificate and in return they will send you a check covering the money you paid for the certificate plus any outstanding interest.

The ups and downs of the stock markets will have no affect whatsoever on the rate of return. Each State has a mandated length of time for the delinquent taxes to be paid. If they are not made current during this time period, the property is sold to pay the debt. 

The following are examples from three states showing the lucrative business of Tax Liens:
  • 16% per year in all 15 counties in Arizona
  • 18% per year in all 67 counties in Florida
  • 50% per year in all 254 counties in Texas

Most properties will have an outstanding mortgage. Generally, the lender will pay these delinquent taxes before it gets to the foreclosure stage. The certificates can also be sold or transferred at a discount before the due date allowing the investor to make a smaller profit on the certificate should there be a need for cash for whatever reason.

The main advantage to the new or smaller investor is that there are many thousands of Tax Liens/Deeds for sale at every budget level. In the old days, you would have to travel thousands of miles across the country to auctions if you wanted to buy Tax Liens/Deeds. Now you can do it from the comfort of your own home using the internet.

Thursday, April 24, 2014

Commercial Real Estate Requires Patience

A commercial real estate investment refers to the class of real estate that is primarily meant for investing money for profits later on. Examples of such properties include:

  • Restaurants (this includes franchises)
  • Retail Stores
  • Office buildings
  • Medical Buildings
  • Health and Fitness Centers
  • Self-storage (Mini-storage) and industrial
  • Strip malls
  • Hotels (also called "hospitality")
  • Multi-family / apartment buildings

Why invest in commercial property?
Unlike residential real estate, Commercial real estate investments are evaluated, bought, and sold based purely on numbers - on a set of factors that describe what kind of return on investment you can expect with the property. Most Commercial real estate investments are expected to make a return for you on an on-going (monthly) basis. With the retail boom and increasing return on investment in the commercial real estate market, the value of commercial real estate has grown by leaps and bounds, particularly, in the commercial areas, where the local retail shops and shopping complexes have been replaced by huge and swanky malls.

What to expect?
Remember though! Commercial real estate investments are a long term opportunity, do not expect to increase you net worth over night. No one is going to profit all of the time. Real estate investors have to suffer through times of little to no cash flow - it is part of the game.

This may cause panic but if you can stick with it for the long term, cash flow will increase. Investing, especially in real estate is not for the weak of mind or body. It can be frustrating, and stressful. But for successful investors the rewards are priceless.

Commercial Real Estate Requires Patience

Investing in commercial real estate requites an investor to be patient. If you make a good choice on your property purchase the profits will come but it may take some time.

A few years back I purchased an empty warehouse that I intended to divide into smaller sections and rent. The warehouse was converted into six separate rentable areas. Shortly after renovation, three of the areas rented but, no one seemed to be interested in the remaining units. It was nice to have three units rented but, the rent I was receiving wasn’t covering my expenses.

I knew that with commercial real estate I had to be patient and wait for the right opportunity. Finally, after almost 2 years I found a renter for one of the units. A local business man was looking to start a small home town health and fitness center and felt my location was ideal. He signed a one year lease for one of the units and soon opened for business.

His business started off slow and it seemed that he may close his doors at the end of his one year contract. However, just before his one year anniversary his health club membership began to quickly grow and he decided to extend his lease for an additional year.

The second year proved to be magical; in fact he was doing so well that he needed to expand his space. Fortunately for both of us I still had two units available. He rented the remaining two units and began his expansion project. Besides offering the typical fitness center amenities such as weights, treadmills, stair climbers and other various excise equipment, he began to add staff and product. He hired a few fitness trainers and began selling different workout supplements for his members. His business exploded, which was a benefit to both of us.

By the end of the second year things were going so well that my tenant signed a 10 year lease for all three of the units he was renting. Now, my commercial investment has transformed from a liability into an asset.  The property is making a great profit each month and will continue to do so at least for the next 10 years or so, all it took was a good investment and patience.

Wednesday, April 23, 2014

Commercial Real Estate Pitfalls

As wonderful and constant as commercial real estate is, there are some major pitfalls that can completely ruin the interest, investment and return on a property. Besides inaccurate assessments and risks that are beyond your comfort zone, the only real reason these pitfalls occur is because of the lack of due diligence that investors perform. By not investigating deeply enough, not overturning every rock, and rushing into what seems like an awesome deal, you can experience some horrible events that can literally cost you hundreds and thousands of dollars.

These are setbacks (I hope you never experience) that can be avoided by asking every question, verifying everything, and assuming nothing.

Below you will find some unfortunate and common mistakes that can occur if you are not completely on your game.

Some of the major pitfalls in commercial real estate are related to the zoning and use of a property. Brokers may offer information that is not accurate about the rezoning and use capabilities of a property. Although many of the people in this business are honest and have integrity, you can bet you will run across a few brokers or agents that will do and say almost anything to sell a property.

Some problems that arise may include not checking with the city planning and zoning decision makers to see if a property can and will be able to be rezoned to the zoning that is expected. Also, just because the zoning may include your use, you must check with the city to make sure there are no special contingencies regarding use.

The last thing you want is to have a property you believe can be re-zoned to a higher and more profitable use, and after you purchase it, realize you cannot do what you intended! This can mean less of a return on your investment, or a complete loss of an investment. Believe me, situations can get very bad regarding the rezoning and use of a property, and fighting with the city will take more money, energy and time than it is often worth.

Another pitfall that can arise is purchasing a building that is leased, and then losing tenants due to leases or rental agreements being up! It is important to see and verify the leases of a building to make sure you will have some income to cover the debt service while you change, renovate, or do whatever it is you are going to do with the property. Verify you will have tenants when you purchase the property; otherwise, you may not have enough income, and this can leave you in the red.

It must be acknowledged that every property and situation can differ greatly from one another. Because of this, there can be many different ways that a property can go. For this reason, all “what ifs” must be addressed, as well as exit strategies created for every scenario. When you limit yourself on exit strategies, you increase your possibility for failure.

With every property you must ask yourself, “What is the worse that can happen?” Weigh the risks and the probability of the worst happening, and either plan an exit strategy for this possibility, or don't move forward. You must look at everything from the worst to best case scenario, and have an exit strategy for each. Not only will you be prepared for anything that comes your way, but you will have less of a chance of really getting buried and losing money on an investment gone badly.

In commercial real estate, I often see a person trying to save a few thousand dollars that ends up costing him or her hundreds of thousands, just because they try to play hard ball with negotiations. It is always important to know what you are willing, and not willing to do when you go into negotiations regarding the purchase or selling of a property, as well as leasing and rental agreements.

For example, asking for $35.00 per square foot and being offered $30.00 per square foot, (reasonable in this situation), and assuming the interested party is very motivated about the space, and coming back with $33.00 a square foot and nothing less, my cause the loss of the three year leasing agreement, and the income for another two months from the property because it is not leased out is definitely not worth it!

Take the $30.00 per square foot; get the property leased up, and make an agreement that the rate will increase two or three dollars every year after. Don't lose the tenant because you want to play hard ball in negotiations when, really, you can make it work!

As you become more educated and get closer to reaching your goal of being a real estate insider, you may want to branch out into new markets and expand your comfort zone. This is great. However, you must realize there are many differences between various types of properties. Doing a deal with a 120 unit apartment complex is different than a 55,000 square foot office building.

When moving into different markets, items can easily be overlooked, and major problems can arise, simply because you are not aware of them. It is often a good idea to partner with someone already in that new market so that you may have the benefit of experience and know-how on your side. Learn form this venture so you will be more familiar with the market, property, and how it should be addressed. It is easy to get in over your head with new markets that can lead to major and expensive problems.

As you continue on your adventure in commercial real estate, be sure to do all your homework regarding a property. You will be less likely to run into problems, or better yet, be prepared to fix the problems if financially worth it. Never assume everything is as it appears, because, more often than not, it isn't! You must play smart in this game, or you can lose everything. Use you resources to get the best and most accurate information and you can avoid these pitfalls in commercial real estate.

Monday, April 21, 2014

Good Locations for Real Estate Investing

Where are the best investment real estate locations? If you have enough experience investing in real estate, you can make money almost anywhere, but there are always places that are better or worse for real estate investments.  For maximum profits, you want places that have a better demand/supply ratio. You can use the questions below to find them.

Real Estate Demand

 1. Does the area have decent job growth? Ask local authorities and use census information. Ideally, you want to see job growth equal to or exceeding population growth. You also want areas with professional jobs moving in. It is estimated that for every professional job created, there are four service jobs created, and all those employees need a place to live.

 2. Is the population growing? You can check the US Census figures online, or ask the local government if they have the statistics. Stay away from areas that have little growth.

 3. Is there a decent quality of life? It's subjective, but important. Are there theaters and bookstores? Count coffee shops and cafes. Trendy areas usually have increasing demand for housing. It's also a good indication of a high quality-of-life if people are willing to take lower-paying jobs just to live there.

 4. Is there wealth in the area? It's a good sign when there is some degree of wealth in a town. Look for nice homes. Wealth means everything doesn't die when the economy slows.

5. Is there a demand for housing in the area? One factor that you must always consider is the demand for housing in the target area. Often times, purchasing a vacation property in a popular resort community can be a wise investment. A few years ago I decided I would invest in property in a sought after beach community on the Atlantic coast. I look at many beach towns and finally decided that one of Georgia's barrier islands would be a smart choice. After a little due diligence, my research indicated that a real estate investment in Tybee Island Georgia should prove to be a good selection. I purchased a Tybee Island beachfront condo and began renting the property to travelers. Within the first year my ROI on the property was 75% greater than I anticipated. Investing in real estate in a vacation resort community can be a profitable investment provided you do your research first and ensure there is a demand for the area.

Real Estate Supply

 1. What’s the number of homes for sale? Lower supply of homes for sale means upward pressure on prices. This indirectly drives up rents as well, which makes for better investing.

 2. Is there new construction? Census figures can tell you what's happened over the last ten years. Check with the local authorities to see if the number of housing units they've issued permits for is more or less than the expected population growth.

 3. What are the rent and vacancy levels? Rents have to be high enough, and vacancies low enough to justify investing. When we first came to Tucson, every building had vacancies. We saw a man holding a sign that read, "Apartment - $250 Per Month." It may be a great place for renters, but not so great for landlords.

 4. Is the available land build able? Of course, less available land is better for future appreciation. When the land runs out, the prices start accelerating upwards.

When you use these questions to compare various towns and cities, you'll see the differences more clearly. You'll have an idea about how housing demand compares to supply in each. This will help you pinpoint the best investment real estate locations.