Posts Tagged ‘ cashflow ’

You’ve Got to Be Crazy To Invest in Rental Property

Whenever I talk to friends and family about investing in real estate I can tell that they are very intrigued with what we are doing.  However, I also get a sense that they think we’re a little crazy.  Well, maybe we are a little crazy but Kelly and I see investing in real estate in a different light.  Most of my family probably has a 401k’s or an IRA as their primary investment for retirement.  Well, to us it’s crazy to sock away money every month into the stock market in the hopes that it will go up for the next 30 years without any crashes.  My last post “Another Loss for the Year…Time to Cash in the 401k” shows exactly why I feel this way.   With the recent history of the stock market, we’ve all seen that movie before, and it doesn’t end well.  So, unlike the rest of the lemmings, we got a little crazy and started investing in real estate.

Now, I know they’re thinking we’re crazy because everyone has heard horror stories about tenants gone wild, or major issues people have run into while renting a property out.  Heck, I even have a great first hand story of my own.  When I was 10 years old my parents moved us to Michigan, and instead of selling our home in Chicago, they decided to rent it out.  Their horror tenant never paid them a cent, trashed the place, and because of sympathy from the courts it took about six months to evict them.  When all was said and done my parents decided to sell the property only to have it burn halfway to the ground the day before they were set to close.  It was a complete disaster for my parents, and it really set them back financially.  However, now that I look back, I can see the mistakes they made.  They didn’t fail because renting the property was a bad idea, rather they failed because they made mistakes all along the way.  They didn’t screen their tenants at all, they hired the next door neighbor to “look after the place”, and they certainly didn’t follow the rules for eviction when they needed to.

Well, our approach to renting properties is certainly a little different.  Kelly and I have taken the time to learn about investing in rental properties, and as a result, we’ve had a lot of success.  Now, I’m not going to say it’s been all sunshine and roses, but we certainly haven’t had anywhere near the issues my parents faced with their rental property in Chicago.  Have we had tenants not pay the rent, sure, but we’ve never had to evict anyone yet.  Have we had maintenance issues, sure, but we’ve budgeted those costs into our rentals.

You see, to be a successful rental property owner you have to anticipate what can go wrong.  If you can anticipate these things, you can manage things to either prevent them from happening or minimize the chances of them happening.  This is our approach, and we try to set up every aspect of the investment so it will be successful.  This includes the locations where we are purchasing, how we rehab our properties, how we screeen our tenants, how we set up our contracts, and the list goes on and on.  The beauty of it is that we are in complete control of the investment.  If things aren’t going right, unlike an investment in stocks, we can actively manage the investment making changes to get things moving in the right direction again. 

Currently we have 5 rental properties in our portfolio and after we pay all of our expenses, make monthly contributions to our reserve account and pay all of our loans we still cash flow approximately $1800 per month.  When I compare this to how my 401k has performed over the last few years, it really makes me crazy…but that’s why we continue to invest in real estate, and you can too.  If you’d like to talk about real estate investing, please give me a call or shoot me an email anytime and I would be happy to talk.  Maybe we can make you a little crazy too!

Day 42 – Details of Our Latest Property Sale

Well today is Day 42 in our drive for $60,000 in 60 days.  We’re heading towards closing on our latest property sale, and today I just want to go over some of the numbers on the property.

This property was actually the first investment property we ever purchased back in 2009, so it’s a little sentimental that we’re parting ways with it.  The property has performed greatly for us – it hasn’t seen 1 day of vacancy since our original tenant moved in, and the tenants are currently purchasing it on a lease option.  Over the 2.5 years we’ve owned the property we’ve averaged a 17% return, so it’s been a great property, and now we’re going to move on and re-invest those funds.

The details on this sale are fairly simple.  We have a sales price set at $51,000, and we currently owe approximately $33,000 on the property.  After transfer taxes, rent credit transfers, closing costs, and payoff of the debt service we expect to clear about $13,500 on this property.

So, this brings our total to date up to $27,815.86.

More to come…

Day 39 – Time for More Cash Flow

Today is day 39 in our drive for $60,000 in 60 days.  We’re a little behind on our updates, but rent was due on the first, so we’re going to give you a summary of our performance this month.

Currently we still have 6 properties in our portfolio, and as we’ve discussed 2 of them are under contract for sale.  We should complete these sales by the end of the month, but for now they are still in our rental portfolio.  Here is our cash flow summary for the month of August

As you can see we have improved very much over last month’s cash flow numbers because we have rented two of the properties.  We did incur heavy property management fees because of this in the form of tenanting fees, and as a result our cash flow next month should be even better.

Nonetheless, this brings our total to date up to $14,315.86 towards our goal of $60,000 in 60 days, and we still need to add the totals for our most recent home sale…we’ll cover that in our next blog post…

More to come…

Day 4 – Put Some Money on The Board

Well today is Day 4, and the good news is we have money to put on the board already.  Unlike last year, we really didn’t have many investments going when we got started, but this year is different.  Through our company, Michigan Turnkey, we have set up a number of cash flow investment properties that provide cash flow to us each month, and they are also a source for flipping properties…

Essentially our business model is to:

  1. Purchase property
  2. Rehab the property
  3. Hire a property manager
  4. Place a tenant into the property
  5. Sell the property as a turnkey investment to another investor

In this process we have two sources of income – cash flow from the rental properties after they are setup, and forced appreciation from the spread we are able to achieve in renovating the properties and setting them up as rentals. 

Well, today is July 1st, and you know what that means – Rent is Due!

Currently we have 6 properties in our portfolio.  Of these six, four are currently rented, one is under rehab, and one just went vacant.  Here is our cash flow summary for this month:

July Cash Flow Analysis

So as of Day 4, we’re about 2% of the way towards our goal of making $60,000 in 60 days.  The interesting thing about this cash flow analysis is that the two properties that are vacant right now are really hurting our return.  These two properties alone would add an additional $1500 in cash flow…time to get them rented.  The good news is I just got word from our property manager literally in the last 5 minutes that we’ve received a rental application for one of the properties…we’ll see how that turns out.

More to come…

Our Strategy to Provide Turnkey Rental Properties at Michigan Turnkey

As many of you know, we have been actively working at putting together our new company Michigan Turnkey, LLC.  We have been receiving a lot of questions about what exactly we are doing, so today we are going to dedicate this blog post to explaining our strategy with Michigan Turnkey.

So here goes…

In August of this year Kelly and I kind of stumbled into the Pontiac real estate market when we found a deal on a condo that we later ended up purchasing.  The numbers on this property were phenomenal compared to what we were accustomed to looking at on other rental properties.  Specifically, we saw the following:

  1. The cashflow on the property comes out at $442 per month which is about $300 per month higher than what we had been looking at in other areas.
  2. The purchase price was $17,500 which is less than 50% of what we had been looking at in other markets.
  3. The area we bought in was actually a really nice neighborhood (so nice, Kelly and I have seriously considered moving into the neighborhood). 
  4. If we had purchased for cash, our return would have been 30%…we leveraged financing on the property, and our return has skyrocketed to 68%.

So, we began to look at this and we are truly in love with this deal, and we want to find more.  So we began to look at the Pontiac market a little closer.  By evaluating more deals in Pontiac, we were able to figure out pretty quickly that we had gotten a pretty sweet deal on the condo we purchased.  However, we also found out that while most of the deals were not quite as good as the one we purchased, they were not that bad either.  We are finding that putting together a profitable deal with the following numbers is not too difficult at all to find:

  • Purchase price $25,000 – $40,000
  • Return on Investment 10% – 20% for a cash sale (leveraging financing nets higher return)
  • 3 bed / 1 bath with basement in nice areas of Pontiac

After looking at these deals, we decided that Pontiac was truly the place for us to be.  As we talked about in out article Getting to Know the Pontiac Real Estate Market, we started studying the market.  We wanted to find what areas of Pontiac were areas we should be investing in, and what areas we should be staying away from.  So, over a weekend we set out driving around Pontiac and we got a real good idea of where the nice neighborhoods were, and where the not-so-nice neighborhoods were.  We developed a “Green Zone” map in Google Earth and this serves as our first layer of evaluation for any property we look at in Pontiac.

Now, our strategy is quite simple.  We will take any property that we find in the green zone and apply the following process to it:

  1. Purchase the “Green Zone” property
  2. Rehab the property
  3. Conduct comprehensive tenant screening and place tenant into the property
  4. Place management company with property
  5. Sell property as a performing asset with tenant and property management in place

It is really that simple.  Now, we’re really not picky as to the status of the property when we purchase it.  If the property is vacant and in need of repair, we will buy it.  If the property is rented and in no need of repairs we will buy that one too.  In fact, if a property is in any state between these two scenarios, we will buy them.  The only thing that is going to vary is the purchase price we offer.  Obviously the more work we have to do to the property, the lower the price we are going to be able to offer.  It is really just a numbers game because in the end we have a targeted profit we’re looking to make on each property, and we want to be able to sell the property and provide our end buyers with a return on their investment of between 10% – 20%.

So, if you have properties to sell in the Pontiac market, please contact us.  We ARE buying.  Likewise, if you are looking for cashflowing investment properties that net between 10%-20% ROI and will cost you less than $40k to purchase, please call us.  We have properties that will make great investments for you.

Real Estate Investors – The Time to Invest In Detroit and Southeast Michigan Real Estate is Now

With the burst of the housing bubble, home prices have fallen dramatically and Michigan has been one of the hardest hit markets in the United States. This might just make Michigan one of the best markets to invest in right now.

It’s no secret that the struggling automotive industry has caused widespread job losses throughout Michigan, and as a result, foreclosures have driven Michigan housing prices down more than 60% since 2006.  According to Realty Trac, foreclosures account for 33% of Michigan’s home sales through the 2nd quarter of 2010, and this trend is expected to continue through 2011. For real estate investors these foreclosures represent an excellent opportunity to purchase property at a steep discount.

The Michigan economy is not out of the water just yet, but there are some very encouraging signs indicating that things may be turning the corner.

1. Detroit‘s Automakers Are All Producing Profits

It is no secret that Michigan’s economy is heavily tied to the automotive industry. In recent years, the automakers have struggled tremendously, but the restructuring is starting to take hold. In the 2nd quarter of 2010 all three of Detroit’s automakers were in the black posting the following profits: 

  • Ford – $2.6 Billion 
  • General Motors $1.3 Billion
  • Chrysler – $183 Million 

This is welcomed news for the Michigan job market as these profits have already resulted in renewed investments into Michigan’s economy. The Michigan Economic Development Corporation reports that 17 of the world’s leading electric battery companies are investing $5.8 Billion into Michigan. This includes a $43 million investment by General Motors for a new plant that will manufacture the batteries for the Chevy Volt – the automotive industry’s first fully electric vehicle. These investments are expected to create approximately 63,000 jobs.

2. The State of Michigan Has Provided a 42% Tax Credit to Film Makers

In April 2008, the state of Michigan announced a 42% tax credit for film makers that produce films using Michigan workers. This has spurred a flurry of film making activity. Before the incentive, Michigan averaged five film productions annually. In 2008 thirty-one films were produced, and in 2009 thirty-five films were produced. This trend is expected to continue with the announcement of 3 major studios to be built in Pontiac, Detroit, and Grand Rapids. These studios alone are expected to bring 6500 permanent jobs to Michigan.

3. Investment in Renewable Wind Energy

Because of Michigan’s vast coastlines along the great lakes, the wind potential is phenomenal. Michigan has enacted the Renewable Portfolio Standard which requires 10% of the state’s energy demand to come from renewable resources by 2015. This standard is sure to drive investment into renewable energy resources in Michigan.

The Time to Invest in Michigan Is Now

All of this economic activity is sure to result in the appreciation of Michigan’s deflated housing prices. In fact, Yahoo Real Estate is projecting that the Southeast Michigan real estate market will appreciate by 33.1% by 2014!

For investors, the time to invest in Michigan real estate is now. Fortunately, investors do not need to live in Michigan to participate in this market.  Companies like Michigan Turnkey Investments are setting up cashflowing turnkey investment properties for out-of-state investors. These properties are solid investments that boast returns from cashflow in the range between 13% – 20% annually.  With these kind of returns and the prospect of heavy property appreciation, it’s a no-brainer – the time to invest in Michigan real estate is now.

Turnkey Rental Properties in Pontiac, MI

In today’s blog post we are just going to give you an update on some of the things we have been focusing on over the past couple weeks.  We are changing our focus a little bit and we’re developing a business model for turnkey rental properties.  Our focus will be on Pontiac, Michigan, but we will look at any property in Southeast, MI.   So here’s what we’ve been working on to build this business…

Focus on Systems

First off, with everything we are doing in setting up this business we are focusing on systems.  Our plan is to have multiple properties in various stages of the turnkey process (negotiating, buying, rehabbing, tenanting, selling), and to manage all of this we need systems in place to ensure our operation runs smoothly.

Business Plan

Our first step is to lay out our business plan.  This plan has our ideas organized on all of the following:

  • A description of the product we are selling – Turnkey Rental Properties
  • Our pricing strategy for selling
  • A description of the “Target Property” we are trying to buy
  • Locations for where we want to buy
  • The price we need to buy for
  • Our formula for rehab
  • Our plan for how we will sell the properties

Marketing

We are putting together our marketing plans to generate leads for buyers.  We are going to focus on out-of-state and international buyers because they will benefit the most from what we’re doing.  Because of this, the majority of our marketing for buyers will be online.

Market Research

As we wrote about in our post “Getting to Know The Pontiac Real Estate Market” we are spending a lot of time researching the Pontiac market.  We are looking at homes, studying the rental market, and determining the best areas to invest in Pontiac.

Meeting With Investors

To fund our deals, we need money, and to do the kind of volume we want to do, we are going to need private investors backing us.  To communicate our ideas, we have put together a business plan that we are sharing with investors, and we are working with them on an equity sharing relationship in the business.

Business Structure

As with any business, you want to be setup correctly to maximize your tax benefits, and minimize your exposure to liability.  We are meeting with CPA’s to develop our business structure to accomplish these things.

So as you can see we’ve been very busy getting a bunch of stuff setup.  Stay tuned for more…

We Closed on Our Property in Pontiac!!!

Ahhh we have finally closed on the property in Pontiac!  We are so excited that this just one more step in our journey to financial freedom.  I have to tell you that it is so rewarding to put so much effort into something and really start to see the fruits of your labors.  I know that this isn’t the biggest deal we will ever do, but it is the first and it is only the beginning.

So how did we do with this deal?  Let’s break it down for you…

  • Purchase Price: $17,500
  • Down Payment + Closing Costs: $7730.38
  • Estimated Cashflow: $442 per month!

So we have $7,730.38 into this deal, and we will cashflow $5,304 every year.  That’s a  Annual Return on Investment 69%!!! And after you figure in depreciation and interest deductions that return jumps up to 74%!

As fate would have it as we were rolling out of the title company’s parking lot this song came on the radio…it just about sums it up!

 

To celebrate we headed out to a networking event out in Farmington Hills.  It was the first event for the Michigan Blogger Meetup…a newly formed group on Facebook.  It was a great event and we had a blast.  We finally got to meet a bunch of people we’ve been networking with on Facebook.  It was really cool to share stories and just talk with a bunch of people who all really get it.  So, Eric, Emily, Nanette, Mike, Jim, Jeff, Tara, Jason, Gale, it was great to finally meet, and we’re looking forward to many more great events!

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Day 40 – Working Our Deals

Today is day 40 in our drive to $60,000 in 60 days through real estate investing.  We have a lot going today and tomorrow with the deals we have working…here is a summary.

As you know we have been working to test the water and septic out at the property in Highland.  The test for the well and the septic was completed yesterday and everything checked out good.  Additionally, we received the water test results back today, and everything has come back okay there as well.  We have one buyer that I will be talking to later today that is really interested, and we just scheduled another showing for tomorrow morning at 10am.

For the property in Pontiac we just received our commitment letter from the hard money lender we are dealing with, so our loan has officially been approved.  We have a walk-through on the property scheduled for tomorrow, and we just need one more piece of information from the seller before this one will be set to close.  We will let you know how this goes tomorrow…

Last, but not least, we have a new lead on a property in Clarkston.  This property has 3 rental units, and each of them are currently rented.  We just received all the income & expense data on the property from the seller, so we will be using that to complete our cashflow analysis.

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Day 37 – Summary of the Deals We’re Working…

Today is Day 37 in our drive for $60,000 in 60 days through real estate investing.  We have a number of deals working, and we wanted to update you on the status of each one of them.  Some have gone very well, and others have not worked out as well.  The good news is that we are continuing to learn every day.

2846 Cherry Rd, Highland, MI

This property is a 1050sq ft home that sits on 1.75 acres and is a definite rehab because the house is currently gutted.  The nice thing about this property is that it has a lot of extra rehab materials included with the sale. 

We have had this property under contract since July 9th, and our initial exit strategy for the property was to wholesale it as is, or rehab it ourselves.  We put the property under contract for a very fair price to the seller, which made it very easy for them to say yes to our offer.

Since then we have employed our full sell that home fast marketing strategy and we have had a lot of interest in the property.  We have received well over 20 calls on the property and have had about 8-10 people out to look at it.

From our buyer list, we have had 3 people who I would categorize as serious rehabbers out to look at the property, and the consensus is that the repairs are probably too much for the property to be profitable.  We have confirmed this with our own contractor estimates.

Because of this, we have changed our plans on this property a little bit.  We have spoken with the seller on a couple of occasions and discussed the feedback we are getting from the buyers.  I think at this point, it is really going to take the right buyer to see the value in the property and it is going to have to be someone who is looking to do the repairs themselves and live in the house afterwards.  We have a couple of people who fit this profile coming to look at the property in the next couple days, so we will see…

2080 Commonwealth, Auburn Hills, MI

This property is a duplex and is currently rented.  Both units were completely rehabbed earlier this year, and at the price offered we’re estimating the property will cashflow at $371 per month.  This is a great deal for any investor!

We put this property under contract on July 16, 2010, and we have used the same marketing strategy to market this property.  To our surprise there hasn’t been near the amount of interest in this property as there has been on Cherry.  We think the price point may be the main factor affecting this. 

At this point we are going to try a few more things with this property.  We are going to put up some more bandit signs for the property, send out more emails to our ever-expanding buyer list and put out some more online classified ads. 

We will see what happens…

630 Lydia, Pontiac, MI

This property is a condo that is currently rented.  The intriguing thing with this property is that the lease is structured giving the tenant the option to purchase the property within 5 years.  They receive $100 per month towards a down payment, but they also pay the taxes, association fee, insurance and maintenance.  This has a huge impact on the cashflow, and our analysis shows the property will cashflow almost $400 per month!

We have had this property under contract since July 31, and we plan to purchase and keep this property because the numbers are just too good.  We will list it for sale, but we are going to be pretty stingy on the price because the cashflow is just too good to pass on!

Right now, we are just running through our due diligence on this property, but everything (including the financing) is looking good.  So, hopefully we will have this one closed in the next two weeks…we’ll keep you posted.

Royal Oak Bungalow

We are still in negotiation on this property, but things seem to be stalling out.  This property is a 4 bed / 2 bath bungalow and has a finished basement.  It’s in a great area of Royal Oak, and we’re estimating it needs about $18k in repairs to make it a really nice home. 

We submitted our initial offer on the property giving the seller two different purchase scenarios.  One was simply a cash offer, and the other was a scenario where we would delay closing for 6 months and we would have the opportunity to go into the property, make the repairs and find a buyer…then close.

I just spoke to the seller yesterday about the offer, and he told me the offer is really too low for him, and he thinks that with minimal repairs (paint) he can get a much higher price. 

At this point, we’re going to look a little closer at the comps we pulled by driving by them to get a better analysis of our after repair value.  We have also discussed offering him a piece of the deal on the back side if we are able to sell the property for more than what our analysis showed.  So this deal is not dead yet, but it’s definitely not looking that great…

Bloomfield Hills Ranch

This property seems to be fizzing out because we are simply too far away on price (about $150k) with the seller.  This property is really intriguing because it is in a great area.  There are literally homes on the same street that are valued at $1.5 million.  The trouble is, this home is a 1300sq ft 3 bed/2 bath home with no basement.  Everything else in the neighborhood is 2500sq ft plus and are quite frankly nicer homes. 

For our analysis, we are showing that the property needs about $15k in repairs, but we really don’t think the home will sell for more than $158,000.  The trouble is that the seller wants $200k and they’re being pretty firm on that price. 

At this point, we have to let this one go because we are just too far away on price…maybe they’ll come around 6 months from now after they figure out that they’re priced too high…

Summary

So this is where we are at after 37 days.  We’ve had a lot of activity and we’ve learned a tremendous amount just by attempting to execute these deals.  We need to hustle if we’re going to make it to our goal of $60,000 in 60 days, but we’re trying…Stay Tuned!

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