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Mary Kennedy's Blog from Las Vegas

"Helping YOU Find Your Way Home in the Las Vegas Valley"

By Mary Kennedy | Agent in 89135
  • Who's Paying Your Mortgage?

    Posted Under: Financing in Las Vegas, Rental Basics in Las Vegas, Investment Properties in Las Vegas  |  November 14, 2013 9:33 AM  |  653 views  |  No comments
    As a homeowner, you obviously pay for your mortgage but as an
    investor, your tenant does. 


    Equity build-up is a significant benefit of mortgaged rental property. As the investor, collects rent and pays expenses, the principal amount of the loan is reduced which increases the equity in the property. Over time, the tenant pays for the property to the benefit of the investor.

    Equity build-up occurs with normal amortization as the loan is paid down.  It can be accelerated by making additional contributions to the principal each month along with the normal payment.

    Some investors consider this a good use of the cash flows because interest rates on savings accounts and certificates of deposits are much lower than their mortgage rate.

    In the example below, is a hypothetical rental with a purchase price of $125,000 with 80% loan-to-value mortgage at 4.5% for 30 years compared to a 3.5% for 15 years.  The acquisition costs were estimated at $3,000, the monthly rent is estimated at $1,250 and $4,800 for operating expenses. 


    Notice that both properties have a positive cash flow before tax.  The cash on cash return is the revenue less expenses including debt service divided by the initial investment to acquire the property.  The 15 year mortgage will obviously have a smaller cash flow and lower cash on cash but the equity build-up is significantly higher.

    If the goal of the investor is to pay off the property to provide the highest possible cash flow at a later date, a shorter term mortgage with a lower interest rate will help them achieve that. A simple definition of an investment is to put away today so you’ll have more tomorrow. Sacrificing cash flow now, during an investor’s earning years, is a reasonable expectation to provide more cash flow in the future when it might be needed more.

    Contact me at 702-324-5390 if you’d like to explore rental property opportunities.
  • The 11 Basic Rules of Single Family Home Investing

    Posted Under: Home Buying in Las Vegas, Rental Basics in Las Vegas, Investment Properties in Las Vegas  |  September 24, 2013 4:06 PM  |  865 views  |  No comments
    The profit potential in single family homes for investment has been a consistently good long-term investment. They offer investors the opportunity of high loan-to-value mortgages at fixed interest rates for 30 years on appreciating assets, tax advantages and reasonable control that other investments don’t offer.


    Last year, Warren Buffett said that if he had a way of buying a couple hundred thousand single-family homes, he would load up on them. Blackstone group L.P. (BX) has now purchased over 30,000 homes and American Homes 4 Rent (AMH) has more than 19,000 for rental purposes.

    Individual investors actually have an advantage over the institutional investor but if they are not familiar with rental real estate, some basic rules could be very helpful.

    1. Invest now to get more in the future. Whether it is time, effort or money, the prudent investor is willing to forego immediate gratification for something more at a later date.
    2. Real estate is an IDEAL investment. IDEAL is an acronym that stands for income, depreciation, equity build-up, appreciation and leverage.
    3. Invest in single family homes in predominantly owner-occupied neighborhoods at or below average price range. This strategy should involve homes that will increase in value, rent well and appeal to an owner-occupant in the future who will pay a higher price than an investor.
    4. Location, location, location. The same homes in different areas will not behave the same. You can improve the condition, modify the terms or adjust the price but the location can’t be changed.
    5. Understand your strategy – buy and sell, buy and hold or buy, rent and hold.These three distinct strategies involve big differences in acquisition, management and taxation.
    6. Know where your profit is coming from before you invest. The four contributors to profit are cash flow, appreciation, amortization and tax savings. They don’t contribute equally or the same in all investments.
    7. Profit starts with purchase. Buying the property below market value builds profit into the investment initially.
    8. Risk is directly proportionate to the reward involved. An investment that has a high degree of upside also will have considerable downside possible.
    9. Avoid functional obsolescence unless you have a plan before you buy. The lack of usefulness or desirability of a home that exists when you buy it will still be there when you sell it. Unless it can be cured, it will affect future profit.
    10. Good property + good tenant + good management = great investment. These are three solid components for a successful investment.
    11. Problems left unresolved have a tendency to get worse. It is generally cheaper in time or money to fix a problem earlier rather than later.

    If you’d like more information about the opportunities in our market, contact me at 702-324-5390 or Toll Free at 877-300-5390.

 
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