Investing in Apartments – Commitment and Study

Even in the coronavirus pandemic crisis investing in rental apartment property can still be a good way to add thousands of dollars to your income in the long term. If you buy apartment real estate that is in a good location with growth potential, but that is not too expensive, this real estate investment will likely recover after the crisis passes according to (Brad Hunter, Forbes.com). However, the investment takes funds and commitment over the long haul.

Appreciation

There are two way to make money from rental real estate. The first, appreciation, is a rise in value over time. This profit can only be realized by reselling the property after some time has passed or after you have made upgrades that add to the value. Generally, real estate appreciates in value over time if you are in the right location. Be sure to study employment and home buying trends in your local area before purchasing rental property.

Cash Flow & Coronavirus

You can also make money in the form of cash flow by collecting rents as income. The coronavirus pandemic is affecting the apartment rental real estate industry because many people, more people than we have ever seen before, have lost their income in only a few weeks, unemployment claims are up all over America, and tenants may not be able to pay their rents for the next couple of months. This will impact the ability of landlords to make money. Either the landlord forgives the rent and eats the loss for a while to keep the tenant, or the renter is evicted, and the property becomes vacant. In either case, the landlord is not receiving income on the property and may have to seek forbearance from their own lenders.

If a landlord has paid off his or her own mortgage on the property or if he or she has established an emergency fund as Dave Ramsey suggest (daveramsey.com), they will be able to weather the storm caused by the jobs lost in the pandemic shutdown.

Jobs and Renting

Either the jobs come back after the danger from the virus is past and businesses reopen, and the renters stay, or a new set of renters materialize because those people who are no longer able to afford their own homes move to apartments and construction of new homes slows because of coronavirus-driven delays caused by labor shortages, and supply shortages. More people may need to rent. In this case. It is likely the landlord’s income will return after some shaky months.

Photo by Michael (Black) Ritter on Pexels.com

Asset Rebound

Because the income potential should rebound, rental apartment property should not lose its value overtime as an asset. If the building itself remains sound, there is no reason why the property value will not increase as other investments tank and real estate once again looks solid and reliable compared to stocks. Also, if interest rates remain low, investors will be willing to take on more debt and are not restrained from purchasing property at higher prices. This will help investors who plan to sell their rental properties make a profit.

Single-Family Rentals

Investments in single-family rental homes may also benefit in the long run as more people work from home and need more room than apartments afford. Brad Hunter also suggests in his article on Forbes.com that the single-family-built-to rent-industry may benefit as people need that specially designed home office space with its own door and bathroom.

Due Diligence

Investment in rental real estate should remain attractive but be sure to do your due diligence.

Study everything from location, jobs, virus hotspots, distancing trends, supply chains, virus rebounds as they occur, and what the kids are doing now.

References:

Dave Ramsey online at https://www.daveramsey.com/blog/how-to-invest-in-real-estate

Forbes online: https://www.forbes.com/sites/bradhunter/2020/03/24/coronavirus-impacts-on-real-estate–why-you-need-to-think-short-term-and-longer-term/#6f2133345f6f

Investopedia, The Impact of Interest Rates Changes by the Federal Reserve. https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp

We have funds available so let us invest in something together.

I would be pleased to have you call or e-mail too.

Patrick St.Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

REI Capital Resources is in accordance with the Federal Equal Credit Opportunity Act, REI Capital Resources employs business practices that promote fair lending and will not tolerate discrimination relative to borrower race, color, religion, sex, handicap, familial status, age, national origin or ancestry. REI Capital Resources fully supports the letter and spirit of these laws and does not condone discrimination in any mortgage credit transaction.

To help the government fight the funding of terrorism and money laundering activities, Federal law requires us to obtain, verify, and record information that identifies each person who cashes checks, wire funds or engages in other financial services with this establishment. We will ask for your name, address and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

Multi-Family News on multihousingnews.com

The multi-family housing market is a viable market segment in many metro areas as people move in from the suburbs to be closer to work and to entertainment. I scanned many articles and blogs on multihousingnews.com and am here sharing with you some of the statistics I found for our Texas market.

Austin

According to the “Austin Multi-family Report – Spring 2019 and an article on the “Top Multi-family Completions in Austin,” both by Anca Gagluc in the Multi-Housing News, the Austin multi-family market had a strong year in 2018 with rent growth of 4.5% despite 11,000 units coming online. The 11,000 units that were constructed and rented in 2018 were in the upscale lifestyle segment and the 20,500 units underway in 2019 are also targeted for that same segment of the market. 

The largest multi-family projects delivered through the end of May 2019 included

  • Bexley Round Rock, 330 Units, Round Rock
  • Hillstone at Wolf Ranch, 332 Units, Georgetown
  • Latitude at Presidio, 337 Units, Cedar Park
  • Crestview Commons, 353 Units, Austin
  • Terra, 372 Units, Austin

Multi-family housing can come in several classifications, affordable, lifestyle, senior, student, or worker housing. Most of the inventory discussed here is in the Lifestyle segment. A multi-family unit in the lifestyle segment is one that offers amenities that improve your daily life. These may be as simple as open areas and great walking trails or more expensive shared amenities like a stable, fitness center, or sauna and pool. The lifestyle property is supposed to enhance your life. It is in effect a neighborhood, or a community. Lifestyle communities are generally upscale in price, can even be luxurious, and often do not meet the need for affordable housing.

Austin added 36,800 jobs in 2018, up 3.5 % from the previous year.  Occupancy rates for Austin multi-family housing rose to 94.4% as of March 2019 and rent growth was 3.7% percent through April 2019.

Dallas-Fort Worth

According to the “Dallas Multi-family Report – Spring 2019” from Anca Gagiuc in Multi-Housing News, the Texas multi-family market continued to show plenty of supply, dampening rent growth, which was 2.8% year-over-year through March, slightly below the U.S. average.

More than 26,800 units were delivered in 2018 with an additional 44,700 underway as of March 2019.  The metro remained a nation leader in job creation last year, adding 102,500 positions for 2.6 percent expansion. Last year’s multi-family transaction volume was $5 billion.  Investors have already traded nearly $900 million in multi-family assets in the first quarter of 2019 at a per-unit-price of $105,032. The average Dallas-Fort Worth rent is expected to rise 4.3% in 2019.

Houston

According to the “Houston Multi-family Report – Spring 2019” from Laura Calugar in Multi-Housing News, the Houston multi-family market showed rent growth on a downward slide, but the market was still strong, underpinned by employment gains and economic expansion. Houston’s occupancy rate was 92.4%, down 140 basis points from the previous year, fueling fears of overbuilding.

Houston added 72,600 jobs in the 12 months ending February 2019. Last year’s transaction volume was $5 billion.  Roughly 14,000 units were under construction as of March 2019, most of that geared to high-income residents. The average Houston metro rent is expected to rise 2.2% in 2019.

REI Capital Resources is a funding source for SFR Fix-n-Flip, Fix-to-Rent, and Refinance projects as well as larger commercial projects such as office buildings, 5-40 door multi-family buildings, and many others.  These programs vary wide and far throughout the gamut of lending. Call or e-mail for more information.

REI Capital Resources Long-Term Rental Program

We offer asset-based and experience-based loans for long-term rental projects, including multi-family projects with the following terms: min FICO 650, BPO required, Up to 85% of purchase price, Cashout/Refinance up to 65% LTV (BPO), Max of 80% ARV, Interest rates starting at 6.5%, and points as low as 2.25%.

Give me a call or send an e-mail.

Patrick StCin, 512-213-2271,

e-mail: patrick@REICapital.cash 00000000 00

Single-Family Rentals: Build to Rent

The single-family rental is the fastest growing segment of the housing market according to research done by the Urban Institute. This is a very interesting area of opportunity for private lenders and it pays to keep up-to-date on the market so that no opportunity is missed.

Single-family rentals have outpaced single-family ownership and multi-family housing in recent years. This is partly due to millennials that are forming households and entering the single-family housing market, moving up from multi-family living to single-family rentals to gain additional space for a growing family. Renting still works for them because they need the ability to be transient and move if their jobs require them to, and many cannot afford single-family ownership because they are carrying massive student loan debt, have not been able to save for a down payment, and are faced with stricter lending terms. Downsizing baby boomers are also attracted to single-family rentals for some of the same reasons, including no down payment, maintenance services, and the ability to move if they choose.

Photo by Thgusstavo Santana on Pexels.com

Wholesale Sales

According to an article on Builderonline.com by Lauren Shanesy, the demand for single-family rentals has allowed builders to increase sales by selling to rental operators on a wholesale basis and has prompted a number of developers to tap into the market with a new product, the cohesive single-family rental community filled by niche renters with lifestyle needs that are unlike those of apartment renters.

Planned Rental Home Communities

AHV Communities is one community builder that is building in Texas, offering resort-style amenities, energy efficient homes, maintenance-free living, and professional management with the freedom and flexibility of a lease. One of these communities is Pradera, luxury rental homes in San Antonio. Another is Creekside Ranch in New Braunfels. Both offer club house, pool, green space, maintenance services, and sophisticated floor plans.

Management Efficiencies and Flexibility

Shanesy continues, “Many individual investors who bought distressed or foreclosed single-family rental homes have been priced out of the market by competition from institutional investors in recent years.”  However, these individual rental homes are spread out and not located in communities, so the institutional lenders have a more difficult time managing them efficiently. Some investment companies have begun looking to builders to purchase whole communities of new homes that they can manage. They sell some of the homes and rent others, allowing the investors the flexibility to sell if homeownership goes up or rent if homeownership goes down.  

A Mature Market

Samantha Goldberg, in the article “Top Trends to Watch in the Single-Family Market,” at Arbor.com/blog/ reports that panelists at the State of the SFR Industry panel at the IMN’s 7th Annual Single-Family Rental Investment Forum, held in Hollywood FL say that incoming capital, new private lenders and institutional lenders, and technological innovations helpful for management are the top trends to watch in the single-family rental market over the next few years.

According to the same article, the single-family rental market sector achieved 3% year-over-year rent growth in 2018 and 2% year-over-year rent growth so far in 2019. The West Coast and the South East had the biggest rent gains in the last year.

There is still a shortage of housing for the U.S. workforce and this means that the nonluxury single-family rental market has room to grow, providing opportunities for private lenders, developers, and investors to add inventory in the workforce living space.

REI Capital Resources Long-Term Rental Funding Program

REI Capital Resources is a funding source for SFR Fix-n-Flip, Fix-to-Rent, build-to-rent, and Refinance projects as well as larger commercial projects such as office buildings, 5-40 door multi-family buildings, and many others.  These programs vary wide and far throughout the gamut of lending. Call or e-mail for more information. I’d like your business.

We offer asset-based and experienced-based long-term rental program loans on the following terms: at a min FICO of 650, a BPO is required, up to 85% of purchase price, Max of 80% ARV, Interest rates starting at 6.5%, and points as low as 2.25%.

REI Capital Resources Residential Construction Loan Program

We offer asset-based and experience based loans for residential construction on the following terms: Min FOCI 650, appraisal required, up to 90% of cost of lot + build, Up to 100% of construction costs if lot is free and clear, Max of 70% ARV, interest rates starting at 8.25%,and points as low as 3.5%.

Give me a call or send me an e-mail.

Patrick St.Cin

W – 512-213-2271
Patrick@REICapital.cash

References

Lauren Shanesy on Builderonline.com, “The Rise of the Single-Family Rental.”

Samantha Goldberg, “Top Trends to Watch in the Single-Family Market,” Arbor.com/blog/

http://www.urban.org/research

Vacation Rental Investment Property: Expenses

Summer is here and vacations are in the air.  Perhaps, it is also time to think about how we can pay for our vacation with income from an investment property purchased to rent. As we discussed yesterday, if you receive income from renting property for use as a dwelling, such as a house or apartment, you may need to report the income, and you may be able to deduct certain expenses. 

To make your tax life easier and less confusing for you, your tax preparer, and the tax authorities, be clear about your goals for the rental property.  Are you using the property partly for your own use and renting it out when you aren’t using it or are you operating it solely for a profit?  If you are using the property yourself and renting it, divide the portions of expenses between your investment and your personal tax forms based on days used or percentage used, and you will not run into tax trouble.

Types of Rental Expenses

In most cases expenses related to renting your property are deductible. These deductions can be applied against the income you receive from rent to lower the amount of the rental income that is subject to tax. These would general be reported on a form 1040.  According to the IRS, if you use the investment property to rent for a profit and do not use the dwelling as a residence, or for personal use, then your deductible rental expense may add up to more than your gross rental income. When you use the property for both personal and rental use, you will not be able to deduct rental expenses in excess of the gross rental income minus the rental portion of the mortgage interest, real estate taxes, casualty losses from federally declared disasters for the rented part, realtor’s fees, and advertising costs.

Deductible expenses include:

  • Advertising
  • Auto and travel expenses (if the primary purpose of the trip is to collect rent or to manage, conserve, and maintain your rental property)
  • Cleaning and maintenance
  • Realtor and Online Commissions
  • Depreciation: This expense begins when the property is rented or placed in service. It is taken over the lifetime of the property to cover the cost of the original purchase.
  • Insurance
  • Interest on loans other than the mortgage
  • Legal and other professional fees
  • Local transportation expenses (those incurred collecting rents, managing, conserving, or maintaining your property)
  • Management fees
  • Mortgage interest paid to banks, etc.
  • Mortgage expenses, including mortgage commissions, abstract fees, recording fees, are not deducted as expenses, but are considered part of the basis of your property as capital expenses and are depreciated.
  • Points. Points are prepaid interest and are deducted over the life of the loan and not all in the year the loan was made.
  • Pre-rental expenses: Expenses incurred maintaining your property from the time you make it available to rent
  • Rental payments for equipment
  • Rental payments for the property you lease
  • Repairs
  • Taxes
  • Utilities

Vacant Property

You can deduct expenses incurred maintaining and preserving your property when it is vacant, or vacant while listed for sale.

Uncollected Rent – Not Deductible

Don’t deduct uncollected rents. It is not included in your income, so it cannot be deducted.

Renting to Your Employer

If you rent part of your home to your employer and provide services for your employer in that rented space, report the rental income.  Claim the income and deduct the expense for that portion of the house. You can deduct mortgage interest, real estate taxes, casualty losses from federally declared disasters for the rented part of your home.

I would like to help you with funding for an investment rental property or vacation rental.  I have a long-term rental loan program that can help you get into an income-producing vacation rental investment property.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

IRS Publication 527 (2018) Residential Rental Property

IRS Tax topic 415 Renting Residential and Vacation Property

Image Credit, vacation rental, Seattle. Fred Ueckert, FJU Photography [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)%5D

Vacation Rental Investment Property: Income

Summer is here and our heads are full of vacation plans. Some of us rent summer vacation homes to stay in and some of us rent vacation homes out to others for income.

As a real estate investor, you may be considering buying a property to rent out for income or to remodel and resell. There are four points about income taxes that apply to rental properties that you should know about.

1.  If you rent the dwelling for fewer than 15 days a year, you do not have to report any of the rental income and cannot deduct any expenses as rental expenses.

2. If you receive income from renting property for use as a dwelling, such as a house or apartment, you will most likely need to report the income, and you may be able to deduct certain expenses.

3. The accounting method you choose to follow determines when you count income and deduct expenses.

4. Whether you use the property personally for vacations with your family and friends makes a big difference.

Accounting Method:

The accounting method you use determines when you claim income and deductible expenses.

Types of Rental Income:

Monthly rent is only one kind of income you may receive.  You may also receive rent in advance. You report monthly rent when you receive it. A tenant may pay you to cancel a lease. This income you report when you receive it. A tenant may pay some the expenses attributed to the rental dwelling (for example utilities). You declare the expenses paid as income. You can then deduct the expense if they are deductible rental expenses. A tenant may pay you with services (for example painting) or property (for example they construct a built-in grill). In this case you report the fair market value of the service or property as rental income.

Security deposits are not included in your income if you intend to return them to your tenant at the end of the lease. But, if you keep part or all of the deposit, include it as rental income in the year you receive it.  If a security deposit is used as the final month’s rent, include it as advanced rental income when you receive it.

Personal Use

According to the IRS, If you use the property for personal use 10% of the time or 14 days a year (whichever is greater) and rent it out at the fair market value for income, limitations apply on the rental expenses you can deduct. You will need to divide the expenses between the personal use and the rental income use based on the number of days of each. Of course for personal use, you will not receive income so there is nothing to report on the personal taxes. When you use the property for both personal and rental use, you will not be able to deduct rental expenses in excess of the gross rental income minus the rental portion of the mortgage interest, reals estate taxes, casualty losses from federally declared disasters for the rented part, realtor’s fees, and advertising costs.

One thing to note about personal use is that if you rent to a relative or friend for a token amount, less than the fair market value of a dwelling just like yours, you have to count this use as personal use, not as investment rental income use.

I have a long-term rental loan program that can provide funds for your real estate investment for the purpose of renting for income.

REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

IRS Publication 527 (2018) Residential Rental Property

IRS Tax topic 415 Renting Residential and Vacation Property

Vacation rental Image in Florida. Jan Lieberman [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D

Numbers: Prices, Percentages, Points

Despite the volatility of the stock markets and the Texas weather, no matter if it is raining, blowing, or baking, even if I have to walk uphill both coming and going, in a “snownado,” I am here to help you find ways to put your money and your time to good use making more money in big or small, short-term or long term, real estate investment adventures.

I have several loan programs to offer.

 

 

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Patrick@reicapital.cash

512-213-2271

 

 

 

 

 

 

Taxes: Buy/Flip or Buy/Hold

There is no way around it, when you consider investing in real estate, or anything else for that matter, you need to do your homework to keep your investment safe and avoid surprises.

First, spend time with yourself to define your goals and then, spend time with the math to estimate the costs carefully before you invest. Everything costs something, but somethings are worth the cost.

First your goals: Ask Yourself:

“Do I want to get my hands dirty?”
“How involved do I want to be?”
“Do I want a single pay out of profit”
“Do I want a steady stream of income?

The buy-n-flip model of buying a distressed house at a low price, renovating it, and reselling it for a profit within 12 months is usually pretty hands on. If you don’t actually do the remodeling yourself, you will be supervising your contractors, so you get quality work, on time, and within budget. The Fix-n-Flip model will give you a one-time pay out, and if you did your preliminary market research properly, it will give it to you quickly, in less than a year.

The buy-and-hold model of buying houses, fixing them up or not, and renting them out will give you steady income. In this model, an investor can choose to rent the property out or occupy the property. There are varying levels of involvement for the investor to consider. Landlords are investors who own one to three properties and manage them themselves. This is the hands-on level. Portfolio Investors own four to ten rental properties and hire property management companies to manage them. This level of involvement is less hands on. Turnkey investors are the least involved personally with their investment, they purchase a property that already has a tenant and management company in place. Basically, only their money is involved.

Different Taxes

One of the cost differences between investing in fix-n-flipping and investing in fix-n-holding is the income taxes that you will have to pay on the profits. According to FitSmallBusiness.com, flipping houses is generally not considered passive investing by the IRS. Most real estate fix-n-flippers are considered dealers by the IRS. A real estate dealer is defined as someone who purchases real estate and sells it to customers “in the ordinary course of business.”

Ordinary Income. Profits on flipped houses are treated as ordinary income with tax rates between 10% and 37%. The profits you make are not considered capital gains with the lower tax rate of 0% to 20%. Taxes for flipping also usually include self-employment tax, which is 15.3%, double what you typically pay as a W2 employee.

Capital Gains. On the other hand, according to FitSmallBusiness.com, profits made from properties held more than 12 months are typically subject to more favorable long-term capital gain tax rates ranging from 0% to 20%. This profit is also subject to self-employment tax .

Keep Your Receipts

The answer to handling the tax expense for a fix-n-flipper or the fix-n-holder is to think like a business; budget for the taxes in your expense calculations and take them out of your expected profits so the return you expect is realistic. And, keep excellent books. You will want to itemize your deductions and income in either type of investment so when it comes time to calculate your profit for tax purposes, you can determine your profit by subtracting your expenses from the final sales price. Keep your receipts. If you keep no records, you might have to pay taxes on the entire amount of the sale, not just on the profit.

white graphing paper

REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options that are perfect for buy-n-flip projects or buy-n-hold projects.

Please give me a call when you have the perfect investment in mind and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash

Monumental News

Investors Lending Source (ILS) is changing its name to REI Capital Resources. And, I am proud to announce that I am now a direct hard money lender.

Why This matter?

REI Capital Resources works closely with its clients to determine the best path to take for an investment project that needs funding. As a lender originating loans myself, I have more and improved funding solutions at my fingertips.

We continue to offer private funds and now hard money Fix-n-Flip, Fix-to-Rent, and Refinance with Rehab loans. We have added a NEW 30-year long-term rental mortgage with 3- & 5-year interest-only options!

REI Capital Resources has funding sources for commercial projects as well as non-standard real estate projects such as church financing and oil & gas royalty programs, long-term rental financing for investors in the single-family residential market, and short-term financing for vacation or AirBnB lending.

What Has Not Changed?

Myself. My management. My focus. I am still focused on funding your success and I have more tools to work with. ILS built its reputation on finding private funding for investors for quick turn purchases and difficult situations. This is still true for REI Capital Resources.

Contact me

Patrick@REICapital.cash

http://www.REICapitalResources.cash

512-213-2271