Want to Achieve Financial Independence? Invest in Apartment Buildings!

Most people want to achieve financial independence. But very few manage to become financially independent. Investing in apartment buildings is one of the most reliable and fastest ways to reach financial independence. Most people know that you can make big money in commercial real estate. But they think that it is only for people with lots of money. In reality, you do not need much money to become a commercial real estate investor.

One of the main reasons why most people fail to achieve financial independence is because they think that it is impossible so they do not even try. But with the right vehicle the chances of becoming financially independent are good. Investing in apartment buildings is one of the best vehicles to achieve financial independence.

The good news is that it is fairly easy to buy apartment buildings. It is possible to get started with little money and the necessary knowledge is easy to acquire. But you need a lot of courage to buy your first apartment building. Even if it is possible to get started with very little money, having a couple of thousand dollars available will make things easier. You want to pay for an inspection of the building. The cost of such a survey depends on the property, generally smaller surveys cost $1000-2000. You need to get an appraisal in order to get a loan. The cost of the appraisal can sometimes be rolled into the loan. The price of an appraisal depends on the property as well, starting from around $1000.

In most cases, you also need to come up with earnest money. How much earnest money is needed is negotiable. If you are dealing with a motivated seller, the money you need to provide can be small. But the real advantage dealing with a motivated seller is the possibility of getting seller financing. The banks will only lend you 70-75% of the appraised value. A motivated seller will lend you the remaining money. Closing costs in commercial deals are often high but most of them can be rolled into the loan and a motivated seller may lend you the money you need to close the deal.

It is difficult to buy your first apartment building. But given the handsome cash flow a successful deal will give you, it is well worth trying to get started. Even smaller deals should provide you with a four figure positive cash flow, per month. Already your first deal will get you well on your way of achieving financial independence.

Hard Money Loans – Easy Profit With Hard Money

A hard money lender is an alternative to traditional bank financing. They are usually private individuals with an abundance of money that they will lend to real estate investors on a short-term basis. These loans are not limited to the purchase of real estate but can also be used for the repair of distressed properties.

Hard money loans are called this because they charge higher than market interest rates, have higher upfront fees at closing usually in the form of points and will lend to a much lower loan-to-value (LTV) ratio compared to traditional bank financing. The terms charged by hard money lenders vary from lender to lender and are sometimes influenced by the experience level of the investor and the amount of transactions they have completed with the lender. Lenders will generally lend anywhere from 60 to 75% of the after repaired value (ARV) at a rate of between 10 to 18% and charge points from 2 to 8 points. The loan terms usually range from 6 to 18 months.

These loans can be an effective tool used by real estate investors as they build their real estate empire. With the recent tightness in the lending market, it has become more difficult for investors to get loans for investment properties. Traditional lenders are requiring a higher down payment percentage and they will not finance the rehab costs. For investors this means they are required to come up out-of-pocket costs for the down payment and the rehab. For some investors this amount will limit their ability to purchase a profitable property. Hard money lenders on the other hand will lend based on the ARV instead of the purchase price. If an investor is able to purchase a property at a low enough value then they could finance the entire acquisition cost and rehab cost which allows them to essentially purchase a property with little to no money down.

Starting August 1, 2008 Freddie Mac is lowering their loan limit for investor loan from ten loans to four loans. Investors who wish to invest in more than four properties will have to find alternatives to loan endorsed by Freddie Mac. Hard money loans can provide an alternative source of financing for real estate investors.

Traditional bank financing usually takes 30 to 60 days to close on a loan. Hard money lenders can sometimes close on a loan in as little as 48 hours but the average is seven business days. If a real estate investor finds a deal that is on the verge of being foreclosed on in a week’s time then they would not be able to purchase that property using traditional bank financing. A hard money loan is the only viable alternative in that scenario.

Choosing FHA Home Improvement Loans

In order to obtain affordable homes through loans easier, people can turn to FHA home improvement loans. This gives them the opportunity to borrow up to $25,000 for homes and there is no equity.

In a nutshell, the loan that you make with FHA home improvement loans can go beyond the value of the house that you want to buy.

Choose the right FHA home improvement loans program that will assist you in the light or moderate rehabilitation of the properties. There are features such as the construction of non-residential buildings on the property.

This may mean an asset in the long run. Let’s say you purchase a home and they eventually make a playground. This will be good news for your children.

The program you sign up for can also give you the loans that you need that can assist you in the 20 years time. It may be for single or multi family properties. Either way, the maximum loan amount should be seized.

If you want to improve your FHA home improvement loans, the best thing to do is to not exceed the total structure. There are fixed rate loans and check whether the programs you choose offer the same thing.

There are eligible borrowers for these scenarios. If you qualify, then you are lucky because you are a step closer to getting your own home.

Just make sure that this home is what you really want. If you can speak with the person who is leasing the property, do so. Provide him with the information he needs from you. You must also come into an agreement of the timeline.

The date must be clear on when you have to pay and when he can expect the money. As the person buying the property, you should always make sure that you pay on time so that your loan does not increase.

Remember that there are inflation rates when ever you skip a payment in any loan. That is the same case with FHA home improvement loans.

Another thing to remember is that the FHA home improvement loans can be used to finance the permanent property improvements in your investment in the long run.

With that being the case, you get to protect or also improve the basic livability of the home that you are spending for. A home is an investment therefore you should always make sure that you are taking the right steps to maintain it.

Calculating A Landlord’s Buy-to-Let Property Investment Returns

How do Landlords calculate their returns on their property investments?

Buying a residential investment property is very different to buying a home. For a start what landlords are really buying is a property investment and letting business. Therefore a key part of a landlord’s decision making process of whether to invest or not in a buy-to-let property will partly be made on the basis of what their likely investment returns will be.

What is involved in calculating property investment returns?

The process of calculating investment returns can be very complicated indeed. On commercial property investors will go to great lengths to use techniques which discount future cash-flows (DCF) from individual investments to work out the potential returns and in turn their value.

Luckily for residential landlords life doesn’t get anywhere near this complicated. The essence of calculating an investment return on property is to understand that there are two factors influencing what investment return is generated. Firstly; through income in the form of rent and secondly in the form of the capital appreciation resulting from rising house prices. Total returns to an investor are the sum of both.

Investment returns from a rental business

The other complication for a landlord is that buying a residential investment property is not just like buying a straight forward investment. It is actually running a business. Therefore what a landlord needs to include in their calculation are the associated costs of running that business.

The main revenue source for a landlords business is obviously the rental income.

The complication for landlords is that in calculating their net returns they need to include net income (after expenses) and add this to capital appreciation. This needs to be done for the entire investment period. A landlord will typically hold a residential investment property for approximately 15 years according to on going surveys from the Association of Residential Letting Agents (ARLA).

The final complication is that rent and other costs are likely to change over the investment period and this needs to be factored into the calculation of a landlords investment returns.

Set up & exit costs

Setting up a residential investment will mean that a landlord incurs certain set up or one off costs of bringing the investment into being. These costs include the initial costs involved in the purchase of the investment property such as the legal fees and stamp duty if it is payable. Other capital costs frequently incurred are where any appliances are purchased or if the residential investment property is improved. Finally, there is the cost of exiting the investment when it is sold. All these need to be factored into the overall calculation of a property investors returns.

Accounting for the long-term

One further complication to a landlord trying to calculate their likely returns from a potential residential investment is trying to account for the effect of inflation and the likely growth rate in house prices generally. The Halifax figure reveal that over the last 40 years house prices have been rising at an average rate of 10.3%. However the Barker Report produced by the Government on housing supply concludes that the real rate of growth (after inflation) over the last 30 years has only been 2.4%. Therefore in calculating a residential investment’s long-term returns a landlord will need to be able to predict both of these.

The return on capital

These calculations of returns all relate to the asset value of the investment property and the rental profit after expenses. However, this is not a true measure of the real returns made by a property investor. This is because unlike an investment in a building society a landlord is likely to have borrowed a significant proportion of their investment capital in the form of a mortgage. This means that they are likely to only have put in a proportion of the total capital into the investment.

For example on a £200,000 property they may have put down a 20% deposit or £40,000 into the investment. What this means is that any investment calculations needs to measure what the returns are on that £40,000 and any other additional capital costs not just the £200,000 in order to enable a potential property investor to measure whether the returns are good and likely to be better than investing that money in alternatives such as putting it in the building society.

What returns should Landlords be aiming for?

To some extent the investment returns required will depend on each landlord’s circumstances. For some landlords anything above that available on a building society deposit account would be OK. The real rate of interest from a building society account i.e. the gross rate (before tax) minus inflation is about 3% in real terms. This is pretty low as it reflects the fact that it is a risk free return. Property investment is not risk free and given that a landlord is investing a considerable amount of time, effort and capital it is reasonable to expect a return above this.

A property developer would look to receive a return of about 20% on capital invested. However, carrying out a development is far more risky than an investment. In addition, a development particularly a large one is likely to take place over several years; in which case the annualised returns could easily be halved to say 10%.

If we use these figures as a guide I would say that a long term real return of between 5-10% is OK although not stunning. A landlord has to appreciate that buying a property investment is not passive in the same way as holding a building society account is and running a rental business does involve small amounts of work to keep it on track. Therefore the returns that a landlord should expect from their investment should reflect this. A landlord should be aiming for at least a high single figure and preferably a double figure return on their capital. Anything above 20% is excellent.

Difficulty with predicting long-term returns

Off course, long-term predictions are notoriously difficult. Predicting things like the interest rate, the levels of inflation further out than a couple of years into the future was impossible up until recently. The independence granted to the Bank of England in the late 90′s has had a huge stabilising influence. Hopefully, the UK and the housing market will continue to benefit from this stable investment environment and enable all our property investments to continue to prosper.

Why Invest In Property? 5 Crucial Factors For Financial Freedom

Property Investing For Wealth Creation

Property Investing For Your Retirement Fund

Property Investing For Your Security

Why property is the I.D.E.A.L investment

You want to invest for your future but don’t know which asset class (shares, property or business) to invest your hard earned dollars into?
This is a question that is posed to us time and again. There are benefits and risks when investing in any asset class however we have personally
found that investing in residential property has given us a great return on our investment with the least amount of risk. You can invest in
property even when you have little or no equity, don’t own your own home and have lots of bad debt.

We call property the I.D.E.A.L investment because it provides:

Income

Depreciation

Equity

Appreciation

Leverage

All of the above are critical factors that the rich use so successfully to build their wealth and which you can also use to build your wealth.

Let us explain further why property has been the I.D.E.A.L investment class.

Income – investing in property has allowed us the opportunity to earn additional income on a regular basis through the collection of rent on the property(s).
We use the rent to help pay off the monthly mortgage payments and/or expenses associated with the investment property(s). This along with other benefits allows
us to live a comfortable lifestyle while continuing on with our successful wealth creation strategies.

Our long term strategy is to pay down the mortgages and then use the rental income as disposable income to live off.

Depreciation – another form of income that property investing provides us is tax deductions in the form of depreciation allowances. The Australian Taxation
Office allows property investors to depreciate the value of their investment properties and claim the amounts as tax deductions against the income. Maximum
depreciation benefits can generally be achieved from new properties however renovated older properties can also provide significant depreciation benefits.
When we started investing in property, our strategy included purchasing brand new properties with high levels of depreciation so that we could utilize the
tax benefits to sustain the investment property while it grew in value. Depreciation schedules can be obtained from registered Quality Surveyors while your
accountant should be consulted for tax deductibility of the items on the schedule.

Equity – is why we invest in property. Equity can be defined as the amount that a property has increased in value over time for example, if you buy a property
for $300k and after some time it grows in value to $400k then the difference ($100k) is simply termed equity. Equity is great because you don’t have to work
hard to get it, it just happens over the course of time, even when you sleep. To accelerate your wealth creation the increased equity can then be taken out
and used as deposit(s) to purchase additional investment properties. This is basically how many of the well known and successful property investors built their
portfolios.

As our properties grow in value, we use the equity to purchase more and more properties. Equity grew quicker as we purchased more properties which in turn
accelerated our capacity to purchase more properties. Each time a property grew in value, we would revalue the property and draw down the available equity to
purchase the next opportunity. Some of our properties have grown by 30% yet had we tried to save this amount of money while working in the “rat race”, we would
never have been able to buy more than one property. Equity has given us the power to buy multiple properties in a very short time frame and grow our net wealth.

Appreciation – property values increase and decrease just like any other investment vehicle however when you look at property over the longer term, it generally
always increases in value and therefore provides low risk investing. We prefer property for this reason and put simply, people need somewhere to live. We have
approximately 120k people migrating into this great country each year and the size of our family units are reducing hence the requirement for more properties for
people to live in is on the increase. When looking to buy an investment property we look for areas that are experiencing population growth or are expected to grow
in the longer term. Population growth helps to ensure that there is demand for property and following the supply and demand principal, appreciation in property
prices is highest in areas of greatest demand. Our genuine wealth has come from our many properties appreciating in value over time.

Leverage – in property investing terms can be defined as the ability to do more with less. Leverage is by far the most powerful feature in property investing and
has got to be one of the many wonders of the world. Without it we would still be trying to buy our first investment property. Leverage has allowed us to maximize
what we have and to create serious wealth. Borrowing more on an investment property than what you paid for it is what leveraging is all about. How great is that.
You can use someone else’s money i.e. the banks to grow your wealth. Banks will lend you up to 80% of the value of the property and in some cases, borrow more at
competitive interest rates. Property allows more borrowing capacity than any other investment class because the banks view it as low risk.

Put more simply you are required to put in less of your own money up front when investing in property than you would if you were investing in any other investment
class. This means that you will be able grow your portfolio much quicker because you will need less of your own money than you would with other asset classes. If
you can at least double the return on what it costs you to own an investment property then you are ahead of the game and on your way to creating serious wealth.
The more that you can borrow at 7.5% interest that is returning 15%, the wealthier you will get.

How many other investment classes provide this many compounding benefits. For us property is the I.D.E.A.L investment class. We don’t know of any other investment
class that provides us with an income while at the same time allowing us to depreciate the assets’ value while at the same time watching the asset appreciate in value.
Appreciation of the asset increases the equity which in turn allows us to gain maximum leverage by borrowing to purchase more property. Repeating the cycle again and
again and again creates wealth at an ever increasing rate, how good is that.

Happy Investing

Paul Tooze

http://www.PropertyBooks.com.au

A leading resource for property investors