Basic Real Estate Project Planning and Management

This will be elementary to seasoned investors, but I’m assuming many investors using BiggerPockets are beginning and collecting information, so I thought it might be useful to go over basic project planning and management. I have learned these things from experience, but mainly through knowing smart investors.

When considering a project, get information on the maximum income the property will bring.
Factor all the costs and time involved in getting the property to it’s max according to what you are paying for the property and the costs involved in maintaining it. Don’t give up on the property if your figures show that it seems to already be at the max and no improvements will bring significantly more income– look for ways where costs can be lowered — is it managed correctly? Is there any way to lower expenses? Can you get better financing? But know the numbers. Make sure you have projected the lowest possible operating expenses. keep cutting until you get to the bone.

Determine where your break even point is.
If it is a single occupancy investment property make sure you choose your tenants wisely because you only have one tenant and if the tenant doesn’t pay then you have zero. There’s less risk in multiple tenant properties, and you can figure what percentage of occupancy is your break even, so you know anything below that will cost money. Getting a very good history of occupancy rates is critical before buying to make sure the property has a history of at least breaking even, then there may be improvements you can make to increase the occupancy rate.

When renting to a tenant who will be running a business make sure you know as much as the tenant about the likelihood of the location being amenable to the type of business going in — don’t expect the tenant to be making a wise decision. Learn to analyze demographics so that you can make informed choices as to tenant’s prospects of being profitable and paying the rent. Sometimes you can even be helpful to a tenant by making suggestions that could help their business — be involved and proactive, because it will help you in the long run.

But the main thing is sticking to your goals and making sure the investment is what you want it to be, and also making sure the property is not at the end of its usefulness — this doesn’t mean you pass on it, but if the property has no other good use, then yes, pass on it and don’t jump because of price or some stubborn dream to own a certain type of property that’s just no longer producing and will soon be useless. Always be ready to change and never get emotionally attached to an idea.

And be careful of following the crowd when there is news of new city planning and development — sometimes it might be best to get in on the second wave after anxious investors have bought land expecting big development to take place, only to run into delays and set-backs that cause the first investors to sell at a discount to get from under it. A few years back, there was news of a Mercedes plant coming and investors scrambled to get in on the action — Mercedes backed out and never built here, but there is a lot of cleared land that can be bought reasonably where the plant would have been. Always be smart, wait and see, but don’t wait past the time to make the best deal — timing is everything and almost impossible to judge correctly all the time. But, if you use sound economic judgment and common sense you will time it close enough most of the time.

After all your analysis regarding use of property, choice of tenants, maximum income, and operating costs, everything is in line and you can get an acceptable rate of return, then run it all by someone with experience for a second look — it always pays to get advice.

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Tags: cash-flow, cashflow, Investment suggestions, landlord, real estate investing, tenant

While the Fed Funds Rate reduction does not directly affect mortgage rates it does have an impact on the interest rates investors utilize. When we read in the paper about how the Fed has slashed interest rates, the rate that has been cut is the lending rate between banks and other depository institutions. As the interest rate decreases for banks to borrow money, the bank in turn passes this reduction to the general public. Mortgage Backed Securities dictates conventional interest rates; it is the demand of the market that causes rate increases and decreases. However, rates tend to pattern the Fed, but they are not set by the Fed. The interest rate that real estate investors should be paying attention to and that can be directly correlated to the Federal Reserve, is the Prime Rate. The Prime Rate was at 8.25% in September 2007 and now it is at 6.00%. That 2.25% means substantial savings for all investors that utilize lending tied to prime.

Investor Rehab

There are several ways to finance your rehab project: hard/private money, cash, credit cards, or home equity lines of credit (HELOC). A number of investors utilized lines of credit on their primary home or existing investment properties to rehab their projects. This is becoming even more favorable because all HELOC’s are tied to prime. If you had your HELOC prior to September 2007 you have seen a 2.25% rate reduction. On a $50,000 HELOC the rate reduction saves you $93.75 a month.

Spec Building

Prime Rate has a similar affect on financing of spec homes or construction loans. Most spec and investment properties are financed with interim construction loans. These loans are based on a margin -/+ Prime Rate. Once again, since September there has been a 2.25% rate reduction. On a $417,000 loan amount this equates to a $781.88 monthly savings on the debt service.

Cash Flow

While the Prime Rate is seldom used to secure an investment property long term, it is worth mentioning how the Fed Funds Rate can help the average investor cash flow. Historically conventional interest rates have followed the direction of the Fed; this has caused the interest rate to decrease significantly since September. There are a number of variables on investment properties, but if an investor can qualify by having great credit, documented income, assets and have 30% equity into their property, rates have been as low as 5.5% on a 30 year fixed over the last month. This is only an illustration. Please contact your trusted mortgage advisor to check your specific scenario.

With more potential rate cuts in the near future 2008 is a very good time to be in the real estate investment arena.

Tags: cashflow, Feds rate cut, mortgage for investors, rehab, spec construction

CashflowandEquity.com is the website of Cornerstone Investment Group, a company that has gained recognition for its specialty–offering turn-key properties to real estate investors. Simply put, this investment company promises to ease the “headaches of being a landlord.” No simple task, but the company says it can do this by providing properties that are “renovated,rented and with available property management.”

Vertically Integrated Lending Arm

To make turn-key type investments virtual no-brainers, Cornerstone offers a financing arm for properties bought through its website. The “Preferred Lender Program” -the company promises, will take any potential sting out of qualifying, which anyone who has ever purchased any property can tell you can be a consumer nightmare. But, Cornerstone says it offers fast closings and low down payments. This doesn’t mean, of course, that just anyone can benefit from the lending program:

**The potential buyer MUST have a minimum credit score of 620
**Must be 18+ years of age
**And, have a buyer debt-to-income ration not exceeding 50%

Focus on Foreign, In addition to Domestic Investors

So far, so good. These folks seem to have given much thought and have apparently covered all possible angles. For example, this is the first company I have seen that also caters to the foreign investor looking to buy property in the U.S….it does this through it website http://www.usacashflowproperties.com

Strategically Locates Properties in Affordable Western New York State

Of course, Cornerstone has a strategy: to locate properties in Western New York State. I personally believe this is a good plan since properties in this part of the country are extremely affordable at this time. But, even white clouds can have a darker lining. There is plenty of evidence that the area is not exactly on the upspring. The City of Rochester’s own estimate is that nearly 66% of the structures in the city are rental properties. And, over in ever snow-bound Buffalo, nearly 59% of the city’s structures are rental. The obvious down side to this is there is also plenty of evidence that areas with a greater concentration of home ownership,for example,tend to have residents sharing a far more attractive socio-economic profile. And, while The Economist just published a story concluding that Rustbelt cities such as Buffalo have a real chance to stage a dramatic comeback, it cautions at the same time that this is not likely to occur overnight. In part, this is due to the economies of Buffalo and Rochester which are not ,what one might call,booming. And, there has been talk and unfulfilled promises before by civic leaders that both cities would have a major turnaround. So, only time will tell.

But, one doesn’t need time to tell that all this translates into cheap properties, yes, but also properties not likely to see much appreciation in the short term.While the properties offered by Cornerstone all come complete with built in equity, investors should be made aware that it is of vital importance to closely examine and consider cash-flow.

Established Property Management

As for its much advertised property management, Cornerstone has established relationships with various companies making it possible to offer management services at 10% of collected rents. Just some of these services from management include:

• Rent Collection
• Dealing with various Rental Public Assistance Agencies (i.e., Section8 )
• Tenant Issues
• Repairs and Maintenance
• Inspections
• Tenant Placement
• Lawn and snow removal services (when needed)
• Monthly statements with Expense records

You should be as comfortable with your property manager as you are with the management company you have hired. With that in mind, we’ve assembled a few important points to consider and have gathered them here

Large Availability of Properties for Rehabbers and Landlords

This company works not only with landlords but also with other types of investors. And, since it can secure properties at wholesale prices, it can sell these properties directly to rehabbers–and, still turn a small profit. So, if you happen to be a rehabber with a yen for Western New York State, all you need to do is fill out a form and you are now in the loop to learn about upcoming deals.

Finally, the properties themselves. As of today, Cornerstone has 177 properties listed on its site. After browsing for just a minute or so, you can see there are many potential opportunities for investors large and not so large.

So, if you are in the market to pick up some affordable, cash-flow properties, I’d certainly take a serious look at Cornerstone Investment Group via its website, cashflowandequity.com. It is a company that seems to have its act together, offering deals that should make it easier for newbie and hand’s off investors alike.

NOTE: This was a paid review. If you are interested in having your site reviewed, please visit our advertising page

Tags: cashflow, equity, landlord, property, real estate investing, rehabber, turn-key, wholesaler