DEBBIE BURNESS REAL ESTATE GROUP

Looking for a simple way to determine if a rental property will give you the rate of return you want? This modified annual property operating data may be just what you’ve been looking for.

There are many different rates of return that investor’s consider to determine whether a property will generate the yield that they expect. Sometimes the simplest of calculations can tell you whether you want it or not and if you get the other things like tax advantages and appreciation, it just makes it that much better.

The first yield we will look at is commonly called the Cash-on-Cash rate of return. It is calculated by dividing the initial investment, usually down payment and closing costs, into the Cash Flow Before Tax.

To arrive at Net Operating Income, it is simply taking the gross scheduled income, less vacancy allowance and all operating expenses. From that is deducted the annual debt service which is the principal and interest payment times twelve. The remaining amount is referred to as Cash Flow Before Tax.

In this example , the initial investment of the down payment and closing costs, $66,000 was divided into the Cash Flow Before Taxes of $5,468 to get an 8.28% Cash-on-Cash rate of return.

The second yield to be considered is called Equity Build-up. Each payment made on an amortizing mortgage pays a portion toward the principal balance to retire the loan. It is calculated by dividing the initial investment into the principal contribution for the year.

Continuing with the example, $66,000 is divided into the principal reduction for year one of $4,606 to get a 6.98% Equity Build-up rate of return.

This approach is easy to understand because you are not considering depreciation, anticipated appreciation, holding period, recapture of depreciation or long-term capital gains. Simply rent the property, pay the bills and if there is money left over, it pays a return on the initial investment.

The same goes for the Equity Build-up. When you make the payment on the mortgage, the loan is reduced and while you don’t have access to the money like cash flow, it is definitely your equity and tangible.

To determine whether an ROI on a rental is good, compare it to what your initial investment is earning currently. Ten-year treasuries are earning less than 2%. Certificates of deposit are earning less than 1%.

For more information, download the Rental Income Properties guide and schedule an appointment with your real estate professional.

Most homeowners have insurance on their home that additionally, gives them coverage on their personal property. That is the first level of peace of mind to know that it is available to you if there is an unfortunate need for it from a burglary, fire, or some other insured circumstance.

Personal property is handled slightly different than real property. The claims adjustor could start by asking you for a list of the things lost. You are allowed to reconstruct it but there is a distinct possibility that you’ll forget things, sometimes for months or years after the claim was settled.

An interesting exercise would be for you to visualize two rooms, possibly, the kitchen and main living area. Without being in the room, create a list of all the personal items in plain sight and those in the closets and cabinets. When you’re through with the list, go into each room to check to see what kind of things were not on your list and what the value of those items amounted to. It could be substantial.

Remember, you are entitled to claim them regardless of how long it has been since you used them or if you do not intend on replacing them again.

When filing a claim, the more “proof” you have to substantiate it, the better off you are. Receipts are great but chances are, you may only have them for the big-ticket items. Photographs or video of the different rooms are great records that the items were in your home.

An itemized list of each room with a description of the content, cost and date of purchase, supported by pictures would be ideal. This type of documentation will make filing and settling a claim much easier. The more documentation you have, the more likely you are to have a favorable settlement.

The more expensive the item, the better it would be for you to have receipts, serial numbers and photographs. A simple count of some items like clothing will suffice like four pairs of jeans, 24 dress shirts, etc. More valuable items of clothing like a cashmere jacket or a silk dress should be listed individually.

Depending on the frequency that you purchase new items for the home or possessions, you’ll need to consider updating the list and photographs. Moving creates opportunities to get rid of things that haven’t been used for years and to acquire things for the new home. It is always a good idea to complete a home inventory after you’ve moved and settled into your new space.

If you would like to have more tips and a form to itemize your possessions, download the Home Inventory. This will even allow you to include pictures and store it in digital format for safe keeping.

Some homeowners feel like they may as well throw a dart against the wall to decide whether to move or not. Other people might invoke a process attributed to Benjamin Franklin. Supposedly, to evaluate the options and bring clarity to the choice, this American founding father would list all the reasons for and against the decision on a sheet of paper. After reducing it to writing, the choice would appear either by obvious majority or practicality.

Buying a home is an emotional decision but selling a home can be also. Separating the rationale from the emotion can make decisions seem obvious but they may still not be crystal clear.

There is an inventory shortage that caused prices to rise and market time to shorten. In many active markets there is less than 30-days’ supply of homes for sale which is half of what was available a year ago. This will make it easier to sell and maximize the proceeds from your current home.

69% of economists who participated in the first quarter 2021 Zillow Home Price Expectations survey believe home inventory will begin to grow in the second half of this year or the first half of 2022.

Mortgage rates are near record lows which will keep payments at a minimum. With the inflation rate in the United States expected to be between 2-3%, many borrowers consider that it balances with the mortgage rate to be an effective zero percent.

“Consumers are facing much higher home prices, rising mortgage rates, and falling affordability, however, buyers are still actively in the market,” said Lawrence Yun, NAR’s chief economist. “At least half of the adult population has received a COVID-19 vaccination, according to reports, and recent housing starts and job creation data show encouraging dynamics of more supply and strong demand in the housing sector.”

The pandemic has allowed many buyers have the flexibility to work from home for now and in some situations, permanently. That opens new location possibilities options that would not have existed if they had to commute to work daily. Economists believe that the increased preference to work remotely will be a permanent shift even if it is only a part of the work week.

This provides opportunities for homeowners to relocate in an area that doesn’t have the high demand that their current area does and could benefit from more affordable housing for the replacement while possibly, maximizing the sales price of their current home.

Good information specific to your needs is essential to making good decisions. Explore the possibilities with your real estate agent. They can provide facts about the sale and purchase of another home. Once you have the facts, you may use the Ben Franklin Balance Sheet to help you with your decision.

A quick video to introduce myself as many times I’m meeting you virtually or by email. I look forward to helping you buy a property that fits your needs perfectly or sell a property and reinvest in a property that suits your new situation!

Buying and Selling Real Estate can be stressful and working with a highly educated Realtor can make your experience less stressful and fun!

My clients tell me –
I have the patience of a saint, I’m never pushy,
They feel more confident with their decisions because of they are educated well during the buying or selling process. They are updated often to ensure they know how the process is moving forward in simple language that they understand.

30+ years of witnessing the ups, downs and changes of the real estate market helps me guide clients in the current real estate market. Below are a few highlights of those benefits-

Sellers – Maximum exposure marketing strategies to enhance the potential of multiple offers. More offers typically equals a higher sales price! When negotiating potential repairs, low appraisals and disclosure issues I assist in positioning for the least amount of liability and cost of repairs. My listings consistently sell in no more than average of 23 days on market.

Buyers – We start with my Buyers guide to educate buyers on the buying process, terms used, negotiating tactics, etc. Buyers never miss out on buying opportunities with my daily property updates! I have earned the respect from other Realtors as a honest professional which is helpful to my clients in getting their offers accepted!

Where would you like to buy or sell Real Estate? I can assist you in Alameda, San Joaquin, Stanislaus, and Contra Costa Counties. Having lived in and observed these areas develop over the years, I clearly understand the Real Estate markets in these areas. My clients have the comfort of knowing they are investing in the area that fits their lifestyle or investment objective.

Certified Residential Specialist (CRS), Certified International Property Specialist (CIPS), Short Sale and Foreclosure Resource (SFR).

When you love what you do it’s not work! My career has provided an opportunity to develop wonderful relationships with clients, many buying several homes with me through the years. Call or email with any questions about buying and selling Real Estate, it’s my pleasure to be of assistance! 

I hope you enjoy this blog and the video’s provided!