Category Archives: Investing

Levin on Trade Wars and Commercial REI

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According to a very interesting post written by Jeff Levin in the Forbes Community Voice, trade wars are affecting commercial real estate investing.

Jeff Levin has 3 decades of experience in the real estate arena and what he has to say makes a lot of sense to me. Of course, it should. He is a senior-level executive of the Forbes Real Estate Council and this is his area of expertise.

I want to summarize the points in his post for you here because they are so relevant to us as private money lenders and investors.

Scarce Funding Will Bring More Opportunities to Private Lenders

He first points out that the trade war between the US and China presents opportunities for those in the business of private lending because as Chinese investment decreases in the US commercial real estate market for new projects, funding is scarcer.

Levin suggests that tracking where the Chinese investment was the heaviest is where to look for projects that might need capital.

China is Selling Assets Bringing Down Prices

Beijing has apparently also mandated a sell off of asset portfolios. This is lowering prices for some types of commercial real estate.  According to Levin, “For sectors like office buildings, excess supply is depressing absorption rates, increasing vacancies and competition for tenants and squeezing rent growth.”

Levin advises that multifamily borrowers and office project borrowers refinance after construction is complete with a bank rather than relying on leasing income or sales to retire the debt.

Construction Prices Are Going Up

Construction prices are going up because the price of materials is going up due to tariffs on steel, lumber, aluminum and other materials from international suppliers.

Levin advise that borrowers put in contingency clauses that spread any unexpected risk due to the volatility of material prices among the investors.

Construction Delays

Construction delays are being caused by the tight labor market, but also because of the lead time required to obtain building materials.  Because delays increase overall risk, the number of new commercial real estate project starts are declining.

Levin says that despite more deals coming to private lenders because of the difficulty of securing financing, “Private lenders must stay on top of the collateral value in the cases where borrowers might not survive unforeseen project delays.”

I really encourage you to read this article on your own at https://www.forbes.com/sites/forbesrealestatecouncil/2019/06/04/four-ways-the-trade-wars-are-undermining-commercial-real-estate/#1c047a706957

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. 

Contact me at 
Patrick@REICapital.cash
512-213-2271 funding

References

Levin, J. Four ways the trade wars are undermining commercial real estate. June 4, 2019. Post at https://www.forbes.com/sites/forbesrealestatecouncil/2019/06/04/four-ways-the-trade-wars-are-undermining-commercial-real-estate/#1c047a706957ways-the-trade-wars-are-undermining-commercial-real-estate/#1c047a706957

Hurricanes and REI: It’s all about Timing

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Alert: Harvey, Irma, Rita, Katrina

Hurricane season is here, and there are things you need to know now, before the storms approach.

Natural disasters are a cause of financial loss for a real-estate investor in fix-n-flip projects or for vacation rental property deals on a coastline. After reading several articles and searching the real estate websites, I ran into tips for real estate investors facing an approaching natural disaster at yourflipcoach.com, Your Virtual Real Estate Coach. Be sure to visit Ryan’s site if you have a minute. Here are the key points in the article.

Insurance Binding
First, as a practical matter, it is very important to know that insurance companies will not bind a new policy or add additional coverage to an existing policy if a hurricane or large storm is headed for Texas. This is important for you to know if you are planning to invest in a property in Texas.

Make sure a hurricane is not on its way. Buy insurance that covers flood and wind damage and replacement costs, and don’t buy the property or the insurance if you can’t bind an insurance policy. Both you and your lender will want insurance on the property. Buy flood and wind insurance on your new property and make sure insurance binders are active well before the next storm.

Closings Disrupted
Second, when you have found a buyer and a storm is approaching, time the closing of the deal so that closing is complete well before the storm event. The storm can get in the way of your closing in so many ways. Following a storm, roads and properties may be damaged and inaccessible. Even if you are dry, routes in and out of your area might be blocked or flooded. You could lose your buyer because they cannot get to you or to the property, or because the property is damaged.

A study performed by the Federal Reserve Bank of Dallas concludes that the “typical hurricane raises real house prices and, to a lesser extent, reduces real incomes for a few years.”

New Business Opportunity 5 Years Out
Third, be ready for new business opportunities following a storm. Damaging natural disasters and the insurance money that comes into the market after they pass can create new opportunities for real estate investors. Some property owners may want to sell, particularly if they did not have insurance. Even if they are insured, many home owners will take their insurance check and sell the property for whatever they can get. Some lots are sold at land value after the home was removed; but once a house is rebuilt, it can be resold again at near the same price in future years (about 5 years).

aerial view atmosphere clouds cold front

Residential Prices Rise Because Housing is Needed
The value of property that is high and dry after a hurricane will increase because homes are lost or uninhabitable. Housing will be needed. And, buyers and investors will be seeking solutions.

An article in Forbes by Jordan Lulich points out that right after a storm, home sales go down because property owners are too busy cleaning up. According to his article, two months after Hurricane Harvey, 31% of residential neighborhoods saw an increase in median house prices here in Texas.

It is still smart to invest in real estate in hurricane prone areas because residential property values increase over time. Repair costs associated with storms are certainly worrisome. Just be sure to buy insurance that covers wind and water damage to protect your asset.

Please give me a call when you find that perfect investment, and I can help you fund the project.

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

 
References
Ryan Kuhlman, January 8, 2018, Natural Disasters and Real Estate Investing, https://yourflipcoach.com/natural-disasters-and-real-estate-investing/

Jordan Lulich, June 28, 2018, Does Hurricane Damage Negatively Impact Your Real Estate Value/
Forbes https://www.forbes.com/sites/jordanlulich/2018/06/25/does-hurricane-damage-negatively-impact-your-real-estate-value/#381ca6d5107b

Murphy, Anthony and Stroble, Eric, October 2010, The Impact of Hurricanes on Housing Prices: Evidence from US Coastal Cities. Federal Reserve Bank of Dallas, Research Department, Working Paper 1009, https://www.dallasfed.org/

Have You Hired an Uber Driver Today?

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House flipping has made it to the Wall Street Journal. In a recent article (May 28, 2019), Uber Drivers Seek Extra Cash Working for House Flippers,” I read about a new way house flippers are finding houses to buy in today’s competitive market. They are maximizing their chances of locating houses to fix-n-flip by paying Uber drivers to identify homes on their routes that are ripe for flipping. This cuts down on the amount of driving and scouting the real estate investor has to do to find potential homes to buy, and the Uber driver makes some extra cash.

Uber drivers take a picture of a property using an app developed by DealMachine, LLC. The app uses GPS and county online property records to identify property owners. The DealMachine website in the Google app store says that the app “is the fastest growing solution for investors and agents who want to build their own marketing list and find local deals.” It advertises that you can “See a run-down house, find the owner, and flip it for a profit.” Their app gets in touch with the property owner via direct mail or e-mail. The app user instantly sees the owner’s name, phone number, and e-mail address to contact them on the spot.

Driving for Dollars

Homes that have owners that might be eager to sell include houses that appear vacant and those that have newspapers piled up and a “for sale” or “for rent by owner” sign in their un-mowed front yards. Uber drivers take pictures of the houses and submit the referrals when they are not driving a client.

Some real estate investment companies pay the Uber driver a hefty commission if a lead pans out and others pay some for each good lead and more if a referral leads to a deal closing. One Uber driver interviewed by the WSJ writer has sent in 400 photos and has not had any of her leads close yet, but she says, “I understand real estate is a numbers game. What do I have to lose? I’m driving around anyway.”

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

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

Parker, Will and McWhirter, Cameron, Uber Drivers Seek Extra Cash Working for House Flippers,

WSJ May 28, 2019

https://www.wsj.com/articles/uber-drivers-seek-extra-cash-working-for-house-flippers-11559035802?mod=trending_now_2

https://play.google.com/store/apps/details?id=com.dealmachine&hl=en_US 0feffffff0

Vacation Rental Investment Property: Expenses

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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

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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

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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

 

 

 

 

 

 

Out-of-Doors Real Estate Investing

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By 2024, the US Bureau of Labor Statistics employment projections program projects that there will be over 15,000,000 outdoor jobs in leisure and hospitality and almost 7,000 jobs in construction by the same year.

This statistic does not include the self-employed real estate investor, but it does tell us that there will continue to be a market for leisure and hospitality in the coming years. By that I mean vacation rentals and resort investments. If you crave fresh air, sunshine, and open spaces? Then the best thing to do is to craft your own job outdoors using your skills in investing, real estate, marketing, and hospitality.

Logically, the first outdoor work that comes to mind is the construction work required when you buy a property to fix-n-flip or fix-n-rent. You think of the remodeling, painting, deck building, landscaping, and the lifting, digging, and tugging that is required.

However, as a real estate investor, you can be a passive investor or an active investor, as active as you want to be. You can buy and operate a resort as an investment and as an occupation, one where you have rooms or cabins to rent out after they are remodeled, providing yourself with social opportunities and occasions to play out of doors.

Resort Ownership on the Water
Resort ownership on the ocean or a lake would give you opportunities rent property out for days or weeks and to spend time outdoors with your guests:
take your guest out on the water in a boat as a fishing guide
take your guests on a picture-taking tour around the lake shore
visit with guests around the community fire pit telling stories in the evening
rent out canoes, bikes, and games
teach guests to swim, kayak, water ski, or snorkel
be a life guard at your own pool
keep the grounds clean and mowed
provide your own landscape service.

Resort Ownership in the Woods
Resort ownership in the woods comes with the opportunity to rent cabins or rooms by the day or the week with time to spend outdoors with your guests:
guide trips for your guests fishing on nearby lakes or streams
lead float trips
lead hikes
teach conservation or outdoor cooking or snow skiing
prune trees
maintain trails
repair cabins

Dude Ranch or Hunting Resort Ownership
Dude ranch or hunting resort ownership would provide a different set of opportunities for the combination of vacation rental ownership and outdoor work:
take care of the animals on the ranch, horses and cows
breeding animals for sale or to increase your own herd
teach horseback riding,
guiding hunts or fishing trips
guiding horseback trips
building blinds and fences
build ponds
restore habitat in streams or forests
socialize with guests
being the grill master for guests’ meals.

An outdoor career has its pros and cons, among the pros are lots of fresh air and exercise that will keep you in shape. Among the cons are weather, schedules, and dangers. Many outdoor and leisure and hospitality workers are on the job early and work weekends and holidays. They may work all summer and be off most of the winter or work all winter and be off in the summer. You will most likely have to perform your tasks in heat, cold, rain, and wind. And, many outdoor jobs are physically demanding, requiring lifting, digging, and bending.

close up photo of man cooking meat

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 at
Patrick@REICapital.cash
512-213-2271

2 Home-Buyer Surveys of Note

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Buyer Surveys

Earlier this year, the National Association of Home Builders (NAHB) surveyed nearly 4,000 home buyers, those who have either recently purchased a home or plan to purchase a home within the next 3 years. Realtor.com also reviewed home transactions between January 2018 and September 2018 and compared them to the 2017 home sales to come up with some statistics about who will drive home sales in 2019.

These statistics become meaningful when you apply them to your own real estate investment plan as much as possible. As you approach your real estate fix-n-flip project, it is important to apply the money in your budget toward the areas that will give you the most buyer draw for the dollar. This is not easy, and the target is constantly moving as new products come onto the market, new buyer demographics emerge, incomes fluctuate, and young buyers learn from their parents, study what their parents have done and listen to what they would have done differently.

Millennial Generation Buyers

When you first start looking for the right property to remodel, you may want to consider looking in areas where the largest group of people are looking. The realtor.com survey of emerging home buyers in 2019 points out that affordable homes, jobs, and the availability of entry level homes are “magnets for young buyer.” A large segment of the millennial generation will be turning 30 years old in 2020, so they are starting families, and, as rents rise, moving out of apartments and buying houses.  According to the NAHB survey, 64% of buyers preferred to buy a home in the suburbs. 24% of buyers were looking for a house in a rural area. 11% of buyers were looking for a house in or near the center of a city.

Storage and Energy Efficiency

The information in the NAHB buyer survey gives you some general guidelines on what home buyers are looking for in their homes. After location, buyers prefer

  • laundry rooms
  • energy saving appliances
  • energy saving insulation
  • energy saving windows
  • home storage
  • garage storage
  • walk-in pantries
  • hardwood flooring
  • patios
  • exterior lightening

A few rising trends were noted in the NAHB buyer survey that may pique your interest and inspire some research, including: houses are getting smaller, engineered quartz countertops, vinyl and resilient flooring, wireless controls, open interior and exterior spaces in kitchens, and higher-end fixtures in bathrooms, such as wall-mounted sinks, faucets, and toilets, are becoming more popular.

REI Capital Resources built its reputation on finding private funding for investors for quick turn purchases and difficult situations.  This is still true today.  

Give me a call or send an e-mail and share with me your plans and needs, and I’ll see what lending solution I can generate for you.

Patrick St.Cin

512-213-2271
Patrick@REICapital.cash
Info@REICapital.cash Menti

Old Malls: Transformed in Texas

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While studying what is being done with abandoned malls around the country, I ran into the April 2, article in Dallas News by Steve Brown about plans for the struggling, not dead, Collin Creek Mall in Plano, along Highway 75. The mall is being redeveloped into a mixed-use village centered around a crystal lagoon.  The plans support dense property usage in the area with office space, multi-family apartments, single-family homes, senior-living units, a hotel, restaurants, retail space, a park and hiking trails with all the parking underground sharing the location where the mall is now. The developer, Centurion American, will begin construction in July 2019. Entertainment will be a big component of the project.


Crystal Lagoon & Real Estate Strategy

Wondering what a crystal lagoon is, I visited their website, crystal-lagoons.com, and found that the crystal lagoon is a water amenity that will increase the value of the surrounding real estate and allow higher rents to be charged for office space, hotels, and apartments because it actually brings the beach or water-front to the neighborhood, no matter where the neighborhood is in the world. Although it was developed first for private use, the public access lagoon model allows communities to be developed around the water feature. According to crystal-lagoons.com, the technology claims to make an unviable project viable. Remaking the land where old malls are located, in the middle of suburbs, into new communities for a long time has been a potentially unviable project. It is good to see that this concept can reform and reuse these massive abandoned spaces in our cities.

Sustainability

The crystal lagoons advertise that they are sustainable, using less chemicals, less energy than conventional pool filtration systems, and less water than parks and golf course, yet providing water as crystalline as swimming pools and tropical lagoons. They use any type of water, salt, fresh, or brackish and control evaporation with a film cover system and by capturing rainwater that falls.

Safe, Smooth, and Clean Water

Even along the coast of an ocean, the crystal lagoon concept offers a safe and controlled environment for water sports and beach activities.

Master-Planned Communities around Lagoons

Here in Texas, there are a couple of communities that include a crystal lagoon as part of their planned amenities. Like the Collins Creek Mall replacement project, these are master-planned communities where entertainment, shopping, and employment can be found within minutes of home.

One of these communities is Windsong Ranch in Prosper, Texas.  Another community, Lago Mar, is a 2,033-acre master planned community located along Interstate 45 in Texas City. The 12-acre Lago Mar crystal lagoon is opening in 2020. The entertainment district features multiple beaches, a floating obstacle course, a swim bar, a 10,000-square-foot beach club, and restaurants on the boardwalk. 

Balmoral in Houston is a 750-acre new home community in the West Lake area of Houston that offers Texas’ first crystal clear lagoon surrounded by glistening white sand beaches. The lagoon encompassed 2 acres of sparkling blue water that is 8 feet at its deepest and 3 feet in the swimming areas.

As you are considering investing in real estate, think about amenities like these. Are there any crystal lagoons, walking trails, fishing lakes, or theatres, near the property you are considering. These entertainment amenities affect the value of property and the amount of rent you can charge.

Focused on Funding Your Success

I can be reached at
Patrick@REICapital.cash
512-213-2271
Austin, Texas

Image credit: Azwar Thaufeeq [CC BY 3.0 (https://creativecommons.org/licenses/by/3.0)%5D

Needed: Homes for Modest Incomes

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“The lower end of the market is hot, while the upper-market is not,”

Lawrence Yun Chief economist at the NAR

According to the National Association of Realtors, developers built more expensive homes in recent years, while middle-income Americans are eager to buy cheaper properties. Thus, the high-end market has slumped and the market for mid-priced homes has increased slightly, equaling a 4.9% decrease in existing home sales in February 2019.

The article “Home Sales Fall 4.9% in Slow Start to Spring Buying Season,” Associated Press Wire Service, by AP Economics Writer, Christopher Rugaber. also says that mortgage loan applications are up, but cites no sources for that information.

As always, do your research and put your money where you see there is a need. In that market, it will sell.

gray house under blue and gray sky

If you find that modest home that you can remodel for a middle income family, let me know.  I have the funding tools to help you.

REI Capital Resources is a loan originator for select investor single-family residential projects. Our goal is to provide fast closing loans to fund your investment projects, so you don’t lose a great deal. This includes bridge loans for the acquisition of property.

Give me a call or send an e-mail for assistance funding your project.
Patrick St.Cin
512-213-2271
Patrick@REICapital.cash