real estate

Top 10 Mistakes

Top 10 Real Estate Investor Mistakes

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Many people have learned that Investing in real estate is not as easy as it seems. At least that is true for investors trying to get a fair deal. For those of us who have been investing for years, and learned many hard and expensive lessons, here are issues you should think through, understand, and consider before jumping into the real estate investing arena. These are in no particular order, since an individual would be smart to read and think through each and every “lesson learned” in the list.

1. Not penciling out your real estate deal

Money down the drainThis describes about 80 percent or more of real estate investors.

They don’t take the time to put pencil to paper and make sure that the rental revenue from the property will be more than all the property expenses – and leave some monies left over to return to one’s bank account.

A negative cash flow property will virtually guarantee a measly – at best – investment return on your money.

2. Not penciling out your deal with conservative numbers

For those few fortunate ones who do know how to pencil out a deal, many use unrealistic numbers. They overestimate rental income, underestimate the vacancy, then underestimate the expenses associated with operating a property. That turns into low or negative investment returns for the property owner.

3. Getting renovation costs wrong

Most buyers have little idea how much it costs to renovate a property. They listen to the home inspector, their real estate agent, and just throw out a number like $25,000 for everything. Then they start getting bids for the work and quickly see it will actually cost $80,000 for everything. Word to the wise: Always do a lot of homework and be very conservative in your renovation budget estimates.

4. Underestimating renovation time

Additionally, inexperienced investors believe a good renovation can be done in 30 days, or 60 days. Many times it takes much longer to finish these projects than originally estimated. As a real estate buyer, you should talk to others who are experienced to get a realistic expectation of the time involved in a property rehabilitation.

5. Thinking something can only cost ‘that much’

It never does, it always costs more; many times much much more. So whatever the expense, renovation, service, contract, capital item, etc; chances are it will cost more than you think.

6. Thinking that stocks, bonds and real estate are all comparable investments

People often say they want to buy real estate to get better returns than their stock, bond or bank account can provide. Real estate is a unique asset that comes with clogged toilets, challenging tenants, nebbish neighbors, etc. It’s not an asset where you can invest and just look at an account statement every few months like you could with a stock, mutual fund or bond. Owning rental properties is a business, it can be time consuming and stressful. Make sure that makes sense for you before you buy.

7. Thinking it’s a “turn-key” real estate deal

Earning money with almost no work on the investor’s part? Never! Not going to happen!

8. Believing that flipping properties is investing

Flipping is “speculating” for most real estate buyers. Unfortunately, most lose money. Sure, it looks easy on TV and those shows are fascinating! I personally enjoy watching them; but they are not realistic. Not everything you see on TV or the Internet is true you know…..

9. Thinking that real estate is low risk

There are all kinds of risk issues that come along with owning real estate. Many an investor can mitigate and/or remove some of those with prudent behavior and the proper due diligence. Most investors do not do any of that, leaving them exposed to a myriad of items and issues that can and sometimes do become financially painful.

10. Believing what others say about their “profitable” real estate investing acumen

There is also no way to verify what someone else is telling you about how they did on their real estate investments – unless they show you their tax returns and credit report. But since people love to boast, we often only hear about the winners, not the losers. Many times the statements from those supposed “winners” are embellished with questionable claims. Be careful, do your own homework, but verify your own conclusions.

Those are many mistakes that investors can make. Some are very challenging to mitigate. Experience will teach you a multitude of lessons over your real estate investing career. Just try to avoid the big expensive ones that could clobber you; and end your investing career before it even gets off the ground.

Related:

Leonard Baron, MBA, is America’s Real Estate Professor®. His unbiased, neutral and inexpensive“Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a past lecturer at San Diego State University and teaches continuing education to California real estate agents at The Career Compass.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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apartment, landlord, real estate

Rent Control, Rent Increases

Rent board rejects freeze, approves 1% hikes for 1-year leases in city

The nine-member panel voted 5-4 to reject the proposed freeze favored by Mayor de Blasio on Monday. Angry tenants stormed the stage after the vote while landlords also fumed, saying the low hikes weren’t much better than a freeze.

BY Jennifer Fermino
NEW YORK DAILY NEWS
Published: Monday, June 23, 2014, 7:57 PM
NYC PAPERS OUT. Social media use restricted to low res file max 184 x 128 pixels and 72 dpiANDREW THEODORAKIS/NEW YORK DAILY NEWSProtesters gather at the final vote during the rent guidelines hearing at the Great Hall at Cooper Union on Monday.

Ignoring Mayor de Blasio’s recommendation, the Rent Guidelines Board declined to enact a rent freeze Monday night and voted instead for modest hikes.

The nine-member board voted 5-4 to allow landlords of the city’s nearly 1 million stabilized units to increase rents by 1% for one-year leases and 2.75% on two-year leases.

The hikes, which apply to leases that begin Oct. 1 or later, are the lowest enacted in the board’s history, but the refusal to pass the first freeze ever infuriated hundreds of tenants who packed the Cooper Union meeting.

NYC PAPERS OUT. Social media use restricted to low res file max 184 x 128 pixels and 72 dpiANDREW THEODORAKIS/NEW YORK DAILY NEWSThe board voted 5-4 to allow landlords of the city’s nearly 1 million stabilized units to increase rents by 1% for one-year leases and 2.75% on two-year leases.

Angry tenants stormed up to the stage after the vote, chanting and yelling.

The board members scurried off to the sound of boos and hisses, and one man carrying a pro-tenant sign who climbed onstage was hauled off by cops.

We feel like the rug was snatched from beneath us.

“We feel like the rug was snatched from beneath us,” said disappointed Brooklyn resident Donna Mossman, 56.

De Blasio had called for a rent freeze just hours before the vote.

Read more: http://www.nydailynews.com/news/politics/rent-board-rejects-freeze-1-year-leases-article-1.1841108#ixzz35WwDSMoG

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apartment, landlord, real estate

Raising Rent

This is a baffling topic.

I mailed out 100 rent increases last week.  We all came to work today dreading the complaints from tenants.  We received complaints but they weren’t from the tenants.  They were from the owners.  Rent increases are a part of life.  No one likes them but in a normal rental market they are expected.  Most tenants do not move because of a rent increase.  How can you justify moving over a $30 (average) rent increase?  There have been severe down markets during my career when I didn’t charge increases but most of the time they are needed to keep up with rising costs.

Why don’t some landlords raise their rents?  They don’t want the tenants to move.  They don’t want the tenants to request repairs or improvements.  A few are mercy driven and don’t want to cause a hardship.

What is the advantage to increases?  Keeping rents up with the overall cost of living.  Offsetting tax, insurance, association, repair increases.  Increasing cash flow to pay for future improvements and housing requirements.

I encourage owners to charge a fair, market sensitive increase yearly.  3% is the national average.  I do take into consideration those on fixed incomes and those I know that are struggling just to get by.  Most tenants will pay and keep renting.  If they use the increase as an excuse to move, my guess is that they were already planning to move anyway.

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apartment, landlord, real estate

Rents are rising

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Christine Menedis tours a condominium in Miami Beach that rents for $7,000 a month. In Miami, average rents consume 43 percent of the typical household income, up from a historical average of just over a quarter. Credit Angel Valentin for The New York Times

MIAMI — For rent and utilities to be considered affordable, they are supposed to take up no more than 30 percent of a household’s income. But that goal is increasingly unattainable for middle-income families as a tightening market pushes up rents ever faster, outrunning modest rises in pay.

The strain is not limited to the usual high-cost cities like New York and San Francisco. An analysis for The New York Times by Zillow, the real estate website, found 90 cities where the median rent — not including utilities — was more than 30 percent of the median gross income.

In Chicago, rent as a percentage of income has risen to 31 percent, from a historical average of 21 percent. In New Orleans, it has more than doubled, to 35 percent from 14 percent. Zillow calculated the historical average using data from 1985 to 2000.

Nationally, half of all renters are now spending more than 30 percent of their income on housing, according to a comprehensive Harvard study, up from 38 percent of renters in 2000. In December, Housing Secretary Shaun Donovan declared “the worst rental affordability crisis that this country has ever known.”

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Arturo Breton, left, and Aurelio Medina consult their smartphones during an apartment rental search.CreditAngel Valentin for The New York Times

Apartment vacancy rates have dropped so low that forecasters at Capital Economics, a research firm, said rents could rise, on average, as much as 4 percent this year, compared with 2.8 percent last year. But rents are rising faster than that in many cities even as overall inflation is running at little more than 1 percent annually.

One of the most expensive cities for renters is Miami, where rents, on average, consume 43 percent of the typical household income, up from a historical average of just over a quarter.

Stella Santamaria, a divorced 40-year-old math teacher, has been looking for an apartment in Miami for more than six months. “We’re kind of sick of talking about it,” she said of herself and fellow teachers in the same boat. “It’s like, are you still living with your mom? Yeah, are you? Yeah.” After 11 years as a teacher, Ms. Santamaria makes $41,000, considerably less than the city’s median income, which is $48,000, according to Zillow.

Even dual-income professional couples are being priced out of the walkable urban-core neighborhoods where many of them want to live. Stuart Kennedy, 29, a senior program officer at a nonprofit group, said he and his girlfriend, a lawyer, will be losing their $2,300 a month rental house in Buena Vista in June. Since they found the place a year ago, rents in the area have increased sharply.

“If you go by a third of your income, that formula, even with how comfortable our incomes are, it looks like it’s going to be impossible,” Mr. Kennedy said.

Part of the reason for the squeeze on renters is simple demand — between 2007 and 2013 the United States added, on net, about 6.2 million tenants, compared with 208,000 homeowners, said Stan Humphries, the chief economist of Zillow.

 

That trend is continuing as young people and doubled-up families move out on their own. “They’re creating a lot of incremental demand,” Mr. Humphries said. But new households rarely plunge straight into homeownership, especially given that mortgages are much harder to obtain than they were before the financial crisis. “The expectation is that when they strike out into their own units they’ll be moving into rental as opposed to the owner side,” he said.

And as rents head higher in the tightest markets, many are discovering that living on their own is proving unaffordable, forcing them to double up again. Arturo Breton, a 37-year-old waiter in Miami Beach, said that after years living on his own, he was joining forces with a roommate who works as a manager at J. C. Penney. “I’ve come down to the conclusion that in this country, it’s easier for two people to pay the rent than for one person,” he said.

For many middle- and lower-income people, high rents choke spending on other goods and services, impeding the economic recovery. Low-income families that spend more than half their income on housing spend about a third less on food, 50 percent less on clothing, and 80 percent less on medical care compared with low-income families with affordable rents, according to a new report by the National Low Income Housing Coalition. And renters amass less wealth, even non-housing wealth, than homeowners do.

The problem threatens to get worse before it gets better. Apartment builders have raced to build more units, creating a wave of supply that is beginning to crest. Miami added 2,500 rental apartments last year, and 7,500 more are expected in the next two years, according to the CoStar Group, a real estate research firm.

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Housing units under construction in Miami. The city’s rents on average consume 43 percent of the typical household income, up from a historical average of just over a quarter.CreditAngel Valentin for The New York Times

“Increasing the supply is not going to increase the number of affordable units; that is a complete and utter fallacy,” said Jaimie Ross, the president of the Florida Housing Coalition. “People say if there really was a great need, the market would provide it; the market would correct itself. Well, the market has never corrected itself and it’s only getting worse.”

Money for affordable housing has dried up at a time when it is needed most. Federal housing funds, in a form now known as HOME grants, have been cut in half over the last decade. The percentage of eligible families who receive rental subsidies has shrunk, to 23.8 percent from 27.4 percent, the Harvard study found. And Florida, which like other states faced large budget shortfalls after the financial crisis, has raided its housing trust fund, funded by a real estate transfer tax, for several years running. This year, the Legislature has proposed restoring at least part of the money.

Cities have been left to address the problem on their own, with some granting exceptions to their own zoning laws to allow for things like micro-apartments. Miami has allowed some variances to its urban plan for projects like Brickell View Terrace, which will have 176 units in a prime location near a Metrorail station. Ninety of the units will be affordable for people making 60 percent of the median income, 10 for people making less, and the rest will be market rate.

But a seemingly insatiable demand for luxury condos in Miami, created in part by wealthy Latin Americans, has caused land prices to soar, making affordable housing projects harder to build anywhere close to downtown. Moving farther out is cheaper, but the cost savings on housing can be quickly wiped out by transportation costs. A 2012 study by the Center for Housing Policy found that Miami was the most expensive metropolitan area in the country when housing and transportation costs were combined.

In many markets, buying a home is considerably cheaper than renting, andMiami is no exception. But many people are shut out of buying because their income is too low, they don’t qualify for a mortgage or they are burdened by other debt. In 2008, a quarter of rental applicants were still paying off student loans, according to CoreLogic, but as of last fall half of them were doing so.

Steve Gunn, 25, the marketing director for a Miami real estate brokerage firm, said he could certainly afford an apartment on his salary of $52,500 — if he weren’t paying more than $800 a month in student loan debt. Instead, he commutes 90 minutes to work. From his mother’s house.

Correction: April 19, 2014
A chart on Tuesday with the continuation of an article about rising rents that are out of the reach of the middle class misstated the time span of the data shown. The chart tracked the rise of median rent in various cities from the first quarter of 2000 through the fourth quarter of 2013, not the third.
http://www.nytimes.com/2014/04/15/business/more-renters-find-30-affordability-ratio-unattainable.html?_r=0
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landlord, property management, real estate

Housing Codes

I haven’t met a landlord yet that likes building codes, enforcement and inspections.  I don’t either.  I don’t like building permits and licenses and fees.  I think it is ridiculous that we need to pay $300 for permits and inspections to replace a water heater.  Codes are always changing.  Housing codes vary from municipality to municipality and they change from year to year.  Some cities can’t even get the fire department to agree with the city codes requirements.   That is VERY confusing!

Smoke detectors went from a new item a few years ago with 9 volt batteries.  Then came electric,  10 year lithium and 10 year lithium with electric back up.  I doubt that 9 volt detectors are accepted anywhere anymore (and for good reason).   Now we are entering the age of required carbon monoxide detectors.

For all the negatives, there are positives.  Do we want houses with wiring from the early 1900’s?  Do we want buildings without smoke detectors?  How about proper plumbing?  I work in developing nations and see wiring and plumbing that scare me to death.  I don’t know how some of these contraptions work and I wonder how many people get killed.  I have taken showers with electric water heater heads (and exposed wires) that need to be messed with during the shower while I am standing in water!   Sometimes they work and sometimes they don’t.

Below is a recent picture that a friend just sent from Guatemala.  I think all of you would agree that we can’t allow this and we need to work with code enforcers to not allow anything like that here.  My friend commented “I wonder if this works when it rains?”

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apartment, landlord, real estate

Renting and the cost of living

Home, Food Or Health Care: A Choice Many Renters Can’t Afford

June 15, 2014 5:40 PM ET
As the number of renters in Los Angeles increases, construction of new apartments isn't keeping pace with demand, resulting in rents higher than many can afford.

As the number of renters in Los Angeles increases, construction of new apartments isn’t keeping pace with demand, resulting in rents higher than many can afford.

Mandel Ngan/AFP/Getty Images

The mortgage crisis that devastated the economy has received endless attention, but it’s not just homeowners who have suffered badly in this economy.

As of 2012, renters made up 35 percent of American households. Their numbers are growing, reversing a decades-long uptick in home ownership.

And in the last 50 years, the percentage of income they’re spending on the rent has increased dramatically. A quarter of renters are spending more than half their income on rent.

Ymelda Alvarez, her husband and their two daughters live in a tiny one-bedroom apartment just east of downtown Los Angeles in a neighborhood called Boyle Heights. It’s not a fancy or trendy area; it’s a poor part of town with a lot of crime and most of the schools are struggling.

Their apartment consists of a front living room converted to a bedroom, a small kitchen and a little room in the back with bunk beds for the kids. Other amenities include sagging ceilings, leaky faucets, doors that don’t lock and pests like cockroaches and rats.

For this they pay $1,000 a month.

But it’s currently their only option. Antonio, her husband, can’t land a full-time job and only makes about $1,200 month from stringing together part-time work at a school nearby.

“That would only be enough for the rent and some bills,” Ymelda Alvarez says. She says they spend so much on rent they have to cut back in other areas.

“I always think about the rent first, then about food. If it is not enough we have to cut back on food,” she says.

‘We Have To Embrace Development’

Across Los Angeles, others like the Alvarez family are struggling. The city is now home to thehighest proportion of renters of any major American city. A lot of people want to live there; it’s almost always sunny, after all, and the beach is right there.

On a more somber note, in the last eight years, 143,000 new renters have entered the Los Angeles market — many of them displaced by the foreclosure crisis. But there aren’t enough places for them to live in. The construction of new apartments hasn’t kept up with the increase in renters.

A big part of the problem, developers say, is that L.A. is a particularly difficult city to build in. The apartments that doget built tend to be pricey; meanwhile, the city faces a shortage of funds for affordable housing.

Beverly Kenworth, the head of the California Apartment Association, says it’s fundamentally an issue of supply and demand.

“If we really want to address this housing crisis — because it is a crisis — we have to really be much more forward-thinking,” she says. “We have to embrace development; we have to embrace the growth that’s happening.”

Kenworthy says developers have to navigate a city zoning code that is almost 70 years old. All but the biggest, best-funded builders have simply given up — including members of her organization.

“Some of them build, and some of them look to build here in L.A.,” she says. “I have others who simply won’t do it anymore because it’s just too hard and too uncertain, and it’s too costly.”

Developer Carl Lambert says there’s a phrase used in the industry to describe the agony of getting a project approved: “brain damage.”

He says before he could break ground on recent building, he needed 33 separate sign-offs. It’s not uncommon for it to take three years from when he buys a piece of land to when he can start construction.

“Now I’ve experienced all this wonderful pain over the years and I am now open and do you think I’m going to want to go out and give everybody deals, or give them a $600 a month apartment with an ocean view?” he asks. “No, it’s going to be fair market value.”

And therein lies the problem. Apartments are being built in L.A. — at levels not seen since before the recession — but most are top-of-the-line.

Funding Cuts Hamper Affordable Housing Efforts

When it comes to affordable housing, there’s a shortfall of almost half a million units in L.A. County, and it’s only getting worse.

That’s because there is half a billion dollars less available in state and federal funding for affordable housing in the county than there was before the recession.

“We focus on creating jobs here in Los Angeles for people who live outside the city, and we don’t focus on building housing for people so that they can live near where they work,” says L.A. councilman Gil Cedillo.

In April, Cedillo led a “Renter’s Day” to highlight the problem of affordability. There was a modestly attended rally, but as for action? That will have to wait.

New York City mayor Bill de Blasio recently announced a $8.2 billion plan to build and maintain 200,000 affordable housing units over the next decade.

“I really admire what those people do in New York because they really move aggressively on these problems,” Cedillo says. But in L.A., a city that’s trying to balance its budget, the money simply isn’t available:

“We don’t have those types of resources to commit to housing,” he says.

Cedillo has been lobbying for a state bill that would raise $500 million a year for affordable housing by charging a fee on real estate transactions, but the measure seems unlikely to pass.

That means that now, for first time in three decades, there are virtually no state funds available for affordable housing in California.

Bad Everywhere

Los Angeles is one of the most expensive rental markets in the country, but the problem isn’t just in California. Across the country, rental prices have risen as wages have stagnated.

Chris Herbert is the director of research at Harvard’s Joint Center for Housing Studies. Just last December they released a report on rental housing in the country. He says the situation is bad everywhere and it’s just a question of how bad.

“About 50 percent of renters are paying more than 30 percent of their income for monthly housing costs,” Herbert says. “At last count, more than a quarter of households were spending more than 50 percent of their income for housing.”

Herbert says that 30 percent is the standard amount of what people should pay for housing out of their budget to still have enough left over for life’s necessities. So if you’re spending significantly more than that, like the Alvarez family, the odds of having enough for other basic needs like food, health care and any sort of retirement savings is severely diminished.

“The tradeoffs people are making are not tradeoffs between going to the movies or going out to eat, but basically … nutrition, basic health care and saving for their future,” he says. “Those are really important tradeoffs people are making in trying to find affordable housing.”

As bad as things are, it looks like they’ll be getting worse. The Harvard study projects that around four to five million more people will start renting over the next decade.


Ben Bergman is a business reporter for Southern California Public Radio.

http://www.npr.org/2014/06/15/321696517/home-food-or-health-care-a-choice-many-renters-cant-afford

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