Personal Finance and Investing

In the past, there was a received wisdom (usually among agents selling overpriced ‘investments’ for high commissions) to ‘invest for capital growth’ – i.e. don’t worry so much about what the Yield is, just buy where you think is an ‘up and coming area’ or ‘the next big thing’ – these in Europe were places like Capital cities in Eastern Europe (Tallinn, Riga, Sofia, Prague, Budapest) and Holiday destination such as Spain, and in USA places like Las Vegas or Florida. It’s no coincidence that these are the places now hit hardest in the real estate bust , and has taught a sharp lesson to ‘growth investors’ . Fortunately with the advent of the writings of Robert T Kiyosaki (Rich Dad Poor Dad) and his less famous predecessor Dr William G Hill (Think Like a Tycoon) which gave the same message, there are a growing number of investors who use cashflow as their first ‘box’ to tick when looking for a real estate investment.

When looking at the object to buy – the most important thing and the first calculation to make is to check that the deal is ‘cashflow positive’ This means no matter how the market goes, you are making money regularly. The basic calculation will be to work out the difference between rent money in, and money out –lets say for example, you buy a foreclosed Investment Property – an apartment in a complex, in Florida, for $100,000 (sold for $200,000 in 2007). If the monthly rent is $800, the annual rent is $9,600 (gross yield 9.6%) and the service charge is $340 per month (service charges are relatively high here due to pool maintenance and other facilities), the mortgage interest (75% at 3.95% interest rate) is $247, there are $50 more of outgoings, and so the monthly income ($800) minus the monthly outgoings ($340 + $247 +$50) = $163 per month positive cashflow.

However, there are in addition some risk factors worth adding in to make sure the deal is worth it:

1. Vacancies – every year or two there is likely to be some empty time – Calculate in for one month every two years there or one month every year if it’s in a harder to let area (and ask yourself why are you buying in a ‘hard to let’ area?!) Assuming this foreclosure is in an easily letting area with a good tenant pool, then there’s $33 a month to take off the income to cover the potential for vacancy.

2. Mortage Amortisation – currently it’s likely that you’ll be asked to amortise your loan – with the above example, (check our mortgage calculator here) the loan amortised over 15 years will mean the repayment is $553 per month.

As you can see, the above extra checklists will put this ‘bargain’ into negative cashflow territory – $800 – $553 – $340 – $50 – $33 = minus $176 so what on the surface looked like a good cashflow deal, became a ‘growth play’, and isn’t a good investment from the start.

Looking at another example – lets take 63 Simon, Buffalo, on our front page – Rent in per month is $950. Monthly costs are $248, mortgage including amortisation is $330, and let’s take a vacancy of say one month per year to be safe – 950/12 = $80 per month, so there is $950 – $248 – $330 – $80 = $292 positive monthly cashflow.

This is fundamentally important – in every real estate investment you make, every month from day 1 you should be making money.

In Summary

1. Only buy deals with positive cashflow from day 1.

2. Make sure the investment has a good sized pool of potential tenants – i.e. take this into account when selecting 1. Unit size and 2. Area

3. Take into account ALL costs and deductions, not just the patently obvious ones, and assume a conservative scenario at all times.

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Whether you are applying directly to your lender or claiming eligibility under HAMP, the practical decisions are all to be made by the lender. You do whatever you can to set out your side of the proposed bargain with a clear set of accounts showing money in and money out. The need is to demonstrate a guaranteed slice of your monthly income that can be devoted to paying a reduced instalment. So list everything you are obliged to pay to keep body and soul together, from food to utilities to transport to health insurance, and so on.

Without the modification, this is going to be negative, i.e. on paper, you are spending more than you earn. The “trick” is to show enough to cover a modified instalment, perhaps with a tiny slice of money left over for the inevitable emergencies. If the modified instalment you prove can be paid is enough to keep the lender less unhappy, the modification will be agreed on a trial basis. But if the minimum instalment the lender requires will leave you in negative territory, your offer to modify will be rejected. Why reject a good faith offer? Because people who have to juggle monthly payments to fit into the available money almost always default again. Your income must cover all outgoings.

If the modification is agreed in principle, it moves on to a formal trial basis. In theory, this is a three-month trial, but the reality is that the lenders usually drag their feet and are very slow to convert the trial into a permanent modification. This ought not to affect you. After all, you are paying the agreed amount. But there is a problem. Until the modification is made permanent, the lender will report you to the credit rating agencies as still delinquent. This is grossly unfair.

You are paying what is agreed. But, as the law stands, the unpaid balance each month will be reported as late. Thus, the longer the trial period is allowed to drift the worse your credit score will become. This requires action. You should contact the three major agencies, Experian, Equifax and TransUnion, and ask that details of the trial be added to your credit file. That way, even though your score will continue to decline, all other lenders will be able to see what is going on.

So what is happening during the trial other than you proving your ability to pay the reduced instalments on time? The answer is slightly disheartening. It is always in the lender’s interest to collect as much money from you as possible on your mortgage. But, while you stay in default, the lender is entitled to foreclose at any time. If the lender judges it will make more money by foreclosing rather than accepting the reduced payments over the rest of the term, it will always foreclose.

It is simply collecting as much cash from you as possible before triggering your eviction. No-one said the home loan industry had to work fairly, and it does not. The only time the lender will accept a permanent modification is when the accounts clearly show more profit in keeping the mortgage alive. While the housing market remains depressed, the odds are in your favor. But if resale prices start to rise, the odds will swing against you.

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Almost similar to the management function in any other business, property management also implies operation of residential, commercial, or industrial property. In literal words, this may stand as managing a property on behalf of its owner in his/her absence or lack of time. This branch of management includes a wide array of functions related to maintenance of buildings including damage repair, paint, and substitution of any fitting. Property management, also referred to as Real estate Management, at times also involves rent collection, outgoings of payments, insurance payments, paying the maintenance staff, and negotiating with the current and prospective tenants.

Right from the residential apartments to villas, and from small shops to commercial malls, people engaged in the property management service cater to all your property related needs.  Not only this, they at times also undertake personal property management, thereby taking care of equipment, tools, and all the related corporeal capital assets attained and employed to build, renovate, and sustain end article deliverables.

Real Estate Management or Property Management actually entails the procedures, organisms, and manpower needed to administer the life sequence of acquired properties. These procedures may include two or more of the following features like acquisition, maintenance, control, liability, operation, and disposition.

Roles of a Property Manager

One of the most important roles of a property manager is to act as a buffer between the landlord and the user of the property. He/she acts as a liaison person who makes both the parties agree on mutually beneficial terms. The property mangers accept the rent on the behalf of the landlord from the tenants and address all the maintenance issues on behalf of tenants. This service thus benefits both the parties equally and is hence flourishing with the upcoming boom in the real estate sector.

Property management service is beneficial either for working professionals who do not have time to search for their desired place or for property owners staying outside Canada. Such landlords definitely need to hire some manager to look after their property and to liaise with their tenant constituency.

This service has many different facets to it. It includes managing the financial transactions of the properties, participation in the litigation process as well as initiation of tenant litigation and signing in of the contracts with maintenance companies, security companies, and insurance companies.

Although litigation is an altogether different stream which is entrusted only upon trained attorneys of the area, yet most of the management services undertake the property litigation themselves. For this, they also at times hire real estate attorneys on an hourly basis who do the freelancing for the former.  The majority of legal matters that draw the attention of property managers are cases pertaining to

* Evictions

* Public nuisance

* Non–payment of rent

* Non–payment of bills

* Harassment due to damages and

* Diminution of pre-arranged facilities

Therefore, it becomes quite mandatory for the property managers to be updated on all the law practices applicable under municipal, county, and state law.

In the present scenario, various magazines and journals also publish the desired property details. Such journals tend to publish mainly the following

* Contemporary market trends and research

* Market data digests and reports

* Area-wise deep analysis of property trends

* Various judgments and updates in property law and

* Property reviews based on market research

That is to say, these journals adopt a wide subject abate and address key concerns ranging from the economic, physical, and social aspects of Property management to international perspective.

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