You’ve asked yourself this before, and we all have. It’s the age-old question: Is a stack of cash today better than a steady but smaller stream of income?
Investors have struggled with this concept forever, and the BiggerPockets forums show evidence of that. Daily, investors post, wondering if cashing in their equity is the best play or if they should play the long game.
There truly isn’t a wrong answer, though I’ll admit, I am quite biased, especially after years of conversations with chronic flippers who are filled with regret about not having kept some of their projects.
A Look at BRRRR vs. Flipping
BRRRR and flips are really two sides of the same coin—the real estate investing coin. Of course, much of this is market- and property-specific, but the main differences are that with flips, you might spend a little more on higher-end finishes than you would a BRRRR.
Either way, you are forcing equity in your property and addressing deferred maintenance and upgrades in the hopes of profiting at some point. If you plan to flip and are in a B neighborhood, maybe you spring for the stone counters and tile accent wall in the bathroom. If you are going to rent in a B neighborhood, maybe those upgrades are unnecessary. Besides, if you rent the property for 10 years, you can always add those upgrades later if and when you decide to sell.
Yes, sure, the BRRRR, if done properly, will allow you a trickle of funds indefinitely, whereas a flip is once and done. However, at the end of the day, they’re both strategies for quick(er) cash and (hopefully) leverage. You are forcing equity and hoping to leverage that profit.
How to Decide
So, how do you decide to sell or keep the property? Here are some factors to consider.
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The Cash Flow
First, my rule of thumb is that an ideal BRRRR will have you all in at 75% or less of after-repair value (ARV). If you can create at least 25% equity, you should be able to refinance the property and get close to 100% of your money back out.
It doesn’t always mean that you should sell if you have less, but you will likely leave some of your own cash in the deal. I’ve done that many times before and been perfectly happy with the results—but I planned on this as a possibility going in. Some people won’t keep a property if they have to leave any cash in it. That’s not a dealbreaker for me, and unless you have unique circumstances, it shouldn’t be the only criteria you consider either.
If you can BRRRR a property and it will more than pay for itself every month, that’s a good start to deciding if you should keep it. The monthly cash flow that you are willing to accept is totally up to you, but my market is an aggressively appreciating market, and I’m happy to ride that wave if someone else is footing the bill, even if I’m not making much every month.
If you are in a C area, you’ll need decent cash flow to weather the inevitable storms that come from holding those properties. If you are seeing regular, reasonable appreciation and rent increases, it should be less important that you fully cash out or that the property performs like a dream right away. That property will become more efficient over time and can eventually become your cash cow.
If you are in a market that traditionally sees lower appreciation, say the Midwest or parts of the South, selling might be a better option. This is because the velocity of the equity you have could be put to better use in another project (this is the leverage piece I mentioned).
If rents average only 2% increases every year, and appreciation is historically similar, or barely keeping up with inflation, you can and should take that cash and do much better in many other ways than keeping it in a property and renting it out. Just keep in mind that you need to budget for the taxes you’ll pay on that income.
I find it fascinating, and it really speaks to how dynamic real estate investing can be, that there are so many people doing one thing—and doing it really well. However, they have very limited knowledge of other types of investing within real estate, as well as the pros and cons of each.
I’m talking about chronic flippers. I’ve lost count of the number of professional and truly talented flippers who have never kept a single property as a rental.
The Taxes
In addition, I know many people who have been writing checks to the IRS for hundreds of thousands of dollars every year because of how much they’ve “killed it” flipping houses. Fast-forward a few years, and they learn about tax strategy and cost segregation, and suddenly, CoC return when holding a rental doesn’t seem anywhere as important as the tax benefits of those paper losses.
Flipping is extremely active income—both literally and figuratively. If you aren’t buying, renovating, and selling properties, you aren’t making money. You are constantly active, and it can be stressful to let up on the gas. The IRS sees it exactly the same way—as an earned income/wage—and you’ll be taxed as such.
It might seem like I am saying that flipping houses isn’t a good idea, which is absolutely not true. If done correctly, there’s not really a much better way to build immediate capital, especially as you are starting out. Also, there are many properties that make for fantastic flips that would be terrible rentals.
There’s absolutely a time and place for flipping houses. Our team works with lots of flippers, both bringing them deals and buying them as turnkey rentals once they are done.
That being said, I think it’s fair to say that everyone reading this article is on BP because they are looking for FIRE and passive income. Flipping houses is, and can be, a stepping stone on that path, but it’s not the destination.
One of the biggest challenges for newbies is wrapping their heads around the tax benefits of buy-and-hold investing. It can truly be life-changing, and it’s nearly impossible to see or understand until you experience it. If you are strictly flipping homes, you’ll never see those tax benefits and are actually creating a higher tax liability for yourself.
Don’t get me wrong—paying a bunch of taxes because you made a boatload of money is definitely not a bad thing. But isn’t paying little to no taxes and making a bunch of money objectively better?
By considering a BRRRR on flips where it might make sense, you are giving a gift of a tiny bit of freedom to your future self. Do that repeatedly, and those tiny future gifts can change your family tree forever.
The Bottom Line
Flipping is truly a great way to build capital and start your real estate journey. However, I would encourage you to change the way you look at BRRRR and analysis if you are looking for long-term wealth and FIRE. That BRRRR might not look like a great deal today, but five or 10 years from now, you are very unlikely to regret keeping and depreciating that asset. You can always sell a property in the future if it doesn’t work out, but once you sell it, it’s gone forever. It might seem counterintuitive, but in real estate, you get wealthy by not selling. Be patient, give it some time, and enjoy the passive fruits of your labor in the not-so-distant future.
Article Provided Bigger Pockets and Written By: Corby Goade Investor & Realtor, Boise Turnkey Investments
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In recent years, emotional support animals (ESAs) have become an increasingly important part of the administrative tasks involved in managing a rental property. As more and more tenants bring ESAs onto the property, landlords need to become more aware of the emotional well-being of residents and the need for a structured and equitable ESA verification process.
This post covers the evolving landscape of ESA verification and explores how pet management software can revolutionize the verification process while ensuring fairness for all residents.
Understanding the Importance of Fairness
When it comes to support animals, fairness isn’t just a moral obligation; it’s a legal requirement. Treating all residents equally (whether they present with support animals or not) is important to ensure that everyone is offered equal opportunity to housing under the law. Federal guidelines provide clear and standardized procedures for ESA verification. Ultimately, these rules serve to benefit both residents and property managers by creating a level playing field and protecting landlords from potential legal disputes.
Fairness also has a tangible impact on resident satisfaction. When residents feel that their ESA requests are handled fairly and consistently, they are more likely to be content with their living situations. This, in turn, leads to a more harmonious community, reduced conflicts with management, and a more productive rental experience for everyone involved.
Respecting HUD Guidelines
The U.S. Department of Housing and Urban Development (HUD) plays a pivotal role in providing guidelines for ESA verification in rental properties. HUD’s guidelines are designed to ensure that individuals with disabilities have equal housing opportunities, including the right to keep an ESA in their homes. Property managers must adhere to these guidelines to both protect themselves from legal issues and promote equality among all residents.
A key aspect of HUD guidelines is recognizing the importance of emotional support animals in providing therapeutic benefits to individuals with disabilities. Property managers should accept reasonable accommodation requests from residents with disabilities and refrain from imposing unnecessary barriers. By understanding and implementing HUD guidelines, property managers can align their practices with federal regulations and maintain an environment of fairness and inclusivity within their rental properties.
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Confidentiality and Privacy
Respecting the privacy and confidentiality of all residents is an important part of the ESA verification process. This respect upholds ethical standards and protects against potential legal issues. Residents have a right to keep their ESA-related information private, and property managers should ensure that their application information and any related documentation are handled discreetly and securely.
During the verification process, any questions related to an individual disability should be avoided as they can infringe upon a resident’s right to privacy.
The Role of Pet Management Software in Ensuring Fairness
More and more property owners have chosen to invest in pet management software to ensure a fair and compliant ESA verification process. The right applications can streamline the entire process, reducing the burden on both residents and property staff. Additionally, many platforms offer several exceptional features right out of the box, such as centralized documentation storage, communication tools, and automation of administrative tasks. By providing property managers with a structured, consistent approach to ESA verification, pet management software minimizes the risk of discrimination and ensures that all residents are treated fairly and equally.
On popular application, OurPetPolicy, is a leading solution in helping property managers ensure fairness in ESA verification.
Bottom Line
The importance of following federal guidelines and ensuring fairness in the ESA verification process cannot be overstated. Ultimately, it’s up to property managers to implement approaches that allow for a more inclusive, transparent, and harmonious living environment for all residents while avoiding unnecessary legal complications.
That’s where ESA verification platforms can help. OurPetPolicy in particular is an ideal solution that allows landlords to confidently manage ESA accommodation requests while upholding the highest standards of fairness and compliance. Additionally, OurPetPolicy’s proprietary technology helps to streamline the verification process while also providing centralized documentation storage, resident communication channels, task automation, and many other useful features.
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The landscape of fair housing has been continuously evolving. One of the emerging focal points is the protection against discrimination based on the “Source of Income.” While not federally recognized under the Fair Housing Act, this classification has steadily gained traction at state and local levels, expanding the purview of housing rights.
Defining “Source of Income”
In the realm of housing discrimination, the “Source of Income” pertains to the origin of a resident’s lawful earnings or funds. This can include earnings from employment, pensions, or other regular payments, but notably, it frequently involves rental assistance programs or housing subsidies such as Section 8.
Although it’s not yet a federal mandate, many state and local housing laws and ordinances have recognized and added it as a protected category.
Implications for Property Managers and Landlords
For those managing federally assisted housing programs, such as 202, 811, or tax credit properties, it’s often mandatory to consider housing subsidies as a valid source of income. This means refusing a tenant on the grounds of them receiving rental aid can have legal repercussions.
However, if a property doesn’t fall under these categories, it’s paramount to delve into local city or county regulations. A deep understanding of local ordinances is essential to ascertain whether “Source of Income” is protected in your jurisdiction.
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Resident Income Screening in the Context of “Source of Income”
When screening potential residents, many property managers and landlords have set income criteria that applicants must meet. When “Source of Income” is protected, this screening process requires nuanced handling. The focus should primarily be on the tenant-paid portion of the rent. Managers need to:
- Ascertain the amount of rental assistance the applicant receives.
- Determine the gap between the assistance and the market rent of the property.
Upon obtaining these numbers, they can be juxtaposed against the property’s income standards to ascertain eligibility.
The Rise of “Source of Income” as a Protected Class
Recent years have witnessed a surge in advocacy for “Source of Income” protection. Various legislative initiatives have been proposed to elevate its status at the federal level. This momentum is largely attributed to the pressing challenges of housing affordability and accessibility. Incorporating “Source of Income” as a protected category can alleviate these challenges, enabling a broader segment of the population to improve their housing conditions.
In Conclusion
The intricacies of housing laws go beyond federal mandates. For property management professionals, staying updated with state and local ordinances, along with training, is as crucial as understanding federal regulations. The categorization and acceptance of various income sources can profoundly impact resident selection and rental operations, underlining the importance of comprehensive knowledge in this domain.
Thank you to The Fair Housing Institute for providing this informative article! Our readers get 15% off any Fair Housing course by using our special code: YLR2023
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Whether you’re just beginning to explore smart locks or looking to upgrade an existing access control system, there are five essential questions to ask first. Read on to discover just what to ask and more importantly, discover helpful answers to guide you to the successful implementation of a keyless entry solution.
1) WHAT KIND OF COVERAGE DOES MY CURRENT INTERNET PROVIDE?
Most multifamily communities these days are equipped with some level of Wi-Fi. According to a 2023 report from research firm Parks Associates, 88% of renters of multiple dwelling units (MDUs) and multifamily properties in the United States report having access to Wi-Fi through their property, either in unit or in a common area.
Determining whether or not your existing network will support smart locks is often a question for a professional. Internet providers who specialize in multifamily properties can perform an assessment to uncover the way your building’s layout and construction impacts your network, pinpoint performance issues and suggest any improvements.
When it comes to keyless entry, just know that outfitting an entire property with Wi-Fi enabled smart locks may not be possible. Property owners and managers may discover that the building’s Wi-Fi network won’t stretch to connect to a smart lock on a pool gate or an outbuilding. Off-line locks provide great solutions for these outliers.
For example, ReadyPIN-enabled smart locks work on or offline. ReadyPIN-enabled smart locks do not ever need to connect online to validate the PIN because the PIN code itself is encrypted with all the access permissions needed. This allows users to bring remote access control capabilities to any door, with or without a Wi-Fi network connection.
2) CAN EVERY DOOR ON MY PROPERTY ACCOMMODATE A SMART LOCK?
Smart locks are wonderful and convenient, that’s for sure. But that doesn’t mean every door on your property can or should accommodate one.
What about glass doors like those often found on commercial buildings? The vertical metal frame on each side of a glass door is known as a stile. To align with the sleek aesthetic of a glass door, these stiles are often too narrow to accommodate a connected smart lock. Instead, these doors often require hardwired access or a door system that’s hardwired into your property’s power supply, requiring its own panel and wiring to operate.
The same is true for high-traffic doors like main entrances at a commercial or residential building. The batteries in even the best smart lock would wear out quickly with this constant traffic, so hardwired access is the solution instead.
Because such solutions require a powered connection, they must be installed by an electrical professional. In fact, any hardwired door requires guidance and installation by an access control specialist.
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3) DO I NEED WEATHERPROOF HARDWARE AT ANY OF MY DOORS?
Just imagine buying and installing a smart lock only to find it doesn’t function when it rains heavily or freezes on very cold winter days. Remember, each area of the country has its own climate challenges requiring certain grades and types of smart locks.
Again, relying on expert guidance ensures you’ll find the right solution. Such professionals are well versed in lock grades (developed by the American National Standards Institute) and their corresponding applications.
4) HOW MANY PINS SHOULD MY SMART LOCKS HOLD?
It’s not uncommon for a property owner to become enthralled with a certain brand of smart lock, purchase their favorite, and then discover it only accommodates 100 PINs.
If your property has a full staff and hundreds of employees, you can very quickly run out of codes. So, be sure to check PIN code storage and err on the side of more PINs if you think your business will grow.
5) DO I NEED SOFTWARE TO MANAGE MY SMART LOCKS?
Many people don’t realize that features like remote control, integrations with property management systems and visibility tools are enabled by access control software, not the smart lock. A cloud based access control platform, like RemoteLock, makes your smart lock even smarter by centralizing all of your properties, doors and locks onto one dashboard, allowing you to remotely manage all your smart locks from your smart phone or laptop.
When looking for access control software, make sure you are selecting a solution that can grow with you over time. For instance, a solution like RemoteLock offers compatibility with a slew of the most popular lock brands and hardwired access systems, too. Even better, RemoteLock’s open API also connects you to 3rd-party software providers you already know and trust, with others added all the time. Software solutions that give you a choice when it comes to hardware and integrations with other software means your solution can evolve as your portfolio grows.
AVOID MISTAKES WITH THE HELP OF EXPERT GUIDANCE
Just like any other technology, smart locks and access control software are always evolving. That’s why it’s wise to ask for help. The experts at RemoteLock can help guide you through details like user experience, security, connection technology, lock grades and more. Having served thousands of customers in multifamily, vacation rental and commercial sectors, they understand that every property has unique needs. Reach out to RemoteLock today to discover your ideal access control solution.
Thank you for this article by KIM GARCIA, Director of Marketing RemoteLock (obtained from AAOA RENT Magazine)
Kim Garcia is the Director of Marketing for RemoteLock. She has over 17 years of strategic marketing management and sales experience in the security industry. She specializes in corporate communications and product marketing with specific expertise in wireless security, access control, and integrator perspectives. Prior to joining RemoteLock, she led marketing for PSA Security Network and Inovonics.
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Deciding between a 401k and real estate investment for retirement is a critical choice that will affect you now and in the future. Both have unique benefits and drawbacks and understanding them can help you navigate the path to a more secure financial future.
401K As a Retirement Vehicle
In short, a 401k is a tax-advantaged retirement savings plan offered by employers, allowing employees to invest a portion of their paycheck before taxes.
As one of the most common types of retirement accounts, there are both pros and cons.
Benefits of a 401k
- Tax advantages: Contributions are often made pre-tax, reducing your taxable income. Additionally, some employers offer matching contributions, which is essentially free money for your retirement.
- Diversification: Within a 401k, you can diversify across various stocks, bonds, and other investment vehicles, reducing the risk of being tied to a single asset.
- Ease of management: Once set up and contributions are automated, there’s minimal active management required.
- Protection: 401k accounts have certain legal protections against creditors.
Potential drawbacks and limitations of a 401k
- Limited access: You can’t access funds without penalty until age 59½, except in certain situations.
- Fees: Management and administrative fees can eat into your returns.
- Market volatility: Being tied to the stock market means your investments can be volatile.
- Contribution limits: For 2023, the 401(k) contribution limit for employees is $22,500, or $30,000 if you are age 50 or older.
Real Estate as a Retirement Investment
Real estate as a retirement investment can take on many forms, like residential and commercial rentals, raw land, real estate syndications, and real estate investment trusts (REITs).
Benefits of investing in real estate
- Tangible asset: Real estate is a physical asset, which can provide psychological security.
- Cash flow: Rental properties can generate monthly income, which can be especially beneficial during retirement.
- Tax benefits: Real estate offers various tax advantages, including depreciation and the potential for tax-free capital gains.
- Appreciation: Over time, real estate typically appreciates in value.
Potential challenges and risks with real estate
- Management: Investment properties require active management, maintenance, and potentially dealing with tenants.
- Liquidity: Selling real estate can be time-consuming, and it’s not as liquid as selling stocks or bonds.
- Market fluctuations: While real estate can be less volatile than stocks, local property markets can still experience downturns.
- Large upfront costs: Purchasing property requires significant capital, and there are ongoing costs like property taxes and insurance.
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Key Factors for Decision-Making
Now that you’ve compared a 401k vs. real estate for retirement purposes, it’s time to focus on key factors for decision-making. Understanding these factors will help you determine where to invest your money, as well as how much to invest.
Personal financial goals and risk tolerance
Your investment decisions should be rooted in your financial goals for retirement. Assessing your comfort with market fluctuations and potential losses is important. Tailor your investment strategy based on your unique goals and risk profile.
Time horizon and retirement age
The time you have until retirement affects the kind of risks you can afford to take. Shorter horizons may require more conservative investments, while longer ones can entertain greater risks for higher potential rewards. Your targeted retirement age should shape the assets you invest in and their expected maturity.
Diversification of retirement portfolio
Diversifying your investments can help spread and minimize risks. Relying on a single asset class can expose you to sharp downturns specific to that market. A mix of assets, like stocks and real estate, can offer both growth potential and stability.
Market conditions and economic factors
The broader economic landscape plays a significant role in investment outcomes. Being attuned to trends in both the real estate and stock markets can offer insights into where opportunities exist. External factors like interest rates, employment data, and geopolitical events can also influence asset performance.
Tax implications and legal considerations
Every investment type carries its own set of tax consequences, which can impact your net returns. Familiarizing yourself with the tax benefits, such as deductions or credits, is vital to maximizing your investments.
Combining 401k and Real Estate for Diversification
There’s no rule that you have to choose either a 401k or real estate for retirement savings. For most people, it’s best to diversify by taking advantage of both options.
A 401k, typically tied to the stock market, allows investors to benefit from market gains, company matches, and tax-advantaged growth. Its diverse range of investment options, from stocks and bonds to mutual funds, provides a layer of protection against specific sector downturns.
Conversely, real estate offers the tangible assurance of physical property, potential rental income, and appreciation benefits that are somewhat decoupled from stock market volatility.
By investing in real estate, you can establish steady cash flow, which is especially beneficial during the retirement years. You can also enjoy the long-term appreciation of property values.
Together, a 401k and real estate can provide the growth potential of equities and the stability and income of tangible properties. The end result is a comprehensive approach to securing your financial future.
So Is a 401k or Real Estate Better for Retirement?
The truth is that there’s no right or wrong answer to this question. Some people should invest solely in a 401k, while others are better off going all in on real estate.
However, for a well-rounded retirement strategy, you may find value in diversifying between these two assets. Compare the finer details, including the pros and cons, to ensure that you make the right decision.
Article obtained by Bigger Pockets. Chris Bibey is a single-family home investor and real estate and personal finance writer.
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Most rental owners have not taken advantage of one of the best things the government has ever provided to rental owners – cost segregation. That’s simply because they weren’t informed.
Q: What is cost segregation?
A:
It is an IRS-approved method of accelerating your depreciation and yields approximately $50,000 to $80,000 in cash per million dollars of building value.
Instead of depreciating your property as one unit over 27.5 years (or 39 years for commercial non residential property), cost segregation breaks down your property into its parts and pieces.
To put it into perspective, look at it like a Big Mac. When asked, most people would identify it as a hamburger. Not McDonald’s. To them it is “Two All Beef Patties, Special Sauce, Lettuce, Cheese, Pickles, Onions on a Sesame Seed Bun.” A cost segregation study does the same thing to your building. It separates its components, i.e., the flooring, wallpaper, crown molding/trim, cabinets, counter tops, landscaping, etc.
If you purchased or built a building after September 27, 2017, when the Tax Cuts and Jobs Act came into existence, you are allowed 100% bonus depreciation until January 1, 2023, when it drops to an 80% deduction on any identified personal property assets.
It drops by 20% per year until “bonus” depreciation is gone and it goes back to the original benefits of doing a cost segregation study. So, don’t miss out on using cost segregation on the extra cash benefits.
Assets that can be affected include hundreds of items and represent somewhere between 20-40% of your building that can be expensed, thereby reducing your taxable income.
Q: Shouldn’t my CPA do this?
A:
This is a separate function; cost segregation specialists are not accountants. Cost segregation specialists perform engineering-based studies and work hand in hand with your CPA/ER. When the study is complete, the cost segregation specialist hands off a one-line 481a adjustment for incorporation into your tax filing and should coordinate it with your CPA/ER.
Some tax professionals provide an “accounting study,” which usually only includes obvious items, like rugs and landscaping, whereas cost segregation specialists review hundreds of items including parking lot striping, wallpaper, specialty plumbing and wiring, etc.
Most tax professionals don’t have the expertise to conduct a comprehensive cost segregation study. Their job is to apply thousands of pages of tax code. Cost segregation experts only focus on one aspect of the tax code – cost segregation. They prepare an engineering-based study, which the IRS calls the “certain” method.
Q: Is the cost worth it?
A:
A good cost segregation firm prices each project individually, and it is based on the type of building and the complexity of the project. It is not a cookie cutter one price fits all process. The return on investment typically falls between 10:1 and 20:1.
Before you decide to start the cost segregation study, you will be provided with a return-on investment estimate. A company such as Cost Segregation Services, LLC (CSSI) can provide you with a complimentary analysis, a Net Present Value Schedule, and other materials to help you determine your value in doing a study. It has to be right for you!
A cost segregation study taps into the time value of money because you’re able to depreciate your property faster and take advantage of tax deductions now versus in the future.
QUESTIONS TO ILLUSTRATE THE TIME VALUE OF MONEY:
• If you won the lottery, would you take the payout today or spread it out over 27.5 or 39 years?
• Will you be alive 40 years from now to use future deductions?
• What will your dollar be worth in the future, given inflation? 75¢, 50¢? Isn’t it better to get to use the full value now?
Q: How do I know if my property qualifies for a cost segregation study?
A:
The following requirements must be met for a cost segregation study:
✓ It must be a property that was purchased, constructed, or remodeled/renovated after ’86.
✓ The property’s cost basis must be over $250,000 (renovations $100,000).
✓ It must be a property owned by a for-profit entity (not charities, churches, etc.).
✓ You must have a tax liability or there is no benefit.
The choice can be amazingly simple: keep your money or send it to the IRS. However, you need facts to judge the value of doing a study. CSSI’s predictive analysis will give you those facts so you can weigh your options and do whatever you think is best. You’re a savvy investor and you owe it to yourself to find out how much money is available to you.
TONY BONIFACIC, National Account Representative Cost Segregation Services (800) 344-7671 mq@costsegserve.com
As a former accountant Tony has been involved as a financial manager, sales manager, administrator, accounts receivable consultant, and trainer for thousands of clients. He has saved millions for his clients including everyone from mom and pops to NYSE companies. In 2007 he began promoting cost segregation to his clients and new contacts. Today he devotes all his time and his representatives’ time to cost segregation.
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Smart, informed people face a unique risk in their investments: getting too “clever” for their own good.
All too often, they succumb to the temptation of trying to time the market, pick individual stocks, or ride the wave of the cryptocurrency du jour. And sometimes it even works—which makes it even harder to avoid next time.
Every time I’ve gotten cute or clever or smug about an investment strategy, it’s come back to bite me. I would like to think I’ve finally eaten enough humble pie to learn my lesson.
So, how do I invest today? Boringly, with wide diversification and small, regular investments like clockwork.
What Is Dollar-Cost Averaging?
Dollar-cost averaging (or DCA for money nerds like me) is the practice of making regular investments in the same broad basket of investments.
Investors most commonly practice DCA with passively managed index funds. For example, they may invest $300 each week in SPY, an index fund that mimics the S&P 500.
The market rises, the market falls, the market throws temper tantrums. You just keep investing through it all, week in and week out.
In the short term, you might lose money if the market dips. But over the long term, you’ll simply earn the average return for that index or sector or whatever you’re investing in. For instance, the S&P 500 has achieved an average annual return of 12.11% over the last 30 years.
Robo-advisors make this particularly easy. I use Charles Schwab’s free robo-advisor, which I set to withdraw money from my checking account every week. It invests the money based on my investment profile settings, spreading money among stocks in all sectors, market caps, and regions of the globe. It even rebalances my account periodically and harvests tax losses.
A human financial advisor could do this for you, too, but they don’t work for free the way some robo-advisors do.
Why Smart Investors Practice Dollar-Cost Averaging
To begin with, dollar-cost averaging ensures that you earn the long-term average return rather than underperforming the market by investing at a market peak or selling at a market low.
I know, I know. You think you’re smarter than everyone else and that you can time the market. So does everyone—and they get burned because of it. As I documented a few weeks ago in the math to becoming a millionaire, the average stock investor dramatically underperforms the market at large.
Dollar-cost averaging also prevents you from trying to get clever by picking individual stocks. You just invest in a broad mix of ETFs to diversify your portfolio across the entire market—or at least a huge swath of it.
Even the smartest, best-informed stock investors are wrong more often than they’re right. It’s why actively managed mutual funds usually underperform the broader market. If these high-paid professionals can’t time the market or pick stocks, you certainly can’t. Dollar-cost averaging saves you from yourself and your bloated ego.
Best of all, dollar-cost averaging is both simple and easy. I spent five minutes setting up my robo-advisor account many years ago. Today, I don’t have to worry about my stock investments at all; they just run on autopilot. In a word, it makes my stock investments completely passive.
How to Practice Dollar-Cost Averaging With Real Estate
Now that I’ve beaten that point to death, it raises a question for us as real estate investors: How can you possibly dollar-cost average real estate investments?
After all, real estate is expensive. Whether you invest in rental properties or passive real estate syndications, each investment requires tens of thousands of dollars. That makes it hard to invest small amounts steadily each month.
Consider these options to dollar-cost average your real estate investments, month in and month out.
Public REITs
Some investors love public REITs. I’m not one of them because they share far too much correlation with the stock market, which largely defeats the purpose of diversifying away from stocks.
But if you like publicly-traded REITs, they offer one of the easiest ways to dollar-cost average your real estate investments. Many REITs trade at $10 to $30 per share, so you can invest in shares every single week if you like.
Private REITs
Some real estate crowdfunding platforms offer private real estate investment trusts. They still pay out 90%-plus of their profits in dividends and often own many properties across the country. They don’t offer the same liquidity as public REITs, but they don’t have the same volatility either.
For a reputable example, check out Fundrise, which allows you to invest with as low as $10, making it easy to invest every week or month. I’ve invested personally in Fundrise, and while it’s had a bad 2023, that’s what markets do: Sometimes they go down.
Property-secured loans
Alternatively, you can invest small amounts in loans secured by real property.
My favorite two platforms for this type of investment are Groundfloor and Concreit. While Groundfloor has a minimum initial account balance of $1,000, you can invest $10 apiece in individual loans.
Every week, my Groundfloor account invests automatically in new loans as they become available. I’ve earned an average long-term return of 9% on these investments, and Groundfloor also offers notes currently paying 6.5% to 10.25% interest.
Concreit works differently, offering a pooled fund that pays 6.5% interest in weekly dividends. You can invest as little as $1 and withdraw your funds at any time.
Again, these simply offer one more way to dollar-cost average real estate investments. But I have thousands of my own dollars invested in both.
Fractional ownership in SFRs
Several platforms have popped up over the last few years that let you invest in fractional shares of single-family rental properties.
My two favorites are Arrived and Ark7. They let you invest between $20 to $100 per share in rental properties, and both offer short-term rentals in addition to classic long-term rentals.
As a fractional owner, you get both rental cash flow and your share of the profits on sale. The tax benefits carry over to you as well.
And yes, I’ve invested personally in properties on both of these platforms as well. I particularly like that Ark7 features a secondary market for selling shares at any time after the initial one-year holding period.
Fractional investing in syndications
Most syndications require a minimum investment of $50,000 to $100,000, which makes them impractical for dollar-cost averaging. That is unless you invest as a member of a real estate investment club, where you all go in on these together.
I know two investment clubs that operate this way, and they each work differently. One is my own company, SparkRental’s Co-Investing Club, where non-accredited investors can invest $5,000 apiece in deals vetted together by the club each month. The other is Left Field Investors, which is more geared toward accredited investors investing $10,000 to $50,000 per deal.
Don’t get me wrong: $5,000 isn’t chump change, and not everyone can invest that much each month. But even if you invest in deals every two or three months, it still offers a way to invest relatively small amounts on a regular basis while targeting the high (15%-plus) returns, cash flow, and tax benefits of passive real estate syndications.
The upshot? I own a fractional interest in thousands of units across dozens of cities, and the total I’ve invested is less than some people invest in a single property.
Boring Performs Better
Sure, it’s fun to brag at cocktail parties that you timed the market perfectly or picked the perfect property or stock investment and beat the market. You get to pat yourself on the back and feel clever—that one time out of five that it actually works out that way. In most cases, you’ll just underperform the market at large.
Aim to be wise rather than clever in your investments. Invest slowly and steadily in stocks and real estate, with small amounts every single week or month rather than occasional large chunks.
This is because investing shouldn’t be “fun” or a hobby unless you’re an active investor who loves renovating properties yourself. Investing should be boring. It should happen in the background, freeing you to enjoy your actual hobbies.
Nowadays, I only invest small amounts in diverse passive investments, exactly as I’ve outlined. And my returns have dramatically improved since I started investing this way.
G. Brian Davis Bigger Pockets
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With the large number of catastrophic loss events in recent years we have seen insurance companies leaving markets like Florida, and California, and the resulting higher cost of property insurance has become a big drain on NOI and property values for commercial real estate.
Given that property insurance premiums are increasing by as much as 300% in some markets, investors are struggling to determine whether the high cost of insurance is temporarily (and therefore creates a buying opportunity), or whether this is a systemic repricing of risk which will reset property values going forward.
To better understand the dramatic increase in insurance costs we need to dive into the factors that have driven the massive insurance losses of the last few years. Certainly, climate change plays a role in the increased frequency and severity of storms, wildfires, and other weather-related losses. Higher global temperatures are fueling stronger and more frequent storm systems.
Additionally, post pandemic inflation and a sluggish supply chain drove up replacement and repair costs faster than insurance companies could catch up. This is compounded by a systemic shortage of trades labor in the US, which continues to drive up the cost of skilled labor and increases the cost of repairs after a loss event.
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These factors have compounded, resulting in insurance companies underpricing the risk of loss events. This was further complicated by an overly competitive reinsurance market, as a result of the trillions of dollars governments around the world dumped into the economy, flowing through to the investment markets. Today capital in the reinsurance market has all but dried up, as the outflows of capital reimbursing losses has exposed the insurance market to the fact that they had severely underpriced the risk.
Normally the fact that real estate investments are backed by tangible assets is an advantage that protects investors from the volatility seen in intangible assets. However, the risk with tangible assets is that they can be physically damaged or destroyed, and insurance hedges against this risk.
Since insurance hedges the risk of damage or loss for everything – from properties, vehicles, businesses, health care, and almost anything else you can think of – it is insurance that underpins the value of assets, and of the economy as a whole. Material repricing of this risk is a repricing of the entire real economy.
So, where does this leave us? It is tough to say with certainty. Insurance markets have historically been cyclical. Capital tends to flow out when large losses are made, and capital tends to flow back in when large profits are made. And given the increasing premiums that insurance companies are now charging, we would expect their profits to be significant in 2023 (absent any major new catastrophes).
But maybe things are different this time. Climate change appears to be having a profound impact on the level of risk and inflation may be here to stay for a few years yet. There is a good chance that higher insurance costs are here to stay, and that real estate located in coastal markets, or markets with higher catastrophic risk, will see material devaluation due to increased insurance costs.
That being said, demand for housing in coastal markets remains strong as these are still very popular markets and are still experiencing positive net migration.
A dynamic market creates opportunities for the astute buyer. It will be interesting to see how these factors play out over the next few years.
Source: Equity Yield Group AAOA
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Thank you for this informative article provided by TurboTenant.
According to a recent GOBankingRates survey, 43.72% of Americans have had trouble paying utility bills over the last six to 12 months – and nearly 78% saw a rise in their household utility bills in 2022.
If you typically cover the heat as part of your lease agreement, this hike in pricing probably has you wondering if you can legally forbid your tenant from changing the temperature. The short answer is yes, but it’ll require some forethought and a signed contract.
Key Takeaways
- You must provide your tenants with access to heat unless your lease explicitly says otherwise.
- Your state and city laws dictate the minimum temperature a rental unit can be.
- Conducting an annual energy audit along with regular inspections will help you manage the energy bill.
Before we get into the age-old debate of who’s allowed to touch the thermostat, let’s clarify your role as a landlord.
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What Landlords Must Provide for Tenants
As a housing provider, you are held accountable for your tenant’s implied warranty of habitability. In other words, landlords are required to provide safe, livable conditions for their tenants since paying rent is conditional on the landlord’s duty to maintain a habitable living space, says Cornell’s Legal Information Institute.
While specific rules and regulations dictating habitability vary by city and state, ApartmentGuide highlights that landlords are typically responsible for:
- “Maintaining the structure of the building’s interior and exterior
- Keeping hallways, stairways, and common areas clean and well-maintained
- Operating plumbing, sewage, and ventilation
- Checking for environmental hazards
- Exterminating rodents and insects
- Supplying cold and hot water in appropriate quantities and at reasonable times
- Providing heat in appropriate quantities and during reasonable times”
Their article also quotes Samuel Evan Goldberg, a lawyer with Goldberg & Lindenberg, who noted that the “landlord must provide heat and hot water to tenants. The hot water must be a minimum of 120 degrees Fahrenheit. Landlords are required to provide heat during the months of October 31st through May 31st.
If the outside temperature is 55 degrees or below between 6:00 am and 10:00 pm, it must be at least 68 degrees in the apartment building, and the inside temperature must be 62 degrees [between 10:00 pm and 6 am].”
In short, landlords must provide access to heat – but your responsibilities don’t end there. If you’ve agreed to provide heat or other basic utilities, Pine Tree Legal Assistance lists four situations that would likely break the law:
- “The temperature in your rental is so low that it ‘injures the health’ of anyone living there. (This rule does not apply to someone who is so sick that he cannot stay healthy with a normal amount of heat.)
- The heating system is not able to heat the unit to at least 68 degrees when it is down to 20 degrees below zero (-20 F) outside.
- The heating system doesn’t keep the building’s systems (like water pipes) from freezing.
- Other basic utilities in the unit don’t work, making it unsafe or unfit.”
If you’re not sure whether your heating system can warm the unit to at least 68 degrees, test it “by setting a thermometer at least 3 feet away from an outside wall and about 5 feet above the floor.” Note that the reading doesn’t count if it’s closer to the floor or wall.
Pro Tip:Be sure you know your state and city’s requirements regarding minimum and maximum temperatures your unit(s) can be! If you see conflicting information between your local laws, follow the stricter ordinance. And don’t be afraid to ask a legal representative or your city code enforcement office for help as needed.
Controlling the Temperature in Your Rental
Though the best rule of thumb is to ensure that your rental can maintain at least 68 degrees when the temperature drops outside, you may have more control over the temperature settings – if you and your tenant(s) have signed a lease agreement that supports your position.
Your residential lease agreement should note which party is responsible for paying the heat bill and any other stipulations regarding energy use. So, if you and your tenant signed an agreement stating that they wouldn’t have access to the thermostat, you can decide which temperature to set your unit(s) – but be careful. Assuming that level of control means you need to be on top of the weather forecast to ensure your units are properly heated and your tenants stay safe.
If you give your tenants access to the thermostat, they can adjust the heat without needing to bother you. If the idea of giving your tenants access to the thermostat sends a chill down your spine, here are a couple of thoughts to consider:
- Preparing your rental unit for colder months will help keep energy costs low. Check out our comprehensive article if you need help winterizing your rentals.
- If you currently foot the heating bill, consider passing the expense – and the control – to your tenant(s) at their next lease renewal or through a lease addendum.
Did You Know?It’s most common that single-family rentals have thermostats that the renters can control whereas multifamily properties may have only a single thermostat for the whole building.
How to Reduce Your Rental Unit Heating Costs
Whether you decide to let your tenant control the heating or continue carrying the responsibility yourself, there are certain steps the U.S. Department of Energy recommends to help lower heating costs this winter, such as:
- Conducting a yearly energy assessment, which entails checking insulation levels, inspecting heating equipment, and locating leaks
- Advising your tenants to open curtains and shades during the day to let sunlight warm the rooms
- Recommending that any unused rooms stay closed (as applicable)
- Performing seasonal inspections to check for drafty windows, broken vents, and air duct leaks
- Upgrading your unit’s heating system as newer high-efficiency heating systems can run at 90-98.5% fuel efficiency ratings compared to older systems, which run at 56-70% fuel efficiency ratings, according to CNET
You should also consider investing in smart technology as a way to lower the energy bill.
Get Smart: Using Technology to Cut the Energy Bill
Smart technology has come a long way since its inception – which is great news for those looking to save money on their energy bill. According to Reviews.org, “almost half of the cost of the utility bill comes from your cooling and heating system.”
That’s where smart thermometers come in.
Whether you elect to control the temperature as agreed in your lease or allow your tenant full range, having a smart thermometer enables the unit to hone routines that support energy conservation.
For example, your tenant could program the thermometer to hold the unit’s temperature at 68 degrees while they’re at work, then kick up to 70 degrees at 5 pm when they return home. That way, the unit isn’t eating up energy while no one is home – without your tenant having to sacrifice their comfort.
Smart thermometers range in price, starting around $140.
Bottom Line
If your signed lease agreement says that your tenant won’t have access to the thermostat, then you get to dictate the temperature within the unit – but be sure to appreciate the great power that comes with this responsibility. Keep up with the weather forecast, and plan ahead to ensure your tenants are warm and safe within your rental property.
When in doubt, maintain a comfortable 68 degrees (or at least above the minimum temperature dictated by your local laws), and don’t hesitate to check in on your tenants when particularly bad weather is ahead. Reaching out to make sure they’re safe, well-stocked, and prepared for the storm will save you from getting frantic calls once the snow falls – and it helps your landlord-tenant relationship thrive, no matter the weather!
TurboTenant, Inc does not provide legal advice. This material has been prepared for informational purposes only and TurboTenant assumes no responsibility or liability for any errors or omissions in the content of this material. All users are advised to check all applicable local, state, and federal laws and consult legal counsel should questions arise.
Written By: Krista Reuther
Krista Reuther is the Senior Content Marketing Writer at TurboTenant where she writes data-driven, actionable material to help landlords and renters alike.
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Article provided by World Property Journal
As U.S. Lenders Chase An Increasing Number Of Delinquent Mortgages In 2023
According to ATTOM’s newly released fourth-quarter 2023 Vacant Property and Zombie Foreclosure Report, almost 1.3 million (1,294,505) residential properties in the United States are vacant. That figure represents 1.27 percent, or one in 78 homes, across the nation – virtually the same as in the third quarter of this year.
The report analyzes publicly recorded real estate data collected by ATTOM — including foreclosure status, equity and owner-occupancy status — matched against monthly updated vacancy data. (See full methodology below).
The report also reveals that 320,765 residential properties in the U.S. are in the process of foreclosure in the fourth quarter of this year, up 1.7 percent from the third quarter of 2023 and up 12.8 percent from the fourth quarter of 2022. A growing number of homeowners have faced possible foreclosure following the nationwide moratorium on lenders pursuing delinquent homeowners was imposed after the Coronavirus pandemic hit in early 2020 and was lifted in the middle of 2021.
Among those pre-foreclosure properties, about 8,900 sit vacant as zombie foreclosures (pre-foreclosure properties abandoned by owners) in the fourth quarter of 2023. That figure also is up slightly from the prior quarter, by 1.4 percent, and up 15.3 percent from a year ago. The latest increase marks the seventh straight quarterly rise.
However, the fourth-quarter count of zombie properties represents only a tiny portion of the nation’s total housing stock – just one of every 11,412 homes around the U.S.
“The ongoing strength of the U.S. housing market continues to benefit neighborhoods around the country in so many ways, with the near-total lack of zombie foreclosures standing out as one striking example,” said Rob Barber, CEO for ATTOM. “Rising equity flowing from rising home values has not only kept foreclosure cases from spiking since the moratorium was lifted. It also keeps giving delinquent homeowners a valuable resource they can use to either stave off eviction or sell their homes and move on. As a result, we continue to see none of the widespread abandonment that followed the housing market crash after the Great Recession of the late 2000s.”
The stable number of zombie properties in the fourth quarter has come as the U.S. housing market has rebounded from a temporary setback last year.
The nationwide median home value grew 11 percent during the Spring-Summer buying season this year, hitting a new record of $350,000. Those gains followed an 8 percent decline from mid-2022 into early 2023. The growth in values has helped keep homeowner wealth at historic highs, with 95 percent of mortgaged owners having at least some equity built up and about 50 percent owing less than half the estimated value of their properties.
Zombie foreclosures rise in half of states but remain mostly absent around nation
A total of 8,903 residential properties facing possible foreclosure have been vacated by their owners nationwide in the fourth quarter of 2023, up from 8,782 in the third quarter of 2023 and from 7,722 in the fourth quarter of 2022. The number of zombie properties has decreased or stayed the same quarterly in 24 states and annually in 21.
While most neighborhoods around the U.S. have few or no zombie foreclosures, the biggest increases from the third quarter of 2023 to the fourth quarter of 2023 in states with at least 50 zombie properties are in Kentucky (zombie properties up 15 percent, from 53 to 61), Connecticut (up 15 percent, from 87 to 100), Maryland (up 13 percent, from 229 to 258), Texas (up 13 percent, from 112 to 126) and California (up 12 percent, from 244 to 274).
The largest quarterly decreases among states with at least 50 zombie foreclosures are in New Mexico (zombie properties down 15 percent, from 95 to 81), New Jersey (down 8 percent, from 205 to 188), Maine (down 7 percent, from 56 to 52), Nevada (down 7 percent, from 99 to 92) and Georgia (down 4 percent, from 85 to 82).
New York continues, among the 50 states, to have the highest ratio of zombie homes to all residential properties (one of every 2,115 homes), followed by Ohio (one in 3,690), Illinois (one in 4,338), Iowa (one in 4,380) and Indiana (one in 6,114).
Overall vacancy rates also hold steady
The vacancy rate for all residential properties in the U.S. has remained virtually the same for the sixth quarter in a row. It stands at 1.27 percent (one in 78 properties), which is virtually the same as the 1.26 percent rate in both the third quarter of 2023 and the fourth quarter of last year.
States with the largest vacancy rates for all residential properties are Oklahoma (2.26 percent, or one in 44 homes, during the fourth quarter of this year), Kansas (2.18 percent, or one in 46), Michigan (2.07 percent, or one in 48), Alabama (2.04 percent, or one in 49) and Indiana (2.03 percent, or one in 49).
Those with the smallest overall vacancy rates are New Hampshire (0.33 percent, or one in 302, in the fourth quarter of this year), New Jersey (0.36 percent, or one in 280), Vermont (0.39 percent, or one in 259), Idaho (0.45 percent, or one in 221) and North Dakota (0.63 percent, or one in 158).
Other high-level findings from the fourth quarter of 2023:
- Among 166 metropolitan statistical areas in the U.S. with at least 100,000 residential properties in the fourth quarter of 2023, those with at least 100 properties facing possible foreclosure and the highest zombie foreclosure rates are Peoria, IL (12.4 percent of properties in the foreclosure process are vacant); Indianapolis, IN (9.9 percent); Cedar Rapids, IA (9 percent); Fort Wayne, IN (8.6 percent) and South Bend, IN (7.9 percent).
- Aside from Indianapolis, the highest zombie-foreclosure rates in major metro areas with at least 500,000 residential properties and at least 100 homes facing foreclosure in the fourth quarter of 2023 are in Cleveland, OH (7.3 percent of homes in the foreclosure process are vacant); Baltimore, MD (6.7 percent); St. Louis, MO (6.1 percent) and Pittsburgh, PA (6 percent).
- Among the 23.6 million investor-owned homes throughout the U.S. in the fourth quarter of 2023, about 842,400 sit vacant, or 3.6 percent. The highest levels of vacant investor-owned homes are in Indiana (6.9 percent vacant), Illinois (6.1 percent), Oklahoma (6 percent), Alabama (6 percent) and Ohio (6 percent).
- Among the roughly 15,000 foreclosed, bank-owned homes in the U.S. during the fourth quarter of 2023, 15.9 percent sit vacant. In states with at least 50 bank-owned homes, the largest vacancy rates are in Kansas (30.8 percent vacant), Michigan (25.9 percent), Ohio (24.5 percent), Missouri (23.8 percent) and Wyoming (22.6 percent).
- The highest zombie-foreclosure rates in U.S. counties with at least 500 properties in the foreclosure process during the fourth quarter of 2023 are in Peoria County, IL (15.6 percent of homes in the foreclosure process are vacant); Baltimore City, MD (14 percent); Marion County (Indianapolis), IN (13.1 percent); Broome County (Binghamton), NY (11.4 percent) and Cuyahoga County (Cleveland), OH (8.2 percent).
- Among zip codes with enough data to analyze, 82 of the top 100 where zombie properties represent the largest portions of all homes are in New York, Ohio and Illinois, including 10 in Cleveland, OH. The largest portions are in zip codes 10993 in Rockland County (West Haverstraw), NY (one in 191 homes); 73554 in Greer County (Mangum), OK (one in 222); 44108 in Cuyahoga County (Cleveland), OH (one in 223); 61605 in Peoria County, IL (one in 229) and 44112 in Cleveland, OH (one in 236).
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