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4 Tips to Identify the “Path of Progress” … and Then Use It to Buy Properties that Appreciate

If I had to write “Real Estate Investing for Dummies,” I would begin and end with this advice — “Buy property in the path of progress.” If you buy in the path of progress, you can make almost every mistake in the book — buy high, negative cash flow, etc. — and still come out ahead.

 

You see, every city has a “path of progress” — a zone where the city is intentionally targeting its economic development according to a “Master Plan.” Whether or not they succeed depends on the competence of the managers in charge … but if they do succeed, property in the path of progress will almost always appreciate rapidly. This goes for the commercial property as well as the condos and single-family homes nearby.

 

On the flip side, most cities have zones of decline — parts of the city neglected by economic development plans and left to stagnate. Real estate tends to flatline or even decline in value in these areas. You might reap some cash flow, but building wealth in these zones is an uphill battle.

 

If you want to build real estate wealth quickly, buy in the path of progress. So how do you identify this magical zone? Here are four tips to find the path of progress. If you live far away from the target city, all of these tips can be exercised through phone calls, online search, or on-the-ground foot soldiers.

1. Follow the Construction

The path of progress is paved with bulldozers and construction cranes. Economic development often involves the tearing down of old commercial structures and the building of new ones. This represents a significant economic investment, so the city and its developers won’t make that investment unless they expect a big payoff.

 

The city often offers cash incentives to build in the path of progress, so if you see a lot of construction in a particular neighborhood, you can deduce that the city is probably holding out a pretty big carrot to the developers. You can look up online or call for a list of construction permits and look for the same Zip Code to keep coming up. You may even be able to discover where in town the city is offering development grants. New malls, offices, apartment buildings, and condo developments are a great sign. 

2. Follow the Curbs

The city is responsible for restriping and rejuvenating the curbs in commercial and residential neighborhoods. They set the schedule, and neighborhoods outside of the path of progress tend to be neglected in this regard. Want to find the path of progress? Find out which neighborhoods are at the top of the city’s list for curb restriping. 

3. Follow the Chains

Starbucks, McDonalds, Target … national retail chains do extensive research into the path of progress before they open a new store. Following announced future openings for major chains is like cheating off their paper in a high school test — only it’s totally allowed and not at all unethical. 

 

By contrast, if national retailers are leaving a neighborhood, it’s a bad sign. They have the name recognition; the only reason for the franchise to fail is economic decline. 

4. Follow the Artists

The cycle of “gentrification” is pretty well-documented — artists move in for cheap rent, start hosting shows and popups, the neighborhood becomes “cool,” other people start wanting to live there, and the next thing you know — Whole Foods comes knocking. If there’s a “rough” part of town near the city center that has become a favorite haunt for “artsy” types, it might be time to buy before the neighborhood catches fire.

 

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One of the best things about investing with Martel Turnkey is that we do the research for you. We have extensively researched the paths of progress in our target markets and buy assets primed to rise with the tide. These four tips give you the tools you need to check our work!

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7 Expensive Mistakes Real Estate Investors Make — and How to Avoid Them

Humans are wired instinctually to seek pleasure and avoid pain. Believe it or not, the “pain-avoidance” instinct is actually a lot stronger in most people than the “pleasure-seeking” instinct.

 

More than we want to get it right, we really don’t want to get it wrong. The fear of making a rookie mistake stops many aspiring investors in their tracks. Actually making rookie mistakes could result in financial losses — possibly even knocking them out of the game entirely.

 

In other words, knowing what not to do is just as important, if not more so, than knowing what to do. Here is our list of the seven most expensive mistakes first-time real estate investors (or even experienced real estate investors) tend to make … and how to avoid them. 

1. Not Starting

The biggest killer of financial dreams is “analysis paralysis.” You don’t have to hit a home run out of the park on your first at-bat, but you’ll never win if you don’t get in the game! Get educated, do your due diligence, manage your risk as best as possible, but you can never eliminate risk entirely, and we learn the most by doing. 

 

Trust your advisors, trust your intuition, trust the numbers, and take the plunge! Every investor makes mistakes, but with enough preparation and the proper advice, they won’t be death blows. Any small lessons you learn the hard way will make your next investment even better.

2. Investing Emotionally

We get emotional about our homes; we can’t afford to get emotional about real estate investment. First and foremost, real estate investing is a financial activity, which means a good deal is hiding in the numbers, not your gut.

 

How does this manifest? Passing on an “ugly” house and missing the upside potential. Overpaying for a “beautiful” house because they would want to live there. Chasing FOMO into buying at the top of the market. 

 

Cool your jets, recruit some advisors, and look at the numbers. That’s what the pros do.

3. Underestimating Expenses

It’s human nature to hope for the best. If a contractor (or realtor) throws out a lowball number of how much a repair, rehab, or upgrade will cost, we want to believe them. After all, the deal works at that lower number!

 

This is how real estate investors get in over their heads, with an over-budget renovation and no cash reserves to finish it. Uninhabitable and with no rental income, the property becomes a bonfire of money and a stain on your balance sheet.

 

Don’t fall victim to a lowball expense estimate. Shop around for estimates, pick the highest estimate, and then bump it up 20-30%. If your deal can survive this worst-case scenario, you may have a winner. 

4. Being Too Cheap

Some first-time landlords get stingy with the purse strings, neglecting maintenance and only responding to service requests when something is on fire.

 

Even if this pinches a few pennies in the short term, it is short-sighted. A neglected tenant will bounce when the lease is up, and then you have to endure the cost of replacing them. Deferred maintenance often turns simple fixes into catastrophic system failures. Skip the step of flushing the water heater this year, and you may end up with the back-breaking expense of replacing it next year. 

5. Not Being Cheap Enough

Some landlords turn their rentals into vanity projects, upgrading them with the same vigor as they would their own home. This is when you see modest duplexes with deluxe stone countertops and jacuzzi tubs. 

 

Overkill! You won’t substantially outpace market rent for the area with luxury upgrades, not nearly enough to justify the expense. We beseech you — get a different hobby! 

6. Only Looking in Their Own Backyard

Many first-time landlords think they are limited to the city in which they live. They think buying out-of-town or out-of-state is a hassle at best, risky at worst.

 

Actually, buying an out-of-state rental can be easier than you think … and the profits are worth it. If your local economy is stagnant or near a market-cycle peak, why not look farther afield for a city that is on an upswing and about to boom?

7. Trying to Do It All Themselves

Real estate investing is a team sport. You don’t know everything, and you can’t do everything. Pounding every nail in the renovation … making every decision in a vacuum … these are the marks of an amateur.

 

Pro real estate investors rely on carefully-chosen teams of experts. You don’t have to go it alone! Whole industries exist to help make you successful. Don’t turn your back on them out of pride — determine where you need help, and then go find it!

 

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MartelTurnkey helps first-time and experienced investors alike avoid these seven deadly pitfalls. More than anything, we help with the first one — getting people in the game! If you want to invest in property and don’t know where to start, give us a call! Whether you work with us on one property or dozens, you won’t believe how easy it can be to realize cash flow, profits, and tax savings by buying turnkey rentals in booming markets.

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Next Steps — What to Do After You Close on your Turnkey Rental

You did it! You’ve patiently waited the 6 – 20 weeks it takes to renovate the house and put a tenant in place. You wired your earnest money deposit, agonized over your financial disclosures, and navigated a labyrinth of online portals (with MartelTurnkey there to help you at every step!) 

 

You’re finally at the finish line! It’s closing day, and you are the proud owner of a turnkey rental property!

 

… Now what?

 

Many people have their eyes so fixed on the watershed moment of closing day that they give little thought to what comes after closing day. After all, the story continues. You own a rental property! Shouldn’t you … I don’t know … do something?

 

Some people check out, like high school seniors a week before graduation. Other people try to do too much, forgetting that this is supposed to be a turnkey asset to create passive income (not everyone likes to be passive).

 

The correct answer is somewhat in the middle. Here are our recommendations for the next immediate steps after you close on a turnkey rental … 

1. Set Up a Call with the Property Manager.

Your property manager is your eyes and ears, your boots on the ground — a combination of a guardian angel and nosey neighbor. Start off on the right foot with a kickoff call to get you on the same page about the property. The property manager can probably allay many of your concerns, suggest more next steps, and reassure you that your turnkey rental is in good hands.

2. Follow Up on Any Outstanding Construction or Inspection Items. 

Sometimes every construction item isn’t completed by closing day. For example, our vendors don’t pour concrete in the winter, so if the property needs a new driveway it may have to wait. Talk over any outstanding items on the construction to-do list with your property manager, contractors, or us. If you decided to get a home inspection, there will probably be a laundry list of uncorrected defects, many of them low-priority. Go down the list and decide which ones to keep an eye on and revisit.

3. Consider Extra Enhancements. 

If you feel like going the extra mile, consider some curb appeal or interior enhancements — red geraniums in the garden, a coat of yellow paint on the shutters, permanent shower rods, window blinds, etc. Talk to your property manager about what might spruce up the property. It probably won’t get you more rent in the short term, but it may encourage your tenant to renew or at least help with the next tenant. Besides, showing your property some TLC is good for morale and helps elevate the entire neighborhood, which can only help your property value.

4. Review the Appliance Situation.

Depending on the location, some houses are rented with appliances, some without. Don’t rush into an appliance situation based on what is normal in your area or what you would like — check with the property manager about what local tenants expect. You can always install appliances or upgrade the current ones, especially if it will help convince your tenants to renew and save you turnover costs.

5. Follow Your City On Social Media

All real estate is local, and you want to keep at least one finger on the pulse of the community you just bought into. Follow local landlords, property owners, economic, and newsgroups on social media. Consider subscribing to the RSS feeds of a few local blogs.

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Now you have a few proactive steps to take after closing. If we may suggest a few others on a personal note — message us at MartelTurnkey with a testimonial for us to share on our website, tell an investor or aspiring-investor friend how we did, and let us know your timeline for your next purchase on the road to financial freedom!

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Investing for Cash Flow vs. Appreciation — Which is Better?

Most people know that there are two core ways you can harvest a return on your investment when you buy real estate — cash flow or appreciation. 

 

Ideally, an investment property will produce both, but nearly every investor comes to a crossroads where they have to pick which one is most important. Whether you prioritize cash flow or appreciation has a big impact on how you look at investment opportunities. Think of it as the “lens” through which you view the real estate market.

 

Is one strategy better than the other? There’s no real right answer. It really depends on the investor and their long-term goals. But let’s examine the question and see if we can declare a winner, even if it’s by a nose. 

Cash Flow

Cash flow in real estate usually means any surplus rent you can pocket after all expenses have been accounted for. Of course this means expenses like property taxes, insurance, and service contracts, but it also means the mortgage payment and contributions to a reserve fund for emergency repairs. 

Deals that Tend to Emphasize Cash Flow

Properties in Slower Growth Markets. How fast a metropolitan is growing really matters. Faster growing economies tend to cause housing shortages which means higher real estate prices. In markets with more sustainable growth — like places in the middle of the country like Ohio or Missouri — real estate values just don’t swing wildly up and down.

 

“B” or “C” Neighborhoods. These are typically workforce housing neighborhoods. You can usually get them at a lower price compared to their rent potential — which means higher cash flow.

 

Property values less than $250,000. This is not a hard rule but, usually, properties at the lower price point have a higher chance of cash flowing. The reason why higher price properties usually don’t cash flow is that people who could afford these higher rents have more options and are able to buy a house instead of renting.

When is it a good idea to invest for cash flow? 

Compared to appreciation, cash flow is more predictable. Yes, sudden vacancies and emergency expenses do happen, but after you settle into a rhythm with your tenant, it becomes easier to know how much cash you can count on each month. 

 

Also, appreciation doesn’t manifest as cash until you harvest it in a sale or refinance. Before that happens, appreciation is entirely speculative. Cash flow, by contrast, manifests itself as cash every month— a big deal for people with their eyes on retirement or financial freedom. 

Appreciation

Appreciation in real estate is when property increases in value over time. Over long periods of time, real estate tends to increase in value … but in the short term, especially in volatile markets, real estate can potentially lose value.

Deals that Tend to Emphasize Appreciation

Properties in Fast Growing Markets. Hot markets like California, New York, Texas, and Florida tend to feature big swings in property value. If you buy at the right time, you can profit big from a dizzying uptrend … but you can also lose big or have to weather a long doldrums if you pick the wrong time.


“A+” Class Neighborhoods. This is real estate talk for “nicer properties in nicer areas.” The purchase price is significantly higher so are the rents but the rents are not high enough for the property to cash flow. That said, because demand for the properties and the area is likely to remain high, they tend to appreciate more than outdated properties in bad areas.


“Value-Added” Strategies. A property that comes with a clear strategy to increase its value — say, a fixer-upper on the market for a song — can enjoy significant appreciation through a “value-add” strategy. Of course, this depends on the strategy succeeding without going vastly over-budget and eating into the appreciation profit.

 

When is it a good idea to invest for appreciation? 

Investors who prioritize appreciation tend to have legacy or generational wealth in mind — building a large net worth to pass on to their successors. 

 

So Should You Invest for Cash Flow or Appreciation?

Again, it’s great if you can have both … but if we have to declare a winner, we call it for cash flow. 

 

Why? Two words — financial Freedom. For most people, financial freedom would have a much bigger impact on their life than some hypothetical windfall that may never manifest. 

 

By financial freedom, we mean the ability to quit or retire from your job and focus on your passions, confident that a predictable stream of passive income will continue to fund your lifestyle.

 

People who are financially free have much more time, many more options — including the ability to occasionally speculate on appreciation, essentially having their cake and eating it too.

 

At MartelTurnkey, we look first and foremost at the cash flow potential of our turnkey rentals. When you buy from MartelTurnkey, you know you are buying a key piece in your personal financial freedom puzzle. 

 

Contact us today for ready-made opportunities to “buy cash flow” … and even bank some appreciation along the way!

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How to Safely Buy a Turnkey Rental Sight Unseen

Buy turnkey house sight with confidence

You can buy almost anything online these days, including real estate. People do it every day, all over the world. Still, if buying a turnkey rental property is new to you, you may wonder how safe it is to buy this kind of real estate sight unseen.

 

On the surface, it might sound scary. But there are ways to protect yourself—and your money—when buying investment property without seeing it first. Lots of people are making passive income with turnkey rentals even though they never clapped eyes on the property in person. You can, too!

Benefits of Buying a Turnkey Rental Out of State

 

The idea of buying a rental property without viewing it first implies that it’s located out of state, or far enough away that it’s not a simple matter to get to from where you live. But the real key is that buying turnkey rentals out of state allows you to get in on a real estate market that’s better than the one where you reside. 

 

So even if you live in a beautiful area where the property values are sky high—and out of your reach—you can still have a profitable real estate venture. 

 

You Can Trust MartelTurnkey Because We Did it Ourselves

 

For example, at MartelTurnkey, our family attempted to delve into the real estate business in the San Francisco Bay area, where we lived. Looking back it’s rather shocking to recount how “putting in an offer” worked. 

 

Hearing of a home for sale, herds of people appeared at the Open House. Even without a sign indicating the open house, there were a few key indicators you were within close proximity to the house:  One was the lack of parking, or rather, cars (and flatbed trucks) parked triple deep on a narrow street; and the other indicator was by the crowd of people gathered on a driveway, or porch, or snooping around the yard, impatiently waiting to get access to the forlorn house. (Admittance was often restricted and regulated to a few people at a time.) Frequently we found ourselves offering way too much for fixer-uppers, which required extreme repair, and then waiting a few days to see if we were the lucky ones whose offer was accepted. Most times, it was not. 

 

We persevered, and eventually experimented buying out of state properties in areas that were affordable and you didn’t have to fight as hard to successfully buy. With a remarkable amount of actuarial research, analysis and grit, we focused on a few cities where we still work today. These markets were not HOT at the time, but ripe for the picking. Markets like Memphis, and Cleveland to start with, and eventually we expanded.

 

The rest is history. For eight years, we have been busy building a multimillion dollar company, helping rookies and experienced investors alike, to reach their goals in real estate, through ownership of turnkey rental properties. Our reputation and genuine concern for our clients has resulted in great things for many people.

 

So when you want to know how to safely buy turnkey rental property without seeing it, your first step is—you probably already guessed it—

Buy from an experienced, reputable and highly-respected company. MartelTurnkey.

 

What Else Do I Get With a MartelTurnkey Property?

 

There are other reasons to buy your turnkey rental from MartelTurnkey when you’re buying an investment property sight unseen. 

 

– We Help Find Financing Options

 

Buying investment property sometimes poses a challenge for borrowers. And if you’re not someone with W-2 income, well, that’s another challenge. We have established lenders that we will introduce you to. Lenders who are experienced in investment properties and lend in the states where we do business.

 

– We Put Tenants in Place

 

A turnkey rental isn’t going to generate passive income without a paying tenant. All the rentals we sell have paying tenants in place with a lease, and that all goes to you when you buy a turnkey rental from us.

 

– We Put Property Management in Place

 

The same thing goes with passive income. It’s not passive if you’re the one collecting the rent and fielding tenant calls. All of our properties come with a property management company already doing the heavy lifting. They’re yours to continue a relationship with if you want.

 

We hope this makes you feel more confident about safely buying a turnkey sight unseen. 

 

What other questions can we answer for you? Use our online contact form to schedule a call or go ahead and browse our available turnkey rentals right now. We look forward to doing business with you!



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How to Do “Due Diligence” on a Rental Property, in 3 Easy Steps

Due Diligence MTK

“Do your due diligence!” If you have heard it once, you have heard it a million times — often from someone who has never done “due diligence” in their lives.

 

It sounds good, but no one ever stops to think about how unhelpful that platitude is. Okay … I should do my due diligence. Granted. But what does that mean?

 

Honestly, there is no need to be cryptic. When it comes to real estate, “due diligence” means three things … and none of them are rocket science. In many cases you will have professional help.

 

Here are the three critical stages of due diligence.

1. Financial Due Diligence

Financial due diligence is the process of “crunching the numbers” on your investment. This is how you determine whether or not it is a “good investment.”

 

Here’s how to do it …

Market Analysis

Analyze the current conditions of the local real estate market and determine whether or not you are getting the property at a good price. A real estate agent may be able to help, or you can do it yourself using online tools like Redfin or Zillow.

Cash Flow Analysis

Determine the gross potential rent the property can produce (based on prevailing market rents for similar properties) and subtract the total expenses. We break down the major expenses a landlord should account for in this article.

 

Check online to see what market rents are for similar properties. Look at utility bills and maintenance contracts. Examine any current leases and property tax bills. Try to corroborate everything with documentation.

 

If you are conservative in your estimates and come out with a positive number, you have a reasonable chance that your rental will produce positive cash flow, not negative cash flow.

Tax Savings Analysis

Figure out how much you will be able to save on your taxes every year as a result of owning this property. If you have a CPA or tax prep specialist, they may be able to help. Details to look at include which expenses in the cash flow analysis can be deducted, and how much depreciation you can take. We  explain depreciation in this article.

Appreciation Analysis

Decide how many years you expect to hold the property. Three years? Five years? Ten years? It’s up to you. You can always change it later; this is just for the purposes of due diligence.

 

Determine how much you expect your property to appreciate in value each year. Also, set a number for how much you expect your rent and expenses to increase each year, and project those numbers for however many years you decide to hold the investment.

 

Now take the total appreciation, cash flow, and tax savings over the time horizon you identified and add it all together. Throw in the mortgage principal paydown you expect over that period while you’re at it. How much bigger is that number than your down payment, closing costs, and initial repair budget? Use that number to determine your total projected return on the investment.

2. Physical Due Diligence

Physical due diligence means inspecting the property itself to determine its condition. Our lenders do not require a professional property inspection but you are able to coordinate one if you choose to do so.

 

Issues relayed in the inspection may affect the calculations that go into financial due diligence, including your budget for future repairs and maintenance.

 

3. Legal Due Diligence

Legal due diligence determines whether the property can legally be transferred to you. Determinations from legal due diligence include verifying that the seller is the legal owner and has the right to sell you the property. Legal due diligence also reveals whether the property is subject to any easements, liens, covenants, or other encumbrances that might affect the sale or the value of the property.

 

Legal due diligence is actually the easiest part — the title company handles this for you, during escrow.

 

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As you can see, there’s no great mystery to due diligence. It has defined stages, and you can rely on professional help at most of those stages, especially if you are new to the landlord game.  MartelTurnkey makes it even easier. With our portfolio of available turnkey rentals, we have done much of the due diligence for you. Contact us today — we’re happy to show our work and explain everything to you until you are ready to buy with confidence, satisfied that you have “done your due diligence.”

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Expenses of Running a Rental Property — a Cheat Sheet

Rental Property Expenses Cheat Sheet

Many people make big mistakes when they try to determine the cash flow potential of a rental property. Basically, they think that if the market rent for the house is higher than the mortgage, they’re in the money.

 

It’s not that easy. If it were, anybody could do it. Lots of houses can be purchased with a mortgage payment lower than the market rent.

 

But as any homeowner can tell you, the expenses don’t stop at the mortgage. If you want positive cash flow for your rental property, your rental collection needs to cover all expenses.

 

Here’s a cheat sheet of expenses to make sure to account for when doing your cash flow analysis for a prospective rental property:

Mortgage Payment

First and foremost, you need to know your monthly mortgage payment. This is usually where people start, but the expense rabbit hole goes much deeper. 

Property Taxes

Property taxes to the county are mandatory; otherwise, the county can foreclose on your property, just like your lender. Property taxes are usually due once or twice a year, but your lender may require you to pay monthly into an “escrow” account to make sure there are funds available to pay those property taxes.

Insurance

Property insurance is usually required by a lender so a fire doesn’t destroy the collateral — at least not without an insurance policy to claim against it. 

 

If the property is in a FEMA-designated flood-risk zone, the lender may require flood insurance, as certain flood damage is not covered by homeowner’s insurance. 

 

Landlords may also want to consider liability insurance, which will protect them in the event of a lawsuit filed by a tenant. The lender may require payments into the escrow fund to cover insurance as well.

Fees and Assessments

Property taxes may not be the only assessment against your property. Condo association or homeowner’s association fees are common offenders. Yes, your HOA can foreclose on you if you don’t pay your HOA fees! The lender may require you to fund HOA fees in your escrow account too — they really don’t want someone else foreclosing your property before they can.

Utilities

As the landlord, you are sometimes responsible for some utilities, like water, electricity, or gas. You may be able to bill these back to the tenant for extra income.

Repairs and Maintenance

Maintenance of the property falls to the owner, not the tenant. Maintenance emergencies can arise out of nowhere and be very costly in terms of contractor costs, handyman costs, and replacement of major appliances like a refrigerator or HVAC. Smart landlords don’t pocket every dollar of excess rent — they usually pay some or even most of it into a “maintenance fund” to cover any big expenses that may arise. 

Contract Services

Contract services are recurring maintenance services that might include gardening and landscaping, trash collection, pest control, and routine maintenance (changing air filters, flushing water heaters, etc.)

Professional Services

Professional services might include tax preparation and legal fees. Legal fees could include contract review, litigation costs, and eviction fees.  

Property Management

If you decide to hire a property manager to free yourself from operational responsibility for the property, you will usually need to pay that manager a percentage of the gross rents collected. Current rates are typically 8% -10% of the gross rents.

 

Vacancy Expense

Few rental properties can maintain 100% occupancy at all times. With proper management you can get close, but it’s usually wise to factor in at least some vacancy expense — time when your property is vacant and not collecting any rent. Cities usually have a prevailing market vacancy rate which you can use to be conservative, but somewhere between 5% and 10% of the gross rent potential is standard.

 

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If you calculate all relevant expenses and come out with a number that is less than the gross rent potential, congratulations! You have identified a property with strong potential for positive cash flow, all the while appreciating in value.

 

Having trouble estimating expenses? Martel Turnkey can help! We have extensive experience making accurate calculations of real estate expenses. Every property in our inventory includes detailed expense projections, which we can back up with evidence. Want to do cash flow analysis the easy way? Reach out to us — we’re glad to help!



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The Fed is Raising Interest Rates … What Now for the Real Estate Market?

We’ve enjoyed bottom-of-the-barrel interest rates for years, but that may be about to change. The Federal Reserve raised its key interest rate by a quarter-point last month, and we expect that to be the first of at least three interest rate hikes to happen this year.

 

So is the party coming to an end? What will happen to the real estate market — for homeowners and investors — in an environment of rising interest rates?

What Happens When the Fed Raises Interest Rates?

First things first, the Fed doesn’t dictate what interest rate your bank can charge you for a mortgage. That’s not the interest rate they control. 

 

What they do control is the Federal Funds Rate, the rate at which FDIC-insured banks are allowed to lend money to each other. 

 

Does this affect the interest rates you pay on your mortgage, car loan, or credit card? It can, but it’s not guaranteed. 

Why Does the Fed Raise Interest Rates?

The Fed may not directly control the interest rates banks pay, but by making it more expensive for them to lend, they are hoping that these interest rates trickle down to consumers in the form of higher interest rates on consumer loans, credit cards, and other loans. 

 

Why? Why raise interest rates at all? Don’t we have enough to worry about in terms of rising costs? Are the Fed just committed to being killjoys and party poopers?

 

Raising the Federal Funds Rate is one of several tools the Fed uses to try and control the supply of money in the economy. If it’s more expensive to lend to each other, banks will likely flood the economy with less financing. If money becomes scarce, it will become more valuable — which means it acts as a counterweight to inflation.

 

Considering inflation has tipped the scales at nearly 8% over the past year, you can see why the Fed would want to take this kind of action. Paying a little more interest may not be fun, but compare that to the recent increases to the price of gas and food, costing the average household over $5,200 extra out of pocket compared to last year.

What Will Happen to the Real Estate Market Now?

So if our historically low interest rate market is coming to an end, what’s next for real estate markets?

 

Actually, the real estate market has done relatively well in environments of rising interest rates, like those we experienced from 2004-2006, as well as 2018. Both of those eras experienced hot real estate markets.

 

The interest rate you pay for a mortgage has less to do with the Federal Funds Rate, and more to do with the demand for mortgage bonds — big bundles of mortgages that banks package together and then sell as an investment. If the demand for these bonds is high, it puts downward pressure on mortgage interest rates.

 

Right now, mortgage bonds are being bought up en masse by the Fed, of all things. Since the pandemic, the Fed has bought over $40 billion worth of mortgage bonds per month in an effort to keep the housing market hot.

 

Ultimately, the real estate market responds to the laws of supply and demand. Inflation and foreign conflicts have made the demand for US real estate high, while the demand for mortgage bonds is likely to slow any coming increases in mortgage rates.

 

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If you want to take advantage of historically low interest rates while they last, Martel Turnkey can help you act fast by putting the right investment property in front of you — rehabbed, rented, and ready to buy.  Lock in for now for 30 years and you will be glad you made this decision.



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Is the 30-Year Mortgage Worth It? (The Answer May Surprise You)

30 Year Mortgage

In the era of bitcoin, everyone wants to be a disruptor — an iconoclast that tears down the old and ushers in the new. That’s how people become billionaires — right?

 

In that kind of entrepreneurial environment, the 30-year mortgage seems like a dinosaur. “Thirty-year fixed rate?! That’s what my grandfather told me to get! And he still refuses to get into an Uber.”

 

Well, sometimes you need to listen to your grandfather. Maybe this will blow your mind, but it shouldn’t. The 30-year fixed-rate mortgage is the best deal in the financial world. If you want to turn a good credit score into generational wealth, it’s your best friend.

 

Why? For three reasons …  

1. The Interest is Absurdly Low

Interest is the cost we pay for credit. If you have ever gone mortgage-shopping, you’re probably used to seeing interest rates in the 4-4.5% range. On a good day, you might see rates below 4%.

 

Compare that to as much 10-20% for personal loans, 5-14%+ for student loans, up to 13% for small business loans from a bank, up to 60% for invoice loans, and as much as 200% for merchant cash advances, according to Value Penguin. And don’t even get us started on credit cards, where interest rates of 20% or higher are the norm.

 

Yes, we’re in a low-interest-rate environment, and that may come to an end one day … but even if mortgage rates go up, other loan rates will too. The 30-year fixed-rate mortgage will still be among the best deals in town.

2. Your Payment is Locked for a Ridiculous Period

In addition to this low interest rate, the 30-year fixed-rate mortgage locks this rate in for a ridiculously long period of time. 

 

How many businesses get to lock in their cost of credit for 30 years and never have it change? With the 30-year mortgage, your debt service repayment never changes, making it easy to budget compared to other forms of business credit.

 

Almost no business can take advantage of 30-year fixed-rate financing … but the owner of the lowliest rental house can. 

3. It Provides Insane Leverage

Return-on-investment allows businesses to grow … but leveraged ROI makes them grow quickly. 

 

In this article, we demonstrate how adding a simple mortgage to a simple rental house increases the ROI from 6.5% to 17.5%, rocketing past the S&P 500 in terms of annualized return. And that’s before you take into account the many tax advantages of real estate ownership.

 

Other assets and businesses can be leveraged, but not with the ease that anyone with credit and income can achieve by walking into their local credit union. 

 

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The 30-year fixed-rate mortgage is the secret weapon behind the millions of Americans who have become millionaires simply by owning rental property. With terms this good, it’s actually fairly easy to do.

 

Martel Turnkey makes it even easier by providing you with the properties themselves —rehabbed, rented, and ready to go. We can even provide you with detailed profit-and-loss statements so you know exactly how big a mortgage you should get to avoid going into the red. 

 

Want to put this Holy Grail of a business credit solution into practice, fast? Contact Martel Turnkey today!

 

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Can I Buy Real Estate with my IRA or 401(k)?

REI with retirement accounts

“Can I Buy Real Estate with my IRA or 401(k)?” If you ask a traditional financial planner, they will probably say “no.” Not unless you buy a share of a REIT … which they can sell you for a fee or commission. What a coincidence.

 

Surprise surprise — this is not the whole story. The truth is, the sections of the tax code that create these tax-deferral vehicles for retirement savings make no prohibition of what kind of assets you can use to make tax-protected investments. 

 

These financial advisors are only telling you that you can’t hold rental real estate in your IRA or 401(k) because that’s not a thing they can sell you. 

 

So what does it take to invest in real estate with your IRA or 401(k)?

What Kind of IRA or 401(k) Do I Need to Hold Real Estate in my Retirement Accounts?

Self-Directed IRA

This is actually the easy part. If you have an IRA with a custodian who tells you that you can’t use it to buy real estate, all you need is a self-directed IRA from a custodian who creates and maintains these accounts for a small fee. A simple Google search will yield tons of these guys.

 

You can get a self-directed version of any IRA in your arsenal — traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, IRA BDA, whichever. 

 

Just remember, you need to find a like-kind IRA to do this. If you have assets in a SEP IRA, you can’t move them to a Roth IRA without penalty. It has to be SEP-to-SEP, Roth-to-Roth, etc.

 

Once you have a like-kind self-directed IRA account set up, you can transfer cash from your old IRA to your new self-directed IRA and use that cash to start buying real estate!

Solo 401(k)

If your employer set up your 401(k) you almost certainly can’t use that account to start buying real estate. It was probably set up by a money manager who will tell you “no.”

 

But if you leave that employer and get to take that 401(k) with you, you can get a “solo 401(k)” from the same custodians that offer self-directed IRAs. You can then transfer assets from your old 401(k) into the solo 401(k) and start buying real estate with those funds.

Are There Special Rules I Need to Know to Hold Real Estate in my IRA or 401(K) Account?

First of all … you can’t buy your own home. If you try to do that, the IRS will view this as a withdrawal from the retirement account for your own benefit, and you will face taxes and penalties. Sorry.

 

Secondly, you can’t “actively” manage your real estate investments. Well, you can, but this will open you up to UBIT — unrelated business income tax. The whole point of these accounts is to avoid taxes, so subjecting yourself to UBIT defeats the purpose.

 

Here’s how it breaks down:

 

Fix-and-flip, rentals you actively manage yourself = UBIT. Bummer.

 

Passive investment in syndications, rental real estate in the hands of property managers = No UBIT. Super!

What Are the Downsides of Buying Real Estate in an IRA or 401(k)

All income must stay in the IRA or 401(k), and all property expenses must come out of funds from the IRA or 401(k). You can’t commingle funds outside of the account to make repairs or pay the property taxes. It all has to stay within the IRA or 401(k). Anything that goes in must follow the rules of contributions, and anything that goes out may be subject to taxes and penalties.

 

One big drawback of buying real estate with an IRA or 401(k) is that you usually can’t get a traditional mortgage, which means you lose the power of leverage. You may be able to find an unconventional or private lender, but this may trigger UBIT, so be careful.

 

Finally, since money in an IRA or 401(k) is not taxed, you don’t get the tax advantages of real estate investing. 

 

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If you want to buy real estate without a mortgage loan with your IRA or 401(k), the turnkey rental properties we source for clients at MartelTurnkey make an excellent choice. Our houses  are rehabbed, rented, and under the care of a property management company when you close. Contact us to see what we have that might fit your needs!