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Are Interest Rates Too High to Buy?

One of the big financial stories of 2022 was an end to the historic low interest rates we have enjoyed for more than a decade. The shock is causing people to ask Are Interest Rates too High?

 

Although rates are still below their sixty-year average, last year ended with mortgage rates sitting at nearly double where they had sat at the beginning of the year as the Fed spent the year ratcheting up the cost of borrowing to try and cool down an economy of rapidly inflating currency.

 

If you follow the housing market, you have probably heard that these higher interest rates make it a “bad time to buy.” Is that true?

 

To find a coherent answer, we have to differentiate the way homeowners think about interest rates vs. how investors think about them.

The Effect of High Interest Rates on Homeowners

The main impact of high interest rates on homeowners is that it becomes more expensive to buy or refinance. 

 

Because the mortgage payment is higher on the same principal balance, homeowners and aspiring homeowners tend to put off their purchase or refinance goals because they simply can’t afford it. This is especially true in periods of high inflation, when everything has become more expensive.

 

The one thing that could get homeowners back in the market is if prices start to come down. Those mortgage payments won’t be as high if the principal balance gets smaller. If homeowners catch a dip in prices, they may end up getting a great deal on a home with a lot of headroom to appreciate.

 

That’s why the Fed does the interest rate thing in the first place. Raising the price of borrowing decreases the demand in the market, which causes prices to fall — a counteracting force to inflated costs.

 

We have seen both of these effects in various markets — a slowdown in home transactions, accompanied by a dip in home values.

The Effect of High Interest Rates on Real Estate Investors

Higher interest rates tend to take the wind out of homeowners’ sails. With real estate investors, though, it’s a little different. 

Cash Flow

What happens to your cash flow when mortgage payments become more expensive? Obviously it eats into the cash flow … but that may not be as big a deal for a real estate investor. Why? Because in a time of high inflation, rents may have gone up as well. There could be little net change on the cash flow.

 

Of course, inflation may drive up other costs, like insurance and repairs. Eventually you hit a rent ceiling where tenants can’t afford it and the demand disappears. There are a lot of factors to consider.

 

Of course, investors who bought early enough to take advantage of low interest rates and rent increases are sitting pretty right now. But higher interest rates are not all bad news for real estate investors. 

Appreciation

Same as with the homeowners, investors stand to benefit from a decline in prices that could follow in the wake of a decrease in demand. If the goal of investing is to “buy low and sell high,” watching for prices to dip after an interest rate increase represents an excellent chance to “buy low.”

 

If interest rates ease up within the next year or so (as they are expected to do), you may have the opportunity to refinance into a lower interest rate and a higher valuation — possibly pulling out enough cash to make another property purchase! 

 

When you buy turnkey rental properties, be sure to wear your investor’s hat. Take the advice of many successful investors and think long term.  The house you buy today will definitely appreciate and be more valuable in the future despite any dips along the way. 

 

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Remember, interest rates change minute-by-minute. You could get lucky or unlucky when you lock your rate, regardless of the environment. Trying to “time the market” is usually a fool’s errand. That’s true with stocks, it’s true with real estate, and it’s especially true of interest rates.

 

The better course of action is to establish the criteria — e.g. cap rate, cash flow, projected ROI — under which you are a buyer. 

 

The beauty of real estate is that every market is different, and every property is different. With an expansive-enough pool of properties to pull from, a winning property can emerge from any economic environment … and you can be a buyer at any point in the cycle, adding cash flow and tax benefits to your portfolio.

 

Whatever happens with interest rates, or any other metric, MartelTurnkey will continue doing what it does best — bringing no-brainer, cash-flowing investment opportunities in growth markets to our select pool of savvy buyers. Reach out to us today if you want to be one of them!

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Home Inspection for Turnkey Rentals — 3 Tips to Buy With Confidence

It bears repeating (because most people find it remarkable) — most of our clients buy turnkey rentals from us sight unseen. How can they do it? They get a profession complete a home inspection for Turnkey Rentals.

 

This gives many homeowners and real estate investors heart palpitations — especially those that like to crawl into crawl spaces and scrape every eave with a screwdriver in search of rot before they even think of making an offer.

 

For those who have better things to do than crawl into crawl spaces and scrape eaves, however, that means a lot is riding on the home inspection report. 

 

That sheaf of paper, prepared by a professional home inspector based on a multi-hour visit to the property, is your best glimpse into the bones of the house … and your best indication of whether or not, from a physical and structural standpoint, you’re buying a tank or a lemon.

 

Here are three tips for the inspection stage of your turnkey rental purchase, so you can feel confident about your investment.

1. Screen the Inspector

If you live far away from the prospective rental property, you probably don’t know any local home inspectors. 

 

We can recommend some to you, but it’s important to remember — the home inspector is your guy, not ours. The buyer hires the home inspector, because the buyer is the one with more to lose if the home turns out to be riddled with defects.

 

So take the time to call the inspector and do some due diligence. Make sure (s)he is licensed and has positive reviews online. You don’t have to use our recommendations. If you find someone you like better and the schedules line up, by all means go with the inspector with whom you feel most comfortable.

2. Don’t Be Alarmed By a Long List of Defects

Home inspectors are thorough. Inspection reports, especially those for older homes like the ones we acquire and renovate, tend to identify dozens of defects. You are paying someone to go through your property with a fine tooth comb.  

 

If you have ever bought a home or investment property in the past, you have probably encountered this. That long list can be scary. 

 

Take heart. It’s nearly impossible to make an older home “perfect.” Even brand-new homes have defects. Most of them have little or nothing to do with the economic function of the property, or even yours or the tenant’s ability to enjoy the property. They are just bases the inspector is required to cover.  See something really concerning? A phone call with the inspector can clarify the findings. 

3. Compare the Scope of Work with the Report

We rehab every property that we acquire and bring to market as a turnkey rental. That rehab leaves behind a paper trail — specifically the scope of work, an official agreement with contractors and subcontractors as to what work must be done.

 

We provide a summary of the scope of work for every turnkey rental. When you get your inspection report back, compare it to the SOW.  If something seems to be askew, ask about it. 

 

In other words, the inspection becomes an opportunity to keep things honest — to verify that we actually did the work we told you we did. Isn’t that a good feeling?

 

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Read here for more info about buying turnkey property sight-unseen. Suffice it to say, at MartelTurnkey we fully expect — and wish for you — a robust home inspection process when you buy one of our turnkey rentals. Why? Because we have nothing to hide. Message us today to find out how easy it is to add one of our cash-flowing assets in growth markets to your own portfolio.

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Why Real Estate Appreciates In Value?

We take for granted the notion that real estate appreciates in value. It’s why so many people yearn to be homeowners — not just to have a place that they “own,” but because it turns your personal residence into a vehicle for wealth creation. Not because you pay yourself rent, but because the property itself grows in value.

 

But why does this happen? It’s worth understanding the mechanism behind the appreciation of real estate, if for no other reason that it’s not guaranteed. Real estate can and does lose value. As we speak, some property somewhere in the US is becoming less valuable.

 

Understanding why real estate becomes more valuable (or less valuable) can help us make good investments by only buying property that is likely to appreciate.

 

To figure out why does anything have value let’s go back to Econ 101 — supply and demand. 

What is the Demand?

 

Let’s start with demand. For something to have value, people have to want it or need it in the first place.

 

Real estate obviously fits the bill. People need shelter in which to live … soil in which to grow things … buildings in which to do business. Humans need space, and as long as space is a thing that can be owned, people are going to want to buy it.

Follow The U-Haul Trucks

If you want to pick which real estate is going to appreciate, follow the demand. We sometimes say “Follow the U-Haul trucks” of the people moving out of one city and into another. If a city is growing economically — if big employers are bringing new jobs to that city, if people are flocking to move there in droves, if it’s a burgeoning tourist destination — demand for real estate in that city will almost certainly drive the prices up. Even ugly, outdated, or distressed property will increase in value.

 

What if jobs are leaving a city or a neighborhood? People are moving out? The town is dying? Even the most beautiful homes and commercial buildings will start to lose value, because the demand just isn’t there.

How Much Money Can This Property Make?

Another key factor to the demand for any given piece of real estate is its economic value — how much income can a particular class of property generate? Consider the booming eCommerce industry. It had a profound effect on the value of real estate. Warehouses to store all these products along the supply chain came into heavy demand, so the price of warehouses went up. Meanwhile, with fewer and fewer people shopping in stores, retail property has struggled to appreciate and even lost value.

What is the Supply?

A resource can’t just be in demand to be valuable — it has to be in limited supply too. 

 

Humans have an inelastic demand for breathable oxygen. We need it to survive. So why don’t we have to pay for it, like we have to pay for bottled water or heart surgery? Because (for now), breathable oxygen is in abundant supply. No supervillain has yet figured out how to take us all hostage by monopolizing the supply of breathable oxygen … so despite our insatiable demand for it, breathable air has no market value and remains free.

 

So what about the “supply” of real estate? It’s an old cliche — you can always print more money or issue more stock, but they aren’t making more land. Real estate is a kind of real asset — a tangible resource that is in limited supply.

Inflation 

Let’s talk about printing money while we’re on the subject. Real assets tend to gain value in times of great inflation of the currency (like the one we find ourselves in now). As currency becomes more plentiful, it becomes less valuable. It takes more of that currency to buy things. One of those things you can buy is real estate. Because of inflation, it takes more money to buy the same piece of real estate — meaning inflation has inherently forced its value higher!

What About All That Undeveloped Land?

But is real estate really in short supply? Over 96% of the United States is undeveloped land! Let that sink in. That’s a lot of real estate. Doesn’t that disrupt the supply/demand balance?

 

Not necessarily. Remember, some of that land is on the sides of mountains. Or hostile to the cultivation of crops. Or just so far away that it would be prohibitively expensive to run roads, power lines, water lines, and sewer lines to them. Or it’s just too far away — no one wants to live there. 

 

We come full circle back to demand. Yes, there is a lot of land … but how much of it is in demand, for one reason or another?

The Real Estate That Is Most Likely to Appreciate

We can start to look at the supply of real estate in terms of “pockets of demand.” Suppose a city has a thriving urban core full of arts and entertainment. Lots of people want to live there or open a business there … but there are only so many homes and commercial spaces in that space. The demand is high, but the supply is limited … so that real estate is likely to appreciate.

 

What if a school district is widely recognized as the best in the city? Every family is going to want to live in that school district so their children get the best education. But there’s only so many houses in that neighborhood. Limited supply plus high demand equals appreciation. 

 

You have to be careful about chasing school districts into the suburbs. Thriving suburbs tend to have lots of new houses under development. If builders are constantly adding new houses to the market, they are increasing the supply, which pushes values down. If the demand is strong enough, this may not slow down appreciation, but there’s always a chance that the neighborhood will get overbuilt, with more houses than there are people who want to buy them — especially if a recession hits unexpectedly.

 

By contrast, urban core areas tend to have a much more limited supply. You can tear down old buildings and replace them with new ones, but the property supply is what it is. Homes in nice urban core neighborhoods in growing cities are some of the safest bets for appreciation. 

 

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As you can tell, supply and demand is much more than numbers on a page. It’s a story — the story of a city, a neighborhood, a piece of property. Understand the story, and you can glimpse the future. 

 

MartelTurnkey goes the extra mile to understand the story of every turnkey rental in our inventory. We don’t just buy any property in any city. We specifically look for the markets, the neighborhoods, and the property classes most likely to generate cash flow and appreciate in the near future. 

 

Reach out to us today and let us fill in the gaps so you can invest with confidence — and grow your net worth!

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Are You Getting a Good Deal on Your Investment Property?

“Am I getting a good deal?” It’s a worthwhile question to ask yourself before any purchase, but never better than when considering an investment property.

 

As you become more familiar with a market and its neighborhoods, you will start to become familiar with its fair market values.

 

If you are new to a market, do your research. You have many resources available to help you determine the fair market value of a particular piece of real estate. Here are some places to start:

Free Resources on Getting a Good Deal

1. The “Zestimate” — Auto-Appraisals by PropTech Companies

Property technology (aka PropTech) companies have been working for years to refine a method of accurately appraising the value of a piece of property based on computerized data analysis. 

 

The most famous of these “auto-appraisal” algorithms is the “Zestimate” by Zillow. Search any property address in the US, and Zillow includes an estimate (or “Zestimate”) of its value, extrapolated from property data and data from recent nearby sales.

 

How accurate is the Zestimate? It has a nationwide margin of error of 3.2% for on-market property, 6.9% for off-market property. This adds up to thousands of dollars by which the Zestimate could be off.

 

But Zestimate inaccuracy tends to correlate with bad data. If you have independent verification of the data you find on the Zillow page (square footage, number of beds and baths, lot size, etc.) the Zestimate might be a better guide.

 

Bottom line — don’t stop with the Zestimate, but it’s not a bad place to start. 

2. Property Tax Records

The county appraiser periodically estimates the value of all the real estate in the county for taxation purposes. Property tax records are public and usually available online from the county’s website.

 

Bear in mind that the assessed value is rarely the market value. Counties often assign a percentage of the property’s appraised value as its taxable “assessed” value. It might be 80%, 50%, even 20% of the appraisal. Make sure to note the appraised value and not the assessed value, which could be much lower.

 

The most common occasion for a re-appraisal by the county appraiser is the sale or transfer of the property, at which time the appraiser notes the sale price. If the property has not been sold in years, the county appraisal might be outdated. But if the property sold recently, the county appraisal might be quite accurate.

3. DIY Comparative Market Analysis

The comparative market analysis (or CMA) is how REALTORs estimate home value. A CMA involves comparing the subject property to recent sales of similar properties in the area. There’s no reason you can’t do one yourself. It might take practice, but it isn’t rocket science.

 

To perform a CMA, you need to know what nearby property has sold recently. NOTE — this isn’t for sale, but closed sales. Whatever database you are searching, make sure you are looking at completed sales and not “pending” or “listed.”

 

The closer the property, the more recent the sale, and the more similar the property, the better. Bear in mind that properties are rarely identical. You might need to adjust the recent sale prices for differences between the properties — i.e. more or less square footage, an extra bedroom or bathroom, etc.

 

The most accurate database to search is the REALTOR multiple listing service (MLS). If you don’t have access to the MLS, the next best resource is Redfin, and after that databases like Zillow or Trulia.

 

Here’s an insider’s tip:  At MartelTurnkey, we share pages and pages of homes we have sold over the past years so you can scroll through them to see what houses in specific neighborhoods have sold for. Find these on the Turnkey Rentals for Sale pages.

Paid Resources

4. REALTOR Comparative Market Analysis

If you don’t trust your own CMA abilities, you can hire a REALTOR to do one for you. REALTORs usually offer CMAs for free with a representation contract, but if there’s no chance of a commission for representing you, they may charge a nominal fee.

5. Professional Appraisal

A professional appraisal is probably the most expensive option. It’s also not necessarily more accurate than a CMA. Professional appraisals are more for the lender to determine the maximum loan balance they will approve against the property. 

 

You can order an appraisal even if you aren’t applying for a loan, but in the analysis phase of a real estate deal it’s usually overkill. Don’t worry — if you are applying for a mortgage loan to finance the purchase, an appraisal will definitely happen at some point.

 

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You can use any or all of these resources to verify the market value of the property in the MartelTurnkey inventory of turnkey rental properties ready to go. 

 

Our goal is always to hand over a done-for-you investment with positive cash flow — meaning any MartelTurnkey rental will help you achieve financial freedom through passive income. 

 

But a “good deal”— that is, a turnkey rental at or below market value — could mean more headroom for appreciation … which means more potential ROI!

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Turnkey Rental vs. Multifamily Syndication — Which Is Better?

Multifamily syndication is all the rage in real estate investor circles. If you’re unfamiliar, this is when a group of investors pools their money to buy a large apartment complex. Most of the money partners are “passive” investors, with a person called the “deal sponsor” or “deal operator” putting together and actively managing the deal. In this article, we will compare Turnkey Rental vs. Multifamily Syndication.

 

Turnkey rentals are a kind of passive real estate investment. At MartelTurnkey we do the hard part — acquiring the property and renovating it. Your property manager leases it out and handles the day-to-day. All you have to do is wait for the cash flow.

 

Turnkey Rental vs. Multifamily Syndication

So here we have two passive real estate investment strategies … How do they compare? Which one is better? Let’s compare the two on seven metrics. Spoiler alert — we saved the biggest one for last, so make sure to stick with us to the end.

1. Barrier To Entry

If you intend to finance the purchase with a mortgage (which, as we discuss in this article, you should definitely do) the biggest barrier to entry for turnkey rentals is that you have to personally qualify for the mortgage. This isn’t as hard as it looks, though. If you can qualify for a home mortgage, you can almost certainly qualify for an investment mortgage.

 

With multifamily syndication, the deal sponsor is usually the one who has to qualify for the commercial mortgage. But this isn’t the only barrier to entry. Many deal sponsors have “minimum investment” thresholds of $50,000 or more. Compare that to MartelTurnkey, with initial investments starting in the low $30k range.

 

Some multifamily syndications are only open to accredited investors — people with $1 million net worth (excluding their personal residence) and/or gross income of $200,000 or more. This barrier alone means many multifamily syndications are off-limits to a majority of beginner investors.

 

Advantage: Turnkey Rental

2. Initial Investment

When you buy a turnkey rental, you expect to get a “clean” property. If the sellers were scrupulous with the renovation, you should have no major repairs for years to come. So once you have made the down payment and paid closing costs and fees, that’s it — you’re all in.

 

Multifamily syndications, on the other hand, tend to buy property that still needs renovation. The initial investment includes a renovation budget. If the renovation goes over budget (which is far from uncommon), the deal operator may have to do a “cash call” — ask the investor group to pitch in more money.

 

Advantage: Turnkey Rental

3. Compensation for the “Active” Investor

Some people denigrate turnkey rentals because you’re “overpaying” due to the seller’s profit margin. Why not just buy a fixer-upper and do it yourself? 

 

Remember, though, that renovations can go over budget. With a turnkey rental, you’re paying appraised market value for less work and less risk. Whatever our profit margin, MartelTurnkey strives to hand over a property with positive cash flow on day one, so your risk is minimal.

 

Compare that to a multifamily syndication. The deal operator may take compensation in the form of up-front fees, an ongoing percentage of the rent collected … even a percentage of the deal equity that they didn’t pay for. And remember point #2 — there’s still renovation to be done.

 

Advantage: Turnkey Rental 

4. Return On Investment

When it comes to ROI, the location and the desirability of the property make all the difference, regardless of whether it’s a single-family home or an apartment complex. 

 

Multifamily property has some advantages due to “economies of scale.” Look at it this way — you collect a lot more rent per roof that needs repairing, since eight or more people live under that roof.

 

Of course, the deal sponsor’s fees could eat into that profit margin. Keep in mind, too, that commercial real estate moves in cycles — multifamily may be popular for a few years, then it may shift to industrial, then retail, and so on. 

 

By contrast, turnkey rentals tend to be single-family homes, which are always in demand and appreciate excellently.

 

Advantage: Tie

5. Financing

As mentioned above in #1, with multifamily syndications the passive investors usually don’t have to go through the crucible of applying for the mortgage. The deal operator takes care of that. With turnkey rentals, you have to get the mortgage.

 

Multifamily property may also qualify for “agency” loans from government agencies like Fannie Mae and Freddie Mac, which have attractive terms, including interest-only periods and non-recourse terms.

 

Advantage: Multifamily Syndication

6. Tax Advantages

All the same tax advantages that apply to multifamily property apply to single-family property. 

 

According to most real estate thought leaders, multifamily has a big advantage — it’s more cost-effective to take accelerated depreciation on an apartment complex than on a single-family home. 

 

However, in this article we not only describe what accelerated depreciation is and why it’s so amazing, we also describe how technology has caught up to the point where it may now be cost-effective to take accelerated depreciation on a single-family rental as well. 

 

Advantage: Tie

7. Control Of Your Destiny

One of the biggest advantages of turnkey rentals over multifamily syndications is that you get to call the shots. 

 

When you invest passively in a multifamily syndication, the deal sponsor has all the power. They hire and fire, they set and execute the strategy, they approve repairs and renovations, they decide when to sell or refinance. You have little or no say in any of that. It’s like owning stock in Apple — yes, you might make money, but you don’t get to design the next iPhone.

 

Worst-case scenario — if the deal sponsor turns out to be negligent or crooked, the passive investors could suffer huge losses before finally wresting control back from the errant deal sponsor.

 

With a turnkey rental, on the other hand, you’re the boss. Once MartelTurnkey hands over the keys, our clients are free to change strategies, change property managers, sell or refinance at will — no need for permission from anyone. With a turnkey rental, you are truly in the driver’s seat of your own financial destiny.

 

Advantage: Turnkey Rental

 

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The winner … turnkey rentals! Maybe not surprising, coming from a company called MartelTurnkey, but we’re pretty confident in our logic. We can also back up our confidence with results. Take a look at our property inventory, and if you’re ready to consider investing, reach out to us today!

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7 Real Estate Goals for 2023

REI Goals 2023

It’s a cliche, but for a reason — the end of the old year and the start of a new one is a natural time to reflect on where we are today, and where we want to be this time next year. To help you out we are proposing 7 Real Estate Goals for 2023. 

 

Some people talk about making resolutions … We like to think about setting goals. Depending on your stage in the journey, here are some real estate investment goals to consider:

1. Acquire Property

This is never a bad goal to have on your list. We’re not real estate investors if we don’t acquire property. Whether we’re talking about your first acquisition or your fiftieth, it should always be on your radar to potentially add to your portfolio of real estate investments.

 

Want to know what it will take to acquire a new asset? Check out the MartelTurnkey selection of turnkey rentals for sale. We estimate the all-in initial investment (down payment, renovation, closing costs, everything). This will give you a good baseline of how much capital you will need to come up with to add to your portfolio. 

2. Consider an Exit Strategy

If you already have a portfolio of real estate, consider exiting the investment this year. It may not be the right time … but at least crunch the numbers once this year, maybe even once a quarter. 

 

What is the current value of the asset? See what kind of profit (and tax liability) you might realize from selling it. Maybe you could refinance the loan and pull out cash to acquire another asset. Make sure to estimate how the bigger loan will affect your cash flow.

3. Update Your Personal Financial Statement

Checking in on the value of your assets is a great time to update your personal financial statement. Your personal financial statement is a one-page accounting of your:

 

  • Assets (cash, real estate, investment account balances, automobiles, commodities, jewelry, crypto holdings, etc.)

 

  • Liabilities (loans, accounts payable, etc.)

 

  • Income (employment income, business income, investment income, etc.)

 

  • Expenses (housing payment, automobile payment, any recurring bills or discretionary spending)

 

Lenders will want to see this personal financial statement … and as you make wise investments, it will be fun to watch your net worth and cash flow increase!

4. Expand Your Network

Ever hear the phrase “Your network is your net worth?” Never is this more true than in real estate. The more people you know, the more deals you will discover and the more problems you can solve.

 

Make a goal to add one new person to your network each week — an investor, a vendor, a real estate professional, etc. At the end of the year, you will have added over 50 people to your network.

5. Practice Deal Analysis

Real estate investors need to be able to crunch the numbers on a real estate deal. Set a goal to practice in 2023. This is especially true for new investors, but even experienced investors could benefit from brushing up.

 

Start by downloading the deal analyses we prepare for our inventory of turnkey rentals. Make sure you understand the math we use. See if you can verify the data we use online. We’re happy to jump on the phone and talk you through our logic so you can reproduce it yourself.

6. Improve Your Credit

A great credit score can significantly grease the wheels of your real estate investing career, making it easy to obtain financing at great terms. If your credit score is a little worse for wear, take some steps in 2023 to raise it. These steps could include:

 

  • Reducing the balances on your revolving debt. (Credit cards, HELOC, etc.) How close you are to your revolving credit limits plays a big role in your credit scores.

 

  • Negotiating with creditors. If you have accounts in collections, consider calling the collection agencies and offering to pay in full. They may agree to remove the black mark on your credit score. 

 

  • Acquiring more credit cards. Increasing the number of credit accounts in your name actually helps your score (as long as you don’t max them out and miss payments!)

7. Try Something New

If you have a comfort zone with real estate investing, don’t hesitate to double down on what’s working. But sometimes it pays to step outside of our comfort zone. Try a new investing technique you’ve been meaning to try. You don’t have to dive in with both feet — just dip your toes and see how it feels.

 

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There’s still a little time to get on our schedule for a strategy call before the New Year. Whether you make contact before the celebration or after, we look forward to hearing more about your goals for 2023.

 

Happy New Year from MartelTurnkey! We look forward to a prosperous 2023, helping you turn your financial dreams into a reality.

 

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Happy Thanksgiving! 5 Things Real Estate Investors Can Be Thankful For

To all our friends about to celebrate with friends and family over a delicious turkey dinner, we wish you a Happy Thanksgiving!

 

Thanksgiving is a chance to be with our loved ones, count our blessings and remember all the things we can be grateful for.

 

Real estate investors have a lot to be grateful for. If you own rental real estate, here are five things to be thankful for. Of course, nothing is as crucial as your health and your family. . .  but success in real estate counts, too!

1. Passive Cash Flow

Few investment vehicles offer the opportunity for passive cash flow — money that shows up in your bank account every month without you trading time for money. . .

 

This is because, since time immemorial, the economic potential of real estate has been based on tenancy and monthly rent payments. If those rent payments exceed the expenses, you are — if you’ll pardon the seasonal pun — in gravy.

 

Why is passive cash flow better than income from a job? Because with enough passive cash flow, you can achieve financial freedom — the ability to stop “trading your time for money,” for good. Click here for a deep dive into the concept of “financial freedom.”

2. Wealth Building Through Appreciation

As many property owners get to find out, real estate tends to grow in value over time. As the owner of the property, this means your net worth increases with it. Your net worth is simply the value of your assets minus your liabilities.

 

Real estate, your car, your investment accounts, the cash in your brokerage account, your jewelry and precious metals … these are all assets. Your mortgage, car note, credit card debt, consumer debt, college debt … these are all liabilities.

 

When your property appreciates in value, you have more equity. You are wealthier … but only on paper. You can’t actually take property equity into a store and use it to buy a quart of milk or a Lamborghini. But, you can turn that equity into cold hard cash if you sell or refinance the property.

3. Debt Leverage

Real estate is unique among investment vehicles in that it is easy and relatively low-risk to add leverage to your investment strategy. This means borrowing “other peoples’ money” (OPM) to increase your exposure to the appreciation we mentioned in #2. Of course, the borrowing we’re talking about is the common mortgage loan.

 

Here’s the easy way to understand leverage — if you pay cash for a $100,000 property and it appreciates $20,000, you have grown your net worth by 20%. But, if you only put 20% down ($20k) to purchase the same property, and it still appreciates $20k, you have doubled your money.

 

Of course, leverage always adds risk to an investment. Your cash flow is lower, and if you can’t make the mortgage payment, you’re at risk of default.

 

That’s why a MartelTurnkey property is such a smart investment — we’ve taken a lot of risk out of the equation by doing the renovations for you. The property you purchase already has a tenant in place. Nothing validates the rent potential of a property like someone who is already paying that rent.

4. Principal Paydown

As time passes, your property value is not only getting bigger — your debt is getting smaller. Conventional mortgage payments include interest and principal repayment. The principal paydown starts out small, but gets bigger over time. Regardless, as the debt gets smaller, your equity increases — and with it, your net worth.

 

Every house on MartelTurnkey comes with a complete and accurate financial statement showing you the numbers on a monthly basis and conservative projections for the next 10 years, giving you an even better idea of how much wealth you will build over time with a MartelTurnkey investment.

5. Tax Benefits

Finally, real estate investors tend to be happy campers at tax time. The US tax code includes many provisions that make it easy to reduce your tax bill — even eliminate it entirely. Imagine owing the IRS nothing, or getting your entire tax withholding refunded. With real estate investment, it’s a real possibility. Click here for a more thorough exploration of the tax benefits of real estate investing.

 

If you want even more to be thankful for next year, consider gobbling upanother MartelTurnkey rental property to add to your portfolio. Or, if you’re new to us, consider acquiring your first one!

 

Click here to view our current inventory of available properties in carefully-selected growth markets. You may be surprised by how low the barrier to entry is, and how easy we make it to buy with confidence, without ever setting foot on the property!

 

Until then, from the team at MartelTurnkey, Happy Thanksgiving!

 

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How to Invest in Real Estate Without Seeing The Property

Google Streetview

Many people find it shocking that 99.9% of our clients never actually see the rental houses we sell them. 

We get it. When you put it like that, it does make us sound a little like snake oil vendors with a bridge in Brooklyn we’d like to sell you.

But that’s a mischaracterization. What we do is make it easy for busy professionals to invest in booming markets — even if they live far away.

So how do you confirm a rental property exists without ever seeing it? Actually, it’s simple. Here are some ways to do it. 

Google Maps

With Google Maps, you can zoom in on any property in the United States and gather a wealth of information. First things first — you can see that there is actually a building there. 

 

But you can go further by using the Google Maps area-calculation tool to measure the area of the lot, as well as the enclosed area of the structure. This can go a long way towards validating the reported square footage of the building — unless you have been told that an addition was built. More on that later.

Google Street View

The genius of Google Street View is that it can drop you right into faraway neighborhoods, so you can look at the property on your computer screen.

 

The downside is that the Street View photography may be out of date, especially if the home was recently renovated. But you can at least confirm that there was a house there at the time of photography, as well as snoop around the neighborhood to get a sense of it.

Zillow

Zillow has listings of nearly every home in America — for sale or not for sale. Again, the pictures and details might not reflect recent renovations, but you can at least use it to corroborate certain aspects of the listing.

Property Tax Assessment

Property tax assessments are a matter of public record. You can usually look them up online. The assessment will include basic details about the property, as well as the county appraiser’s most recent assessment of its value — both land and improvements. 

Building Permits

If the property has been renovated and/or had an addition built, there should be permits. Ask the seller or reach out to the city construction authority to validate those permits. If possible, you can request proof that the work was completed, as well as the contractor’s final pictures.

Insurance Quote

Your insurance agent will do some basic research on the property to provide you a quote. If the property doesn’t exist, it is likely to come up here.

Customer Testimonials & References

In these days of customer satisfaction indexes and ratings, if the seller is a company, chances are they have an online reputation.  Do a little research and see what you can find and don’t be shy to ask for references. 

Boots on the Ground

Even if you are not local, you can always recruit or hire people who are local to do some snooping and take some pictures. Good prospects include local realtors, bird dogs, handymen, or people you hire on platforms like Craigslist or Upwork. 

Be judicious about the trustworthiness of your third-party boots on the ground, but at the very least they have little to gain by duping you.

Due Diligence

The due diligence process offers multiple opportunities for verification — even from afar. Many professionals involved in the sale transaction will visit the property during the due diligence — professionals whose job and reputation are at stake if they deal falsely. 

If you plan to take out a mortgage loan for the purchase, an appraiser will visit the property and assess its value, including any improvements, additions, or renovations. You may choose to hire a home inspector to walk the property for the physical due diligence. Finally, trying to sell a non-existent house will raise many red flags in the title work.

 

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The truth is, you have many ways to buy real estate with confidence, even if you never see it with your own eyes. MartelTurnkey is here to help every step of the way. Want to build your real estate empire the easy way? Call us today!

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Is The Economy Headed For Recession?

Talking heads gonna talk. We are definitely, 100% not headed for recession. Oh, and we are for certain, without a doubt barreling headlong into a recession. Which answer you get depends largely on which channel you turn to or which podcast you listen to.

 

Who’s right? Does anyone have a clear crystal ball? The short answer is “no.” Everyone tries to predict the future, and at least half of them reliably look like an idiot this time next year.

 

Let’s run the checklist and see what signs tell us we’re in a recession — and which ones tell us we’re not.

Signs We Are Headed For Recession

Two Consecutive Quarters of Economic Contraction

Some experts insist that “recession” has an official, concrete definition — two consecutive quarters of GDP contraction. The economy contracted in Q1 and Q2 of this year, so by that definition, a recession technically already happened. 

Inverted Yield Curve

The yield curve between the ten-year treasury bond and the two-year treasury bond is currently inverted. This is one of the most famous “canaries in the coal mine” for a recession. 

 

A yield curve calculates the difference in yield between a long-term bond and a short-term bond. Want to know where we are on the most popular yield curve? Subtract the current yield on the two-year treasury from the current yield on the ten-year treasury.

 

When the yield curve is at a positive value, it means that short-term bonds have lower yields than long-term bonds. This is how it’s supposed to be. But if the yield curve is inverted — that is, its value is a negative number — it means that short-term bonds have higher yields than long-term bonds, meaning investors are skeptical about the short-term economy and moving money into long-term investments.

 

What does all this mean? Rare inversions of the yield curve have frequently preceded famous recessions. This is not a perfect indicator. In the late 1960s the yield curve inverted twice, but no recession followed. The yield curve inverted in late 2019, and the COVID recession followed … but there was no way an unprecedented global shutdown could have been priced into those bond yields. That would have been real magic.

Inflation

As we have discussed many times (including last week), inflation is higher than it has been in many decades. If this keeps going, Americans can expect to have to tighten their belts and buy less stuff, slowing down the economy. The Fed is fighting inflation with higher interest rates … but ironically that could cause a recession too by suppressing demand.

Signs We Aren’t Headed For Recession

Q3 Economic Growth

While the economy contracted in Q1 and Q2, GDP grew in Q3. So if we’re adhering to the strict definition of “recession” from above, technically the recession already came and went. 

Record Corporate Profits

Corporate profits grew 6.2% in Q1 and another 2.6% in Q2. Q3 earnings have been a mixed bag, but we’re still in positive territory.

Low Unemployment

According to economists, the US has a “natural” permanent unemployment rate of 4.4%. Above that indicates economic weakness; below indicates economic strength. Well, the unemployment rate is 3.5%, well below the “natural” rate. This doesn’t account for the toll inflation may take on the buying power of those wages.

What Does It All Mean … And What Should You Do?

No two recessions are alike, and hindsight is always 20/20. We could be heading into a recession; or we could be headed for recovery. A year from now, half of the talking heads are going to look pretty stupid.

 

If you’re wondering what to do to grow your wealth in such uncertain times, the best strategy is to target real estate in strong markets. Real estate enjoys the benefit of being highly localized. Strong local economies tend to grow even when the US economy struggles as a whole. 

 

Don’t believe me? Cities that grew during the Great Recession included Oklahoma City, Austin, San Antonio, Houston, Seattle, Charlotte, Raleigh, San Jose, and Salt Lake City. If you were invested heavily in those cities’ housing markets back in 2006, you would have probably come out of the Great Recession nearly unscathed.

 

So which housing markets are going to do fine in the next recession, when and if it ever materializes? MartelTurnkey has crunched the data and identified our winners … and we’re putting our money where our mouth is, buying up property there like it’s going out of style.

 

If you want to continue growing your wealth, recession or no, reach out to us today to find out where we’re investing … and how you can get in on the action with us!

If you like this article you may be interested in the article on how inflation is impacting your purchasing power.

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The Price of a Cup Of Coffee: Why Investing is Critical

investing coffee analogy

This popular blog from last year bears repeating. Please enjoy again, preferably with a cup of coffee in hand. 

 

We’ve talked in the past about the importance of investing in real estate to protect your wealth from inflation. Considering the ever-rising rates of inflation, we’ve simplified the perils of inflation using a simple metaphor — the rising price of a cup of coffee and how it relates to real estate investing.

How Inflation Erodes Purchasing Power

Let’s say the average cost of a cup of coffee at Starbucks is $5. If inflation averages 8% over the next 2 years, two years from now, that same cup of coffee will cost $5.83. 

 

Boo hoo, right? Maybe you’ll have gotten a raise, or tightened your belt, or won the lottery, or moved to South America, and you’ve been meaning to cut back on caffeine anyway. Why worry?

 

Let’s apply the cup of coffee metaphor to your wealth and net worth… 

 

You have $25,000. How many cups of coffee can you afford today? 5,000 cups of coffee at $5 a cup.

 

Let’s say you decide to keep that $25,000 in the bank, how many cups of coffee can you afford two years from now? Only 4,288 cups of coffee. 712 fewer cups of coffee in 2 years! The same amount of money buys less coffee. Effectively, you’re a lot poorer than you were two years ago. The solution and your goal should be to invest your money to outpace inflation.

Chasing After Yield

Let’s say you invest in a security that has a 9% yield, which is an average stock market return. In two years, your $25,000 is worth $29,700.

 

How many cups of coffee can you buy then? You have enough for 5,094 coffees at $5.83 a cup. The challenge here is to consistently achieve high returns. Can you achieve 9% return on your investment every year? 

The Power of Real Estate

Here’s the amazing thing about real estate investing in times of inflation — it causes asset values to increase, but it causes the value of debt to decrease. After all, that debt is measured in dollars, which has lost purchasing power at a rate of 8% per year!

 

Let’s say you use your $25,000 to purchase a real estate rental property worth $100,000. You pay $5,000 in closing costs, put $20,000 as down payment, and get a $80,000 mortgage. 

 

If this property appreciates at a modest 2% a year, your property is worth $104,000 two years from now. During that same period the property was rented out. The rent you collected paid for your mortgage, taxes, insurance and property management fees, AND over 2 years, you generated $6,000 in positive cash flow. On top of that, the rent also reduced the amount of your loan to $78,500 (you paid down $1,500.)

 

Now, how much is your investment worth? At the end of two years your $25,000 investment is worth $32,500.

 

How many Starbucks can you afford now? Over 5,574! 480 more cups of caffeine than the stock market investment. In a very short two year period, you increased your purchasing power significantly, whereas in the first two examples (stashing cash and a 9% stock market investment) you either lost purchasing power or barely maintained it by taking significant risks.

 

And guess what — it gets even more excitingly dramatic as you increase the investment period. The most positive results are possible through appreciation and leverage.

 

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If you know it’s time to get serious about inflation, reach out to MartelTurnkey today. We have cash-flowing, renovated homes  with tenants in place, available for investors. Protect your wealth the wise way. And as a bonus, our cash flow spreadsheets, which are easily downloadable for every property, include 10-year projections.