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.

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!

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!

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!

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.

 

Real Estate Investment Reflections for the Holidays

Looking back on real estate 2022

Happy Holidays from your friends at MartelTurnkey! You’re probably getting ready to travel, visit loved ones, eat amazing food, enjoy sparkling lights and winter wonderlands, and send 2022 out with a bang in preparation for a prosperous 2023.  Real estate investment might seem a little far away from the spirit of the holidays, but our status as real estate investors colors almost everything we do. On that note, please join us in some real estate investment reflections for the holidays … 

1. The Importance of Gratitude

It’s easy to get hypnotized by the hustle and bustle. We humans are problem-solvers, so we have a natural tendency to focus on problems. And in doing so, we tend to forget the ways in which we are lucky.

 

There’s a reason every society and religion has holidays — they help us focus on our blessings, rather than constantly fretting over our deficiencies. The holidays are the perfect time to practice gratitude. Gratitude lets us take nourishment from the bounty in our lives … and make room in our lives and our hearts for even more bounty. 

 

Real estate investors have many reasons to be grateful. We listed 5 reasons real estate investors have to be thankful in our Thanksgiving blog if you want to revisit them. Here they are in brief:

 

  1. Passive Cash Flow
  2. Appreciation of Value
  3. Debt Leverage
  4. Principal Paydown
  5. Tax Advantages

2. Helping People

In addition to counting our blessings, the holidays are a time to step outside of ourselves and think about others — especially those less fortunate than us. It’s a time of charity, altruism, and (as the song goes) “good will towards men.” And women, and children.

 

Many people believe real estate investors are money-grubbing Ebenezer Scrooges. Sometimes it’s easy to get seduced by the dollar signs.

 

But real estate investors who are in it for the long term … we know the truth. It’s not about a quick buck. It’s about improving lives. 

 

We like the way Zero Gravity CEO Peter Diamandis put it — “The best way to become a billionaire is to help a billion people.” People who succeed in any business long-term do it by helping people. 

 

Real estate investment is no exception. We turn bare ground into useful structures so people can start businesses and live better lives. We turn decrepit, substandard housing into beautiful homes. We turn crumbling, forlorn neighborhoods into thriving communities. 

 

The spirit of the holidays helps us think not about how much money we have made and expect to make … but about how many people we have helped, and hope to help in the future.

3. The Importance of Family

We’re nothing without the people we love and care for; the people who love and care about us. If we had any holiday wish for anyone, it would be to strengthen bonds, mend fences, and spend quality time with our closest kin.

 

Real estate investment is ultimately about legacy. We dig deep into that concept in this blog. Suffice it to say, it’s about building something that will last … Something that will edify and enrich your successors for generations to come.

 

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Again, best wishes for a happy holiday from the entire MartelTurnkey family! If you want to hit the ground running in the New Year with some brand-new assets in your portfolio, it’s not too late … in fact, we’re just getting started. Drop us a line now and let’s get you your next turnkey rental!



Is Your Personal Residence an Asset or a Liability?

Investment Property

Homeownership is part of the “American Dream.” In addition to the pride-of-place, the backyard for the kids and the dog, and the opportunity to “keep up with the Joneses,” one of the first finance lessons many of us learn is that a home is an asset. Many families regard their home as the most important asset in their portfolio. 

Is Your Personal Residence a Liability?

Rich Dad, Poor Dad author Robert Kiyosaki famously lit the financial world on fire by describing a family home as a liability instead of an asset. Heresy!

 

But is he right? Let’s look at the arguments on both sides:

“Yes, your home is an asset!”

A home is real estate. Real estate falls under the category of “real asset” — something that has intrinsic worth. It’s not just valuable on paper. It’s a real thing that you can use, like gold or oil. Sure sounds like an asset.

Balance Sheets 101

A balance sheet is a financial statement you use to calculate your net worth. Assets go on one side, liabilities on the other. Liabilities include any loans, accounts payable, or obligations to pay. Subtract the value of the liabilities from the value of the assets, and there’s your net worth. 

 

On a balance sheet, the value of your home goes in the asset column; the balance of your mortgage goes in the liability column. Unless the market tanks and you’re underwater on your loan, the equity is almost always higher than the mortgage. That means that most homes are a positive contributor to your net worth. Still sounds like an asset! 

“No, your home is a liability!”

If the goal is “retirement” — to work until your golden years — there’s nothing wrong with considering your home an asset. It certainly squares with a narrative that most Americans have bought into … and will fight to defend.

 

Your home starts to look less like an asset and more like a liability when the goal is financial freedom.  

 

Kiyosaki defines “assets” and “liabilities” in the following way:

 

    • Asset — something that puts money in your pocket.
    • Liability — something that takes money out of your pocket.

 

There’s no doubt that a home takes money out of your pocket. Mortgage, insurance, property taxes, utilities, repairs … don’t quit your day job. According to industry estimates, a home costs an average of 4-5% of its value to operate every year. In an environment where the home may only be appreciating 4-5% every year, you’re really running to stand still. 

 

Is there a way to avoid this? Not really. Here’s the rub — our need for shelter is a liability, same as our need for food, water, and oxygen. It’s always going to cost us money to live somewhere, whether in the form of rent or homeownership costs. Because of appreciation, owning real estate is often a good long-term financial strategy … but that doesn’t make the personal residence any less of a liability in the Kiyosaki sense.

 

Is there a way to take that same home and make it put money into your pocket?

 

There is — by moving out of that home and renting it out to a tenant! If the rent exceeds the expenses, suddenly you’re putting money into your pocket … and still enjoying exposure to appreciation!

 

Add enough of this rental income to your monthly cash flow, and you can actually replace your work income with rental income. We call this financial freedom — having enough cash flow to cover all your essential expenses, so you never have to work another day in your life if you don’t want to.

 

This is why we think there’s a real argument to be made for taking that money you would have put into a down payment on a home, and making a down payment on rental property instead. It has all the financial benefits of homeownership … plus the benefit of passive cash flow and extra tax advantages. For a deep dive on why you might want to invest in rental property instead of a home, click here.

 

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Whether or not your home is an asset, MartelTurnkey rental properties are definitely assets. We make it easy to add them to your portfolio — without ever having to set foot in them! Click here to see the current assets in our inventory, available for purchase by people just like you. All of them are renovated or in the process of renovation, and many have tenants already in place!

 

Let’s Talk About Legacy …

Leaving a RE Legacy

People from all demographics come to MartelTurnkey in search of cash-flowing assets ripe for appreciation — the easy way. But one generation we’re noticing with a surge of interest in turnkey real estate investing is the Millennial generation.  They come to us with the vision of building a financial legacy.

 

You know, those much-maligned slackers who quietly and without complaint took over the economy while their Boomer parents were still complaining about “hip-hops” and the “social medias.”  They’re the ones strategically building financial legacies!

 

These “perpetual children” with their faces in their phones have come into their own. Anywhere from 26 to 41 years old as of this writing, they either have good jobs or they have struck out on their own as freelancers and small business owners. A few have even struck it rich as crypto-bros or influencers. 

 

Needless to say, they have disposable income. Many of them see turnkey rental real estate as being easier and more secure than playing the stock market. And they all have one thing in common — the Millennials are focused on  legacy. 

 

Many have kids. Others have nieces and nephews. They’re thinking about their digital and economic footprint, coming to the realization that life is finite, and they’re concerned about what kind of legacy they’re going to leave behind.

 

Here’s how we see them integrate turnkey real estate investing into their legacy:

1. Self-Expression

Owning real estate is a priceless opportunity to leave a mark on the world, planted into the very ground beneath our feet. We have seen our Millennial clients take that and run with it. 

 

Our clients have named property after their children, or after nieces and nephews. Come what may, their family name will be stamped on buildings – and even if the next owner changes the name, it will survive somewhere in the historical record.  

 

Another one of our clients got Seussical and named his turnkey rentals “Thing 1” and “Thing 2.” This is a generation known for its expressive individualism, and this generation of real estate investors isn’t afraid to show it.

2. Financial Legacy

Millennials have seen enough recessions in their lifetime to know that companies come and go, but land is forever. Holding Apple stock in their 401(k) doesn’t give them design input on the next iPhone … but they can choose what tenant to accept in their turnkey rental.

 

Thinking again about the children in their family, they can slowly accumulate a portfolio of rental real estate to leave them with a formidable financial empire, far beyond a family home that keeps getting bigger and bigger (with a bigger and bigger mortgage). 

 

They could buy a rental house when a child is born, let it cash-flow for 20 years, and gift that now-college-aged child a host of options — sell the property, refinance, or keep it as a cornerstone of their own real estate empire. 

3. For the Children

We’ve talked about naming property after the children. About leaving a financial legacy for the children. But perhaps the most important legacy of turnkey rentals is the learning experience — the chance to teach hands-on financial lessons deplorably absent from the school system. 

 

What better legacy than a generation of financially-literate progeny on the road to financial freedom from the cradle?

 

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If legacy has been on your mind, reach out to MartelTurnkey and let’s have a conversation. You will be amazed at how easy and approachable we make it to build a real estate empire you can use to achieve financial freedom and make your mark on posterity. 



How to Maximize the Depreciation Tax Deduction
on your Real Estate Investment

As tax-filing season approaches, real estate investors get to face one of the ultimate “high-level” problems — deciding how much depreciation to write off. Most real estate investors are using straight 27.5 year depreciation on their real estate investment. In this article I explain how to lower taxes with accelerated depreciation and bonus depreciation.

 

We dig into how cool depreciation is in this blog, but to sum up — depreciation, i.e. wear and tear of the property, is an “expense” that real estate investors get to declare on their taxes without having to spend money out of pocket … even if the property has gone up in value despite the wear and tear!

 

It’s easy to see why this is awesome … but it can get even more awesome. The IRS says residential real estate can be depreciated over 27.5 years, maximum. Most investors — and, in fact, most tax accountants — just take that at face value. They divide the cost basis of the improvements by 27.5, and deduct that much every year. There’s nothing wrong with this … It’s certainly better than a kick in the pants.

 

But what if you could deduct even more appreciation … or deduct more, sooner? Creative real estate investors and tax accountants can make that happen, while still adhering to the rules set by the IRS.

Lower Taxes With Accelerated Depreciation

Let’s look at two ways we can legally take more depreciation than the standard 27.5-year rule:

 

 1. Filing as a real estate professional

 2. Accelerated depreciation through cost-segregation, aka “component” depreciation

 

NOTE: We are not lawyers, CPAs, or financial advisors. Consult professionals before trying anything you read here.

1. Filing as a Real Estate Professional

Most real estate investors are effectively capped at how much ordinary income they can offset with a depreciation deduction. As of this writing, it’s roughly $25,000. If you try to depreciate more than that, the IRS won’t let you.

 

But there’s an exception — if you qualify as a real estate professional under IRS rules, you can deduct 100% of your depreciation allowance from your ordinary income, without the cap that typical investors face.

 

To qualify as a real estate professional, you must spend at least 750 hours each year in the real estate business. For most people with full-time jobs, this isn’t realistic … but if your depreciation allowance exceeds the cap, it’s worth checking with your CPA to see if you can thread that needle.

 

Of course, you will need to own a lot of rental property to hit that cap … unless you use the second method to increase how much depreciation you are allowed to take from each property.

1. Accelerated Depreciation through Cost-Segregation

That’s a mouthful, right? But it’s actually simple — while real estate improvements (i.e. buildings and structures) must be depreciated on a 27.5-year schedule, certain components on the property may be eligible for faster depreciation schedules. 

 

Here’s the full chart of IRS-approved depreciation schedules:

See it? Even humble rental houses have fences, appliances, carpeting, furniture, etc. … and the IRS allows you to depreciate those assets faster than the structure! 

 

Using this chart to take more depreciation than the 27.5-year schedule is called accelerated depreciation. It’s also sometimes called “component” depreciation since you’re breaking the property down to “components” and using the appropriate depreciation schedule for each.

 

How do you figure out the asset value of each component? Through a process called cost-segregation — taking inventory of everything on the property eligible for accelerated depreciation, determining how much value it contributes to the property, and depreciating that amount separate from the structure. 

Example of Accelerated Depreciation

Let’s do a quick example. Say you bought a rental house for $122,000 in a city like Detroit (one of our favorites right now). The appraisal values the land at $22,000. You can’t depreciate land, so that’s a $100,000 cost basis eligible for depreciation. 

 

If you’re doing basic 27.5-year depreciation, you can deduct about $3,600 per year for this house.

 

But, let’s say you break down the components of the house, and find out that you are eligible for some component depreciation: 

Lower Taxes With Accelerated Depreciation

The total depreciation you can take for the first five years is now $7,181.82 — nearly double the eligible depreciation under the standard schedule! 

 

Of course, after five years the appliances, furniture, and flooring are fully depreciated, so you no longer get to take that extra $4,000 each year. After 15 years, that extra $600 will fall off as well. But many real estate investors don’t keep their assets for 15 years, or even five years — they sell and upgrade to something bigger and better. But in the meantime, they get to take all that extra depreciation up front!

 

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Historically, accelerated depreciation has been the province of commercial real estate. Why? Because it requires a professional cost-segregation analysis to avoid trouble with the IRS. These analyses are not cheap, and the tax savings for a single-family home rarely justifies this cost. Only big, multimillion-dollar properties justify the cost.

 

But, MartelTurnkey likes to stay on the cutting edge. We know how to make cost segregation affordable — even for small-portfolio landlords of single-family homes! 

 

If you want to incorporate accelerated depreciation into your SFR investing strategy as early as this year, you know what to do … Call MartelTurnkey today! 

 

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!

 

No one’s life is without problems. Especially around the year-end and the holidays, life can get downright stressful. But Thanksgiving is a chance to count our blessings and remember what we have to 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. Maybe they aren’t as crucial as your health and your family … but hey, every little bit of gratitude helps!

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 having to suit up and report for work. 

 

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 homeowners 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 have taken a lot of risk out of the equation by doing the renovation for you. In many cases, you get to buy with a tenant already 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.  

 

MartellTurnkey recently adjusted its projections to account for principal paydown, giving you an even better idea of how much wealth you stand to 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 adding another MartelTurnkey rental property 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!