Hindsight is a powerful thing, many of life's lessons take a lifetime to learn and we all have these nuggets of experience. We can look back and clearly see what was important and what was not. What we might do different and what was rather meaningless. A career in real estate investing is the antithesis of this. The market cycle and day-to-day facts on ground are changing constantly and hour by hour if your fixated to the financial news. There are so many factors to consider if you want to get it "Just Right". Many would-be investors never feel fully prepared because market conditions are always changing.
Mom and pop investors like myself tend to look for 3 things generally.
Positive Cashflow, Getting A Great Deal, and Positive Buying Outlook
The problem with this concept it's not how it works. The market will occasionally swing into this goldilocks territory, however in general it gyrates between positive and negative sentiment, rising and falling prices, buyers’, or sellers’ market. If you are TRADING or FLIPPING, these conditions matter a great deal. For Get Rich Slowly investors it simply doesn't factor in when the game is fully played out and you own real estate free and clear that you put 20% down 20 years ago and is now fully paid off giving you a significant cash flow monthly. If you own a few of these you can consider yourself financially free where your life's expenses are paid for and your nest egg is growing and compounding, benefiting and potentially changing your life and those you love including the next generation. Most successful investors tell me they continue to invest for their children or grandchildren because they see it working.
So Why Do We Want It All Now ?
I spoke to an investor recently who loved a house we were selling at a genuinely massive discount from verifiable prices today, taking advantage of some market fear however because interest rates are circa 6% to 6.5% his cashflow was limited. Even though there was 60K equity in it. What if I said you must choose between “Getting a Deal” and Cash Flow? Would you prefer $350 per month cash flow on a $250,000 home or a $60,000 discount but minimal cash flow? The answer is we take them both.
For the Past Few Years, We Got the Cash Flow But Not the Deal. Today You Can get the Discount But Not the Elevated Cashflow.
The truth is, different market cycles will give you different opportunities. The market cycle right now in my view is a "discount opportunity" so when your favorite podcast host tells you it’s a good time to buy that’s why. They can get a deal right now but the cash flow is lower. In time cashflow will self-correct with inflation and increased rental payments. This is what committed investors are doing right now. Getting deals done today with nice discounts with the knowledge that higher cash flow will follow. We are focused right now on getting discounts and cash flow opportunity to our investors in equal measure.
Finally Let me Share an Observation About Owning a Real Estate Portfolio.
The overall value and equity will fluctuate. Your net worth / equity will go up and down and for most investors this is somewhat academic as they are not selling, it’s nice to see a higher net worth but doesn't change much for most experienced investors. They anticipate this.
Rents and passive income are much more “sticky”; they rarely decrease, and this is the most important and impactful component and the holy grail of Real Estate Investing. Cashflow funds your life and annual expenses and is the essence of freedom. Financial freedom gives us options and relieves financial anxiety. It takes years of ownership before cashflow can exceed your expenses so buy now, buy enough, and nurture your portfolio. One day in the future you will be glad you did.
Few Long-Term Investors in Hindsight Regretted Buying.
They Do However Regret What They Have Not Bought.
In Clark's Market Update Video You'll Learn:
If you’re still on the fence about investing in your first rental property, or are filled with paralysis by analysis, todays post is for you.
Hi I’m Steve. I’ve been a client of Torcana (originally) and now West Florida invest since around 2009. Like you, I started by simply reading the emails the team sent me until I finally decided to jump, in and buy a property in Orlando.
The initial purchase process is pretty much what you would expect with any home purchase. Title companies, lawyers, some back and forth signatures, a deposit here, and voila, home purchased. For most of my life, I have invested in real estate and managed it myself. This was my first purchase of a home I did not live close to, and would not be managing. I had no idea what to expect, but I am so glad I ignored that inner voice of fear.
Once I finished all the legal paperwork and owned the home, I was connected with my property management team. They handled everything on the ground. At this point I had not seen the property in person and had no immediate plans to visit it. They looked after marketing the property and came to me with several vetted rental applications to review. I chose one and that was it.
Shortly thereafter rental deposits began showing up in my bank account. Every once in a while I get a call that an appliance needs some love or replacement. My team has a great source of scratch and dent appliances and look after replacing or repairing anything that needs to be done. In 10 years I can count on 1 hand the number of repairs I have done. 1 or 2 AC services, some tile repairs in the shower, just simple normal wear and tear stuff.
My tenants are typically staying with us for 1-3 years, and I’ve never had a check bounce. In late 2020 my tenant decided to move on, and I thought this would be a good time to completely gut and reno the unit. Little did I realize everyone else in Florida had decided to renovate or build new homes as well. Though this was not a big deal, it simply increased the cost of the renovations and took much longer than expected. Just getting a quote for some things was near impossible from vendors who I assume were too busy to even bother quoting my job.
Thankfully my team helped me through the entire reno process, and I never set foot in the unit. In the last 11 or so years I have only been there once while I was on vacation in Florida. I think the biggest change for me was having nothing to do with the unit other than approving decisions for my team who actively manage it. Generally though, with quality units like mine, the tenants are great people. They are willing to pay a bit more for a great location, great home with great amenities. My team has always focused on good tenant profiles. I’ve learned to wait for a better qualified tenant vs settling for the first application with subpar qualities.
Money wise the investment has been outstanding. The value of the unit has increased around 250% since I purchased it. Rent started at around $900 if I recall, and post renovation is now at $1600.00 a month. With the exception of tenant transitions here and there, the unit has been rented pretty much nonstop since I bought it.
Back when we bought it, we had no extra money for investment. Even the down payment was financed on a credit card. Gotta love 0% interest for 12 months. Thankfully, we were able to pay off the mortgage and generate positive cashflow. Working with West Florida Invest has been a seamless wonderful experience for us. The direct team and all the vendors I have worked with through them have made my life so much easier. In hindsight, which I know is a useless thing most of the time, I have often wished I had bought many more units at the time, but my nerves got the best of me. Was I paying too much, or was there a better deal somewhere else? Maybe, but looking back it didn’t matter. I found something I liked, people I trusted, the numbers worked for me, that’s all I really needed. Over my 20+ career as an investor I have finally come to learn that time, above all else, is a magical tool to build wealth.
If you’ve been on the fence about making your first purchase, know you’ve found the right partner. Unlike all the real estate investments I have direct involvement and management of, my Florida investment is completely hassle free. That doesn’t mean nothing ever goes wrong, I just don’t worry about it. Whatever normal stuff is needed it’s nothing more than a simple credit card payment to take care of it.
As you can probably tell I give these guys 2 thumbs up in every way one can give 2 thumbs up.
Easily one of the best investments I have ever made.
Thank you to all the team at West Florida Invest.
Steve and Christine :)
This week we’re going to introduce you to something new we have in the works. Most of you know us for our classic $100,000.00 to $200,000.00 properties located in solid B class areas that we purchase at auction and renovate to like new condition. These are great properties that provide a low cost of entry with excellent yields. We love these homes and always will, but there is a problem.
The availability of these homes is rapidly decreasing. First, we’ve got a massive influx of people moving to Florida, and many of them are buying in these excellent areas. This means far fewer homes are going up for auction as owner occupied homes increases. Next, we have got intense buying from local and institutional buyers which is driving up prices considerably.
Now as much as we love these types of homes and these areas, we are only willing to pay so much for them. At a certain point, the properties in question become overvalued. Yes, appreciation and cashflow is wonderful, but we cannot ignore the purchase price to the point where we are paying double for the exact same asset we would have paid half the price for 18 months prior. Buying at any cost is not a sound investing mindset.
With all that being said, one thing we have always been great at is pivoting to find the most profitable undervalued and under the radar niches, and we’ve got our sites set on an amazing new market. Instead of fighting over entry-level low-priced homes, we started looking into higher end homes, the type of homes you would live in. These are homes in A class communities. Homes you might rent on Airbnb for several thousand dollars a week for a family vacation. Remember, homes at all levels have a rental market.
Now instead of focusing on $200,000.00 homes, we’re looking at $400,000.00+ homes. You get the same power of leverage and appreciation, plus premium tenant profiles, and an increase in rental income proportional to the value of the home. This has the potential to create an even better cap rate for your investment. Now instead of just focusing on how many doors you want in your portfolio, we can start looking at the size of those doors. 2 doors/homes with a total cost $420,000.00 may generate a gross revenue of approximately $31,200.00 ($1300/mth/home). A premium home with a cost of $400,000.00 could generate approximately $54,000.00 ($4500/mth). Much higher gross revenue, half the number of roofs, furnaces, washer dryers and tenants.
This class of home can open up the revenue model to include executive level rental agreements, or short-term vacation rental opportunities. For those of you who are not aware, Florida is quickly becoming American’s #1 destination for both family vacations and corporate events and tradeshows due to our free and open economy. This is driving massive demand for both traditional long-term tenancy, and short term business and vacation stays.
We are currently in the process of securing properties in this exciting new market. As we start building inventory in these homes, you will hear about them first. As always, our goal will be to provide a simple all in one management solution for you.
Should I buy now or wait for a dip?
As investors we are constantly told you make your money when you buy not when you sell. If this is the case should you be investing in a red-hot market like what we are currently experiencing? This is a question that can be asked in all markets, and for all asset classes. Stocks, real estate, bitcoin, they are all the same. Let’s look at stocks. If you had purchased any index fund in say 2015, after the market had already enjoyed many, many years of amazing growth, would you have paid too much? Well fast forward to 2021 and it would look like you were quite the savvy bargain hunter. But if you had purchased the same index in January of 2020 and then needed to sell in April, you would have looked like a horrible investor….or were you?
Almost all investment success comes down to time. The longer you wait, the more successful you will be. Using stocks as an example regardless of when you buy, even at the peaks before whatever crash we talk about, your purchase would happily be in the black when enough time passes. This brings us to the idea of what type of an investor you are and how that impacts the markets you buy in.
Let’s say there are two main types of people; investors (and speculators) or traders. Traders are constantly moving in and out of the market with the goal of making smaller (or sometimes very big) gains on each investment. If this is their occupation, they derive the bulk of their income from the profit on the flip. They buy something for $10 and sell it for $20. These investments often have very narrow time windows of days to months depending on the strategy. It could be simple flip to another investor or a buy, renovate and sell to an end consumer or investor. Traders are very sensitive to market fluctuations. Their fortunes can be wiped out or balloon with major market moves. For traders the goal is always to buy the asset as low as possible to reduce risk and maximize upside potential. For a trader a hot market like what we are experiencing in real estate squeezes margin because competition drives up prices. This does not mean you can’t successfully trade in and out of deals, but it becomes more work with less profit.
An investor on the other hand is much less sensitive to market ups and downs. In the current market the price of all homes will be higher, but when we expand our time horizon to 10 or 20 years, the purchase price has much less impact on our overall plan. When we factor in rental income and very conservative price appreciation, the purchase price has very little impact on total wealth accumulated over two decades. Now within those 20 years there is every chance you may experience a crash or two, but over time the recovery brings you back to where you were pre-crash. The typical investor buys at the high with “fear of missing out (FOMO)” and sells at the low with “fear of losing everything (FOLE)”. A successful investor buys for more reasons than just price as part of a solid overall wealth building plan.
So for an investor, the best time to buy is whenever you are ready and able to buy. Who is to say Florida real estate will not be 20% higher this time next year. No one knows. Of course it could be 20% lower too. But as long as your fundamental investing thesis remains intact it doesn’t matter. If you still like the area, your tenant prospects remain solid, and you don’t have an urgent need for the funds you are using to invest, just hold tight and let your real estate work its magic. For a refresher on our wealth concepts checkout out this series from David.
So there you have it. In a nut shell the best time to buy is when you are ready to buy and can hold tight for years to come to weather any storm. Or if you are a trader just remember, what goes up will eventually come down. Prepare for both sides of the mountain and you should be fine.
Also a quick reminder if you are looking to sell your property, we are a full service shop and can look after that for you as well. We do more than just find you amazing homes to buy, we can help you sell them for top dollar too.
Understanding the 1031 exchange
When it comes to investing, part of the what we like to see is capital gains. We buy for $10 and sell for $20. What we dislike seeing is capital gains taxes. With most investments there is not much we can do about taxes, but this is not always the case with Real Estate.
By using a 1031 Exchange we can defer paying any taxes on the $10 profit aka capital gain, we made on the sale of our property. Here are the basics of how it works.
Does Your Property Qualify?
For your property to qualify it must be held for business or investment use. No personal residences here. Fix and flips typically take place in too short a time frame to qualify, but if you rent it out for a period of time, it should qualify as a long-term investment property. Always confirm the details with your accountant or tax advisor.
The second part involves the property you wish to purchase. Again it must be for investment purposes only, no personal residences. These qualified properties include office buildings, single family homes, and even undeveloped land.
Do I need a Qualified Intermediary (QI)
Yes. According to 1031 exchange guidelines, you need a third party to accommodate the sale, and hold the pay-out from the current held property. The QI also buys the replacement property on your behalf before deeding it to you. Only engage in 1031 exchanges with people and companies you trust.
What are the deadlines for 1031 exchanges?
Once the sale takes place you have 45 calendar days to identify your replacement. The rules allow for up to 3. The catch is one of the three must be the one you close on. As you can see with these short timelines you must plan ahead whenever possible.
Ideally with some good planning you have your replacement property under contract the day your currently held property closes and the 45 day window starts.
Your second deadline starts from the day you close on the sale of your currently held property. From that time you have 180 days to close on the selected replacement property. And yes both time limits are activated on the same day. There are no exceptions or extensions granted. The only exception is your tax due date. If your taxes are due before 180 days, the sooner date is your new deadline.
Are 1031 Exchanges worth it?
100% yes! The impact of deferring capital gains taxes is a powerful compounding tool. We’re talking real life monopoly money growth here. This has an almost unimaginable boost in compounded investment return. In theory you can keep these exchanges going until the day you die. With some proper planning you can avoid paying taxes on your property investments your entire life, and then pass the final value on to your heirs free from all the taxes you would have paid in your lifetime. That is a pretty amazing deal.
If you need 1031 exchange help, lets start planning the process together.
Contact us by filling out our 1031 form here.
In this video Apple and Carolyn go over all your questions about the new build home product we offer.
Thank you to everyone who responded with questions for me to answer in this video. You had so many great questions, and I had a blast answering them. I hope you enjoy watching this episode.
These video's represent all my wealth building concepts that I have personally used myself, and with countless clients to build lasting wealth that doesn't just enhance your life, it transforms it.
In the video below I go over some exciting information being released this Thursday. It's a quick sneak peek at some can't miss info you're going to love.
I'm also creating a special "Ask David Anything" segment, which will give you the chance to ask me whatever you want. All questions are great questions, so please don't hold back. The link to submit your question is right here! Please submit your first question this week so I can answer them in next weeks segment. I'm so excited to be able to connect with you doing this!