Real Estate Investment

Investing in Senior Housing Communities

jyounk509 — Sun, 09 Aug 2009 16:27:57 +0000

Today everyone is talking about the big boom of the baby boomer population. The aging of America they call it. An while this is certainly going to cause all sorts of changes in our society, there will also be great opportunities as well as challenges. If you are a real estate investor that has owned or operated Apartments and other mulifamily properties you may or may not find the transition to Senior Housing agreeable. Senior Housing is a completely different animal, with both a real estate component as well as a very large business component. If you are thinking about investing in Senior Housing then Independent living may be a good place to start. With Indepedent living you don’t have the level of care that is required with Assisted Living or a Dementia Care Community. When you get into higher acuity services, then the management piece of the investment plays a critical role. If you are looking for a real estate investment in Senior Housing, then you should make sure you have a quality operator or manager for your investment.

Tax Lien Certificates

jyounk509 — Thu, 30 Jul 2009 12:59:01 +0000

One real estate investing niche is to buy tax lien certificates or tax deeds, depending on your state law. When a property owner fails to pay their property taxes they may go into default. Most states have a 2 or 3 year grace period before actually taking action against the property owner. In Washington State you must be delinquent for 3 consecutive years, then at that point your property may be sold at the county auction. Some states actually sell “tax deeds” which means you are buying an ownership right in the property, some states sell tax certificates, which is only the right to collect interest on the face value of the certificate. With most tax lien certificates if you hold the certificate for 1 or more years, each state is different, and the delinquent owner fails to redeem their property by paying off the back taxes and penalties, then the certificate holder may end up with a deed to the property. This is where you hear most late night TV infomercials talk about buying homes for pennies on the dollar. You could actually buy a tax lien certificate for as low as a few hundred dollars and then end up with the home if the delinquent owner fails to follow through and pay their taxes. I can be a longer process, a few years, but the investment would certainly be worth if. Most investors are happy to make the interest on the tax certificate itself, so if you end up with a home for the price of the certificate, which is usually just the back taxes and some penalties, you will have made a great investment.

Net Operating Income

jyounk509 — Mon, 27 Jul 2009 13:07:56 +0000

Net operating income or NOI, is the financial benchmark for all commercial and investment real estate. NOI is the income, after operating expenses, that the property generates. For example, let’s say you have a 100 unit apartment building with average rents of $500 per month. If you’re occupancy is 95%, then your monthly gross revenues would be about $47,500 (95 units occupied at $500 per unit). On the expense side you will have normal operating expenses such as payroll, marketing/advertising, property taxes and insurance, maintenance, and administrative. If we total all of our operating expenses and deduct them from the total revenues, we arrive at our net operating income. In this case if we have $30,000 of operating expenses monthly, our monthly NOI would be $17,500. When valuing a real estate investment, the NOI coupled with a capitalization rate will determine the market value (and the NOI is always annualized). So sticking with our numbers, if the market cap rate is 8.0% for apartments, then the value of this property would be $2,625,000 (($17,500 *12) / 8.0%). This ends up at $26,250 per unit.

*Please note that you DO NOT deduct debt service or any capital items when calculating net operating income.

Real Estate Investment Basics

jyounk509 — Fri, 24 Jul 2009 22:00:37 +0000

Whether you are investing in single family homes, apartments or a retail shopping center you are investing in real estate. Real Estate has long been known for it’s viability as a long term wealth builder. Not only do you have favorable tax benefits, but you can grow your investment through organic appreciation and forced appreciation. I use the terms organic and forced as follows: organic appreciation occurs through the natural order of lands becoming more and more scarce, thus driving property values higher. This can happen regardless of what type of property you invest in, even raw land. Forced appreciation occurs through the investment of commercial real estate. Commercial real estate is primarily valued by the income the property produces. To estimate the value of a commercial property you can take the income the property generates after operating expenses, known as the net operating income (NOI), and divideby a capitalization rate, or cap rate. Note that the NOI is before subtracting debt service. So, back to forced appreciation, if the value is determined by income production, you can “force” the value of the property up by increasing lease rates, rents or other charges. If the expenses stay the same you will increase the NOI, thus increasing the value of the investment.