Learning from others

This weekend I got to meet a bunch of new friends:  my fiancé’s coworkers wives.  It’s interesting because in my previous post I mentioned how nothing has really changed since the 1950’s and I think a lot of that is because even though women are now educated there are still the same roles that need to be taken on in marriage.  I’m talking about raising the kids.

When you have a child who is so little and helpless you can’t imagine someone else raising it, am I right?!?!?  That means there has to be a decision; someone is staying home for a few years.  It naturally turns to women because men still have a greater earning potential today just like they did in the past.  In the few cases where I see men staying at home it’s because they have married a successful woman who is making significantly more than them.

My new friends are no exception.  All of them had babies for different reasons: they were getting to old and it’s now or never, accidents, trapping a man into marriage, or wanting to start a family.  Whatever the reason they all stay at home and a few of them reminded their men repeatedly what they have given up for them…..awkward!   

This brings me to the main point of why I am so set on owning investment property.  I want to stay at home and raise a quiver full of kids.  I’m looking forward to it.  But I also am reminded that I need to know that I am contributing financially to the piggy bank.  In no way am I leaving the responsibility of being the breadwinner or raising the kids on one person in this marriage.  I just hope someday I remember to reread this post and remind myself when I feel fat, pregnant and unhappy at homeJ

Back to the 1950's

I recently starting getting Time magazine to make me look smart to the world during my commute to work and I read something that surprised the feminist in me, nothing has really changed from the 1950’s—the most common job among women today is being a secretary.  WHAT!?!?!  That shocked me because I’m a secretary.  Oddly enough being a secretary feels rebellious to me because I was a teacher, another job filled by mostly women.  What am I doing? Why am I a secretary if I’m not changing the world’s view on women?

After my panic attack and thoughts about where my life was going I remembered why I left teaching, because I will not stay in a job where I must depend on a paycheck.  Although I currently need the paycheck I am receiving there is a lot to be said for the change of mentality.  Minus this wedding I am planning, I no longer find myself beholden to my boss.  I work towards a goal that is bigger than a pension at the end of the 35 year tunnel with one company.  I work for the start up money needed to create monthly cash flow.

I've strongly considered obtaining my MBA but right now I see that as being a step back.  I need to step forward and that’s why I think it’s important to still have panic attacks now and again in order to make sure that we are living life to the fullest, that we aren't just another secretary.  That we all have the right to work as we see fit.  And thrive how we want to thrive.

Warren Wisdom

I apologize for the delay in posts!  But maybe I was just waiting for something worthwhile so you get to read something interesting? No that’s not it, I recently got engaged!  This means I am completely distracted and my usual excitement towards rentals turned into excitement about dresses.  Luckily my trusted circle has gotten me back on track. 

One of my favorite people in the investing world is Warren Buffet.  A long time ago my parents took me and a friend to his conference in Omaha and I have been in awe of his humor since.  Maybe it’s because I’m a Nebraskan and find him relatable but his wisdom is always so simple and clear, don’t invest in something you know nothing about.    Example “tulip bulbs.”  Seriously!  Just Google the ponzi scheme on tulip bulbs and you will find yourself judging people in history who thought tulip bulbs would make them rich.  Regardless, hindsight is always 20/20 and you can’t help but get excited thinking something as simple as tulip bulbs might get you rich.   Well back to the point, Warren Buffet’s company, Berkshire Hathaway, recently acquired a new company, Hendricks-Berkadia, formally Hendricks & Partners.

Now in some of my earlier posts I commented on how you need a group of people to help you successfully find a property.  You would need a management firm, a bank, accountant and a lawyer to have a successful investment.  What if you are too lazy to find all of this?  Well Hendricks Berkadia looks like a nice solution.  They solely focus on multifamily investment and can cater to any sort of “team” you need.  They help fund investments, find, sell, market and analyze properties.  They only thing I don’t see them doing is the actual management.  They are there to help you in the beginning and end of your investment.  I see that they have an office in San Diego and I think I just might have to stop by.  More to come on that experience!

Madtown

 In my mind Madison WI has been the #1 place to purchase my first rental property.  I lived in Madison for a little over a year and have spent many a summer between those beautiful two lakes that make Madison an isthmus.  I also had my real estate license and worked for a property management firm for the year I was there, meaning that I have a lot of confidence in what I can expect from Madison when it comes to where to buy and what kind of rent to expect.  Each day I live outside of Madison is a day that I become farther away from the reality of its’ market because frankly, markets change, but I still have some eyes and ears there.

When it comes to my research for Madison I have a couple key things in place, I know some good property management companies, I have a Realtor I trust and I know some people who I would be interested in obtaining financing from.  Madison is a college town which is great because you are going to have strong rental market from the school.  There is also quite a few strong employers including Spectrum Brands, American Family Insurance, American Girl, and Epic, (a company I once applied to work for!).  The rental market there runs on an interesting rental schedule: most leases start on 8/16 and end on 8/14 leaving the city with a homeless day, 8/15. This information is critical in knowing where and what you can expect for a rental. 

On the flip side I also understand that there are some negatives to purchasing in Madison.  I do not plan on living there in the near future and if my family moves there is less of a reason to travel.  Also I think there property taxes are high!  It ends up being around 4% of what I would buy the property!  That is a serious drawback for me.  Since I would be an out of state landlord that can also be dangerous and more costly but I also see this as a benefit because I don’t have to deal with the problems.  Yet, my options in Madison are narrowed then to buying downtown or near east Madison.  Now I just sit and wait and watch the listings my Realtor sends to me…… even with the negatives, I really like Madison!

The Coastal Consideration

Southern California was one of my top options for where I would buy my first rental primarily because I live here.  Regardless of that bonus, I still need to do research on the market.  To begin, I really enjoyed reading the book “The ABC’s of Real Estate Investing” by Ken McElroy.  It is part of the Rich Dad Poor Dad series but it gives good insight into how to research a market.  I like to begin by reading recent articles.

New York Times had an article out this past week about real estate companies and where they are focusing their purchases, specifically California, Florida and Arizona where the market hit the hardest.  http://www.nytimes.com/2012/12/09/business/financiers-bet-on-rental-housing.html?pagewanted=all  This article tells me that there are some big buyers looking at California, while the following article shows a little more local insight. http://www.kpbs.org/news/2012/dec/05/san-diego-rents-show-no-hint-falling/   and another http://www.utsandiego.com/news/2012/dec/04/rents-are-down-san-diego/  shows me how smaller buyers like myself are faring.  I find that the local articles are the best and pertain to me more than major news outlets.

Regardless, I take articles with a grain of salt because journalism is always skewed but the information is still helpful.  The best thing to do is to talk to local property management firms, owners and renters.  After doing so I found that the articles were correct, this is a great market if you have the capital.  Southern California’s market did drop but the coastal homes didn't drop as low in price because no matter what happens people want to live on the coast.  The rents are staying stable because of the higher number of military bases, multiple colleges and thriving businesses.  Overall, I feel confident in an investment here because the economy does not rely on a single business/entity for its strong economy.

Who? What? When……..Where?

Where or where is the best place to purchase a rental property?  A reader recently asked me where am I going to purchase my first rental and I am going to answer with more than one option.  My philosophy starts with some wisdom from Warren Buffett who says "Never invest in a business you can’t understand."  Instead of business, I would insert city or area of the country.  For example, I have no idea about the east coast.  I have no family or friends there that I have visited and the culture there is  very different from my own.  So I will not invest in the east coast for my first property. Places I do know: the Midwest, the South and California. 

Now that gives me a lot of options.  I like to then narrow my buying options to travel access, family and market.  I have to travel quite a bit to see family every year so if I am already making these trips, why not mix a little business in there as well.  That means California, Wisconsin, Colorado, Florida and Nebraska are the top of my list.  When it comes to accessibility by plane or train that leaves me with California, Wisconsin and Florida.  I then narrow it by market.

When I say market I mean factors including property taxes, rental prices, demand and purchase price.  California is where I live so if I can find a multifamily home that gives me a place to live and make some rental income that is the number one option!   But California has an incredibly high purchase price for a mobile home, let alone a multifamily home. 

Madison, WI is a college town and has the benefit of always needing rentals in a large portion of the city.  A downside is the high property tax.  Florida, specifically Fort Lauderdale and Miami are beneficial because of the high number of immigrants and a popular travel destination.  Also Florida’s home prices are currently lower which benefits me as a buyer, not as an owner.  Currently I am focusing on my future research on these three locations! Stay tuned for updates on those markets and thank you for the questions.

Crunching The Numbers

This past weekend I started looking for a new place to live, even eyeballed some properties to purchase but I am always hesitant to buy something for myself to live in, to much commitment.  These current generations are such commitmentphobs and I love it because I believe there is a profit to be made.  If someone lacks the gumption and commitment it takes to purchase a home it doesn’t negate the fact that they need a place to live, thus brings about the rental.

When I eyeball properties that I have an interest in purchasing I like to have a formula to put them in to see if I should walk inside.  The attached spreadsheet was found on biggerpockets.com and was created by blogger J Scott.  What it shows you is how much profit you can expect to make on a Single Family Home in a given situation.  All you need to do is insert the purchase price and it will adjust the outcome.  The numbers in red are important because you probably will have to change them based on your city and state.  This makes you take into account insurance, property taxes, vacancy, etc.  You can answer a lot of the questions from the MLS sheet a Realtor will give you.  Again this is only for a single family home. 

I suggest for fun that you drive around your neighborhood and see what’s for sale.  Take what numbers you see and plug them in.  Maybe there is a potential gold mine in your neighborhood, especially if you are in a city with low property taxes! 

http://www.biggerpockets.com/files/user/JasonScott/file/20-sfh-rental-analysis    (you will have to create an account to download, but if you want me to email it to you send me your address!)