TriStone Real Estate can provide you with solutions for questions you might have while looking to invest in the real estate market. If you are just in the thinking stages – our involvement may be all you need to comfortably take that next step. Our goal is to dedicate the time, provide the tools and information, and a commitment to excellence in meeting YOUR Real Estate objectives!
Investing in real estate is certainly not a new concept, nor is it automatically for everyone. Investing in single family homes has a totally different flavor than investing in residential office parks, apartment buildings, land, or other alternatives. Houses start out as a product intended for individuals, not investors.
Times and circumstances have changed...significantly. Two primary shifts have occurred in a relatively short period of time. First, we all know now that houses do not automatically and forever go up in value. Second, owning a home is no longer a lifelong goal of every individual. This conceptual shift has created a once-in-a-generation opportunity for savvy investors. TriStone Group was created to help that investor take advantage of this window of opportunity already recognized by successful investors worldwide.
The real estate investment life-cycle starts with an acquisition. Shortly thereafter it is common for there to be some required renovations and repairs. From there, we move into leasing; then managing, and maintaining the property. Finally, at some point down the road, we consider an exit or a sale of the property. TriStone Group assists real estate investors with all stages of the life cycle.
No. It's easy. All you have to do is find a property at a great price; create a purchase contract and execute the purchase; make sure that the title is clear; perform all of the necessary renovations and repairs with permitting as needed so it is a desirable and reliable property for a tenant; market the property to prospective tenants at competitive market rates; create an application process for prospective tenants; screen applicants for criminal and credit backgrounds; create a lease with your selected tenant; pray they take care of the house and pay their rent on time; collect and manage the security deposit and rent payments in an appropriate and audit-proof manner following the easy to understand government regulations; perform maintenance tasks as requested and needed; check on maintenance vendors to make sure they are doing the work you are paying them to do; pay your mortgage on time; pay your real estate taxes; pay your home owners insurance; pay your liability insurance,....and then just sit back and count your profits. Easy.
As in life, there are no guarantees. But real estate has been a successful investment class since...forever. You'd think calculating a rate of return is pretty standard. We've seen very large firms advertising returns of 25-50% annually, only to notice in the details that they didn't factor in any maintenance or management fees. So something we feel is easy to calculate mathematically, can be somewhat subjective. So what's the answer? We target a 10% annual Cash-Flow Rate Of Return. Equity returns cannot be realized unless you bought the house with cash and you refinance the money back out, or you sell it. What is a Cash-Flow Rate Of Return? We're glad you asked. See the next question below.
Each property we propose to you as an investment is offered with our own Opportunity Analysis. This 1-page analysis includes all Acquisition Costs, Estimated Income, and Operating Costs to come up with a Cash Flow Rate Of Return. We consider any money that comes out of your personal pocket up until the day the house is rented as Acquisition Cost. This is purchase money, including down payment, closing costs, any seller incentives paid, broker or wholesaler fees paid, and of course all renovation costs. The Estimated Income is the estimated rental rate minus an expected vacancy/loss factor (because, let's be realistic). We consider Operating Costs to be recurring ownership costs. This would include things like home owners insurance, real estate taxes, debt payments, management fees, condo/hoa fees, unexpected legal fees, leasing fees, and an estimated maintenance factor. Using the Estimated Income minus Operating Costs yields an estimated Net Income. Net Income divided by Acquisition Cost is your annual Cash Flow Rate Of Return.
For example. You purchase a home for $100,000 with a $25,000 down payment and $3,000 in seller incentives, lending and closing costs. Renovations cost you $12,000. Your Acquisition Cost is $25,000+$3,000+$12,000 = $40,000. Your rent is estimated to be $1200/month. With an 8% vacancy and loss factor, your real rent is $1104/month. Management is 10% of rent or $110.40/mo. Your debt payment is $400/mo. Insurance, taxes, and other fees are estimated to be another $250/mo. Total Operating Costs are estimated to be $760.40/mo. Net Income on this house is estimated at $1104.00 - $760.40 = $343.60. Over 12 months that results in Net Income of $4,123.20. Based on your Acquisition Cost you've earned a Cash Flow Rate Of Return of $4,123.20 / $40,000 = 10.3%.
Keep in mind, this has nothing to do with appreciation or Equity! Check out the next question.
Equity is one of those fancy sounding words that everyone thinks means the same thing for everyone else. Let me ruffle some feathers here by stating the following; equity is a made up number. It's fiction is based on other peoples old opinions in an ever-changing real estate landscape. Let me explain. Equity is commonly known as the value of a property minus the debt on said property. V - D = E. The "D" is easy. We can readily determine how much debt we have on a property. But how is V determined? Some would say, ask a lender. Ha! Lenders do not determine value. They use appraisers. So, ask an appraiser? Double Ha! An appraiser will use the recent sale prices of nearby similar homes, as well as the contract price for the home in question, to come up with V. But where did those previous nearby sales prices come from? They came from other buyers and seller, who used lenders and appraisers, who used previous sales of similar homes nearby, and down the rabbit hole we go! So V, or Value, is being determined by old opinions in an ever changing real estate landscape. And if appraisers can really pin down value, why do they always want to know the contract price of the house they are appraising? They should know its value without knowing the contract price, right? The only way to raise V is to get a bunch of other people nearby in similar homes to band together and demand that their collective sale prices go up. This can happen with an increase in demand, such as a new shopping center, employment center, high ranking school, or any other number of market influences. Changing V is a matter of collective opinion on such market influences. V is at best, a guess. Therefore, E is a guess.
While we do consider equity in real estate investment analysis, we make decisions based on cash flow. We do not base our investments on guesses, and we don't advise you too either.
Tristone Real Estate offers you expert advice and guidance with all of your real estate endeavors. Contact (704) 608-4560 today to speak with a member of our team to get started investing in real estate!