Is this storage unit big enough?

Thinking about investing in storage units?…I mean storage space….what I meant to say was self-storage?

Greetings from the metropolis of Cedar Crest, NM!

Actually….from Corley’s Automotive…where my car is in the shop…again.

Anyway…

This is the second post in a series that will highlight the different types of properties available to investors. The posts are an overview of general information. As with all investments, you should properly research the opportunities to determine whether they fit your portfolio.

What are storage spaces?
Storage spaces are properties that lease units designed to store personal property but are not designated as living spaces. Storage spaces may offer a variety of unit sizes, with some large enough to hold automobiles. Many storage spaces offer an on-site manager that processes paperwork during office hours and lives on-site to provide security. Many managers receive their living arrangements in addition to a nominal salary in exchange for their services.

What Do I Need to Know About Investing In Storage Space Properties?
Storage spaces can be a very efficient way to build your wealth, but you need to do your research to find the right opportunity for you.

1. One of the easiest ways to invest in a storage space is to invest in a Self Storage Real Estate Investment Trust “REIT”. According to investorwords.com, a REIT is a corporation or trust that uses pooled capital of many investors to purchase and manage income properties. REITs require no minimum investment, and pay yields in the form of dividends, which are not based on share performance. Investing in a REIT will yield regular income without the hassle of active management.

2. A significant number of storage space tenants are clients. This means that you secure long-term, low-risk tenants. The bottom line is that you receive steady income with low risk.

3. Economic data has shown that this sector has not been hit as hard as others by the recession.

4. Barriers to entry are significantly lower because construction costs are less than that of other types of property.

5. Maintenance costs are low. Storage spaces are generally constructed from steel or other high-grade industrial materials that are designed to last longer than standard residential materials.

6. Eviction costs generally do not exist. Most states require that unit contents be auctioned.

7. Taxes and insurance costs are typically lower than other types of properties.

What Are the Cons To Owning Storage Space Properties?
Storage space properties can be quick income generators; there are drawbacks to owning this type of property. The market you want to invest in may be too well penetrated. This means the supply of storage spaces may outweigh the demand. Additionally, your region may not have the demographics to support the need for storage spaces. Do many of the residences in your market offer full basements that could feasibly store large amounts of personal property? Is your area full of late teens that may not have acquired enough property to fill an apartment, let alone a storage space?

In Conclusion
Storage space properties are a common addition to many investment portfolios. If you are considering investing in a storage space property, take the time to tour other properties in the market and look at each building’s performance. And, as always, if you have questions, contact the experts at The Real Wealth Company.

Until next time…..rob

Maybe we should hang some balloons out front?

Greetings from the metropolis of Cedar Crest, NM

I love living amongst the pine trees. Pine trees give off the most amazing aroma…especially after a rain.    Something I try to not take for granted.

Anyway….

There are several things our property management company, Jaxon Texas Property Management, focuses on.  But the one thing we take pride in is that our assets looks great on the outside and inside.  One particular asset we have is a mobile home park in Texas.  If you know anything about mobile home parks (the politically correct way to label it is Manufactured Housing Community) the one thing you probably know is most of them look like dumps.  I must say, Jaxon Texas has done an amazing job keeping the park looking great and appealing to the eye.  Obviously, keeping the park looking good is what attracts and keeps tenants.  So…it is important how a property looks.  Whether it is a “C” property or an “A” property, “good looks” are key to being successful in commercial real estate investing.  So…here we go

Whether you just purchased your first investment property or you acquired your 100th, updating is a great way to attract better long-term tenants, retain existing tenants and increase the value of the property. But, in these times, many people are focusing on updates that do not require substantial capital or investment. This article will highlight a few easy and inexpensive fixes that can net high returns.

Fixing The Inside
There are a few easy fixes and upgrades to any property that can allow you to increase your rents, which increases your income.

1. Paint—A new coat of paint goes a long way. If your property is smaller, this is even something you can do yourself. Pick warm earth tone neutral colors. If you have a multifamily unit, tenants can easily imagine their residential belongings in fresh taupe or white rooms. If you have an office building, warm neutrals bring an inviting but professional feeling to the space. To save money, you don’t have to hire an expensive contractor. Shop around. You may be able to find college students on summer break who work quickly and inexpensively.
2. Fixtures—Simple and classic goes a long way. Every space has lights. Most home improvement stores offer modern light fixtures for $10-$30 that can really change the way a space looks. Cabinets, doorknobs and other pulls can also easily be updated for a small investment.
3. New flooring—If you have a multifamily property, ripping out old carpet can be time consuming. However, there is substantial value to offering hardwood floors to renters. For office spaces, hire a professional carpet cleaning service. Keep carpet cleaning contractors on retainer to revisit the space every six months and you may even get a discount.

Fixing The Outside
Many tenants make an initial decision from the street. If your property is overgrown or the landscaping is not up to par, it can steer tenants away. From a tenant’s perspective, if you don’t keep your landscaping up to snuff, why would you take care of anything else in a timely fashion?

1. Plant a few perennials—These are low maintenance plants that add a welcoming feeling to your property.
2. Mulch—This will keep weeds at bay and keep your property looking fresh. Mulch can also help mitigate erosion and foundation damage to your property.
3. Clean the Gutters—It sounds simple, but is well worth it.
4. Fix and paint the pave parking lot/trash can bay/dumpster area—People always take out the trash and park their cars. If these historically dirty areas look good, it makes everything look good.
5. Trim surrounding trees and plant new trees—This will help keep your property looking good and prevent future damage from acts of nature.

Cleaning up the inside and the outside will make your property increase in value and allow you to attract the right kind of tenants. And, you can make these fixes without spending all the income you receive from your renters!

Until next time…..rob

Take action huh?

Greeting from the metropolis of Cedar Crest, NM.

Now that basketball camp is over for my boys, swim team for my oldest rolls right in.  My son Colt has his first swim meet tomorrow in the big town of Albuquerque.  This should be interesting since I have never been  to a swim competition before.

Anyway…..

Today’s topic is taking the first step in real estate investing.  When I first made the decision back in early 2000, it was due to a real estate investment book I bought at the local book store.  When I first read it….it clicked right away.  I knew real estate investing was where I wanted to be.  I read the book again and again…then went out on my own and quickly figured out…I needed to know more.  That was when I signed up for the bootcamp….yeah…it cost 5K or  7K….which, at the time, was a lot!  But it was the most important thing I did.  Little did I know how my life would change.  The decision to invest in real estate lead to Grassland Investments, Jaxon Texas Property management, Tumbleweed Row….etc…etc.  From that one decision, I became friends with Emily Cressey, Peter Conti, Diane Kennedy….and the list goes on and on.  So…If real estate is in your future or you are already deep into real estate investing but want to make the leap to commercial real esate investing….here are a few thoughts…….

Taking the next step….or jumping off a cliff?

If you have already figured out that you are ready to invest, you have taken the first step toward building your wealth. Your next best step toward smart investing is to do your research. Along with your research, you should find a mentor or seasoned investor that you can align yourself with. Mentors are invaluable assets when you are starting your investment career because they can steer you away from riskier decisions with low payouts and help you navigate the investment process. If you’re reading this, you’ve already found a great group of experts at TheRealWealthBlog.com who can mentor you as you begin your career.

Should I take a Course?
There have been several posts on whether real estate investment courses are worth the money. Real estate investment courses can provide participants with a wealth of knowledge and new tips and tricks for their portfolios. They also can be hundreds or thousands of dollars that would have been better spent on the riskiest of investment. Aligning yourself with a mentor and asking his or her opinion on the course is a great way to evaluate the merits of spending the money.

Should I Look For Properties?
Instead of diving straight into what looks like a great deal, it is better to spend the time arming yourself with the knowledge of what a great deal looks like. A beginner’s assessment of a great deal is going to be very different than an expert’s assessment. And, your first deal will be an emotional accomplishment as well. Having a mentor or relying on the advice of experts, like TheRealWealthBlog.com, can help you determine whether your first deal is the right one.

What Else Should I Do?

1) Educate yourself about your market

2) Find out who the “movers and shakers” are

3) Identify key commercial real estate brokers

4) Find people who are doing what you want to be doing (find those who are successful in commercial real estate investing)

5) Get familiar with comparable properties in your market. Examine how they have performed and determine what amount of work goes into managing them so you are prepared when the right opportunity presents itself.

6) Take action in the right direction…now is not the time to get A.D.D.

And, if you have questions, contact the experts at TheRealWealthBlog.com!

Residual Income....that sounds sooo good!

Greetings from The Pit @ the Univesity of New Mexico.  Watching my boys play at Steve Alford’s basketball camp.  Good times and good people.  Today’s topic is one close to my heart because it has been my passion for most of my life.  Not specifically residual income…but the lifestyle residual income provides.  I hope you enjoy.

Residual Income

Most people who invest in commercial real estate are focused on generating profit (cash flow). One way investors generate profit is though residual earnings, which make up the net income an investment can earn over the minimum rate of return. Residuals are a source of passive income that generates income without requiring continuous active participation. Artists and intellectual property owners also generate residuals through royalty income.

Why Should I Focus on Residuals When It Just Seems Like a Small Amount Every Month?
If you spend all of your time working on the tasks that require the most effort for the littlest reward, at best you will only get the littlest reward. Instead, it would be better to spend a minimal amount of time on achieving the maximum reward (i.e. increasing residual earnings). If you are not creatively inclined or unable to invent something requiring a patent, real estate investment is a relatively easy way to begin earning residual income.

How Does This Work?
For example, let’s say you spend 40 hours a week at a job making $25 per hour or $52,000 per year. Theoretically, you are working every minute of every hour to earn $25 per hour. Now, let’s say you invest in an apartment building for $75,000. The building has four units that each rent for $400 per month, for a total of $1,600. If the mortgage on the building is $600 per month and the property management company is $100 per month and the remaining expenses are $100 per month, that means you earn $800 a month or $9,600 a year for spending at most 30 minutes a month writing a few checks. If you spent 15 minutes a month handling the apartment building, that equates to three hours or work a year, which would mean that you earn $3,200 per hour.

I can’t live on $9,600 a year. I Still Need My Job. Now What?
The explanation behind the above example applies to multiple buildings also. Let’s examine the same idea only with five properties. Following the same logic and using the same numbers, you would take home $48,000 a year, which means you earned $16,000 per hour.

Just because you earn residuals, doesn’t mean that you need to give up your job. Residuals allow you to have regular income of a potentially sizeable nature without a lot of work. They can provide you with financial security as well as legal rights to income that can be passed to your children or heirs. Take the time to think about residuals and other passive income streams. With a clear understanding of where your money comes from and how much work you must put in to earn that money, you too can begin to work smarter.

Until next time…..rob

Depreciation? Is that good?

Greetings from the metropolis of Cedar Crest, NM.

Today’s blog talks about depreciation.  Not the ugly type…i.e., “my house just depreciated by 50%.”  No…this is the good type of depreciation that real estate investors love (the real estate “tax loophole”).

By the way, one of my favorite people and friend, Diane Kennedy, has a great site regarding Tax and Accounting information for the small business owner: www.TaxLoopholes.com.

Does Depreciation Mean Less Income?
Understanding depreciation is crucial to knowing the true value of your real estate. Depreciation is an accounting and business term that also applies to real estate. According to investorwords.com, the term depreciation refers to:
1. A reduction to an asset’s value by a non-cash expense like age, obsolescence or wear and tear. Most assets depreciate (lose value) and must be replaced upon termination of their useful lives. Depreciation, as a non-cash expense, increases a company’s cash flow while lowering its reported earnings.
2. A decline in a currency’s value when compared to other currencies.
For our purposes, we need only examine the first definition.

How Does it Really Work?
Accountants treat depreciation is treated as a line item on an income statement. Since depreciation refers to wear and tear and general age, it cannot be applied to the value of the actual land itself. Instead, equipment, buildings and other assets depreciate.

The standard IRS formulas for calculating your depreciation are as follows:

-Residential Income Property (any building with four units or less): Depreciation is applied over a 27.5 year period in equal amounts over each year of the asset’s useful life.
-Commercial Income Property (any other property): Depreciation is applied over a 39 year period in equal amounts over each year of the asset’s useful life.

Applying the depreciation equally over the asset’s useful life is also called straight-line depreciation.

To see how this works, let’s look at an example from invest-2win.com:

Example: You purchase a warehouse for $900,000. The land where the warehouse resides is valued at $120,000. The building is valued at $780,000. Current law allows you to depreciate commercial properties by equal amounts annually over 39 years. Your depreciation deduction for the first year is based on the mid-month convention. The day of the month that you purchase the property doesn’t matter. You can only deduct half of the first month’s depreciation. If you put the warehouse into service on June 1, you are allowed to deduct 6.5 months of depreciation for the first year.

780,000/39=$20,000 per year
6.5 X (20,000/12)=$10,833 For the first year’s depreciation

Accountants would calculate a full year of depreciation for the above warehouse (commercial properties) as: 780,000 X 2.56%=19,968 as a full year of depreciation.

A full year of depreciation for a residential income property with the same figures would be:
780,000 X 3.64=28,392.

How Can Depreciation Help Me?
As with any expense, depreciation is a deduction that allows you to write down your taxable income for the year. This means that you will have less taxable income and greater potential profit.

Real estate investors can take advantage of depreciation expenses on the buildings as well as land improvements or capital improvements. This means that certain upgrades you make to your property can help you reduce your tax liability. Land improvements include general landscaping and safety upgrades including sprinkler systems, sidewalks, or walking paths. Capital improvements include adding value to the building with items like an addition, making your office green with eco-friendly building materials or adding a roof.

Let’s look at one more example from invest-2win.com to see the depreciation on capital improvements.

Example: You have owned the above warehouse for about 7 years now and it is in need of a new roof. The cost of the new roof is $19,500. You are allowed to depreciate the cost of the roof over 39 years. If you put the new roof on in July, you are allowed to deduct 5 and 1/2 months of depreciation in the first year.

19,500/39=$500 per year
5.5 X (500/12)=$229 For the first year’s depreciation.

Accountants would calculate a full year of depreciation for the roof as:
2.56% X 19,500=$499.

Note that land improvements can be depreciated over a 15 year period using 150 declining balance.

Until next time……rob