Monday, July 30, 2012

Lee J Schneider Review 6 real estate investment strategies

Especially today, in real state investment it is important to consider the various approaches and options.

Lee J Schneider reviews 6  real estate investment strategies unique for today.

1.      Speculative Purchase.
Perhaps the most common real estate investment strategy is also one with some of the most inherent risk: buying properties which the investor believes will increase in value due to market-wide appreciation.  Unfortunately, this is in fact pure speculation. No one knows which areas will appreciate in value. Although many billions of dollars have been made by investors, they were simply lucky. Any many more have been unlucky and thus loose money.

2.      Bargain Real Estate Purchase.
Simply put, this is purchase of real estate for at least 20% or more below current market value.

3.      Selective Value Purchase.
Property using this strategy is purchased for its current market value but by selecting only ones with unrealized potential.  Immediately after the purchase, any necessary changes are made to increase the value of the property. Generally, the property must increase in value by at least 20% within six months in order for the strategy to be worthwhile.

4.      High Yield Purchase.
Using this scenario, a building or home is purchased only if it has a capitalization rate of 10% or more. The capitalization rate is the net operating income or the rent minus operating expenses but before debt service, divided by the purchase price.

In other words, the cash-on-cash rate of return if the property was owned without a mortgage, free and clear. In the absence of a bargain purchase, double-digit rates are hard to find and generally only occur temporarily in depressed markets or in small market niches.

5.      Unethical Purchase.
Unfortunately, this strategy is advocated by some.  Here the goal is to find unsophisticated sellers and use a convoluted real estate transaction to take advantage of their lack of expertise.

These strategies are unethical, immoral, and often illegal.  Thus, please do not use.

  1. Rental Income Purchase.
    Buying rental properties for the purpose of generating income, not equity, is a great option, and is explored further.

    By updating and remodeling the properties, one is able to maximize rents, which in turn make the property profitable and valuable.

    With rental properties, enough rent must be taken in to offset your PITI, or Principal Interest Taxes and Insurance. 

    It is best to buy a home that yields at least one thousand dollars in positive cash flow. Why? Because with every investment there is inherent risk.

    In a rental situation, vacancies can occur at any time. Even though they are particularly low in some areas (such as Long Island, New York, and other East Coast cities), the need to find the
    right tenant could lead to several months of forced vacancy. This could be a great time to rehab or update the apartment or dwelling: i.e. painting, carpeting, flooring, fixtures, repairs, cleaning, landscaping etc.

    Additionally, the possibility of an eviction looms large and could not only lead to several months of no income but the probability that renovation work will be needed. Pending the legality of your rental could lead to a neighbor’s rebuff of your renting and hence call the town to alert them of that fact. This in turn could lead to a larger problem suspending your tenancy indefinitely.

    Regardless of the details, know that there will be some down time and that has to be calculated in any yearly profit projections. 

    Some landlords accept as little as $100 per month in positive cash flow in the hopes that they will capitalize on the equity they will build over the years. This was a sound strategy years ago, before the market and its players (banks, investors, Fannie Mae etc.) decided to treat real estate like a commodity. Currently, many homes are under water and to make a purchase on the hopes that you will inherit a windfall in 10 years is as risky as a stock purchase. 

    Perhaps once the real estate market fully corrects from the inordinate amount of foreclosures still needed to vet can we stabilize and think again of
    potential equity gains.  Feel free to contact Lee J. Schneider for any addition information regarding these real estate investment strategies.

Monday, June 4, 2012

Lee J Schneider Three Tips on How to Choose the Right Tenants

There is an old saying: “That the only way to know if you have a good tenant is when they leave..." Unfortunately, this saying IS usually true.

You can do all the correct things by reviewing pay stubs, credit reports, personal and business references, etc.  However, no matter what you do you can still get burned, regardless of your experience as a landlord, and it's going to happen. No one ever bats a 1,000%!!

That being said, here are some things to do to which can limit your exposure to "bad tenants”:

1-     Don’t ever rely on a realtor’s reference to vouch for a tenant.
First, understand there is good and bad in everything, especially in realtors. Some really do take their careers seriously, and look to build long term relationships. Others are part-timers looking only for the quick buck turnaround. Once they get their commission they are on to the next deal, while you are stuck trying to manage a problematic nightmare.

Its true that everyone has motives and some people will abandon their principals, morals, ethics or responsibilities in an effort to secure their own self interests in scoring the deal. That being said, just know that this rule of human nature applies equally to realtors.

In fact, the worst tenants I ever had were through a realtor, amazingly enough. Yes, the tenants had a credit report and although there were some issues with it, the realtor was only too glad to help "sell" them to me. In actuality, they were really helping me overlook issues that normally would have raised warning signs. In fact, right before the tenants moved, my gut was telling me it wasn't right. I had tried to terminate the lease and exit out of the deal, but the realtor was right there to assure me that everything would in fact be OKAY.

Well, it was not.  The result was an eviction several months later and getting beat for over ten thousand dollars in lost rent and damages. Yes, these were professional tenants. They had screwed just about everyone they had come in contact with along he way. Judgments from doctors, businesses even the IRS was owed hundreds of thousands of dollars. Sure, I won a judgment, but who do you think got paid first me or the IRS? 

Don't take anyone’s word for someone and don't let them fool you that they have your best interests at heart! Let your gut tell you what to do, it will never fail you. After you sleep on it a night, your answer will come to you usually by the next morning...Remember, when in doubt, stay out!!!

2-     Telephone call back's don't lie and reveal the real tenant.
Whenever I run an ad for an apartment, I usually get many calls, and it's virtually impossible to pick up the phone to speak with people at that time. I usually call them back at a time more convenient and where I can focus on the conversation. I can't tell you how many times I get a message, “Hi! This is Jane Smith, how are you? I saw your ad about the apartment and would love to set a time with you so that I may come to look at it? Please let me know when it would be convenient for you to show it? Thank you very much.”

Pretty standard, right? Only the Jane I call back often times answers the phone like she just finished having a bar or arguing with her phone company.  I get this, "Hello, is Jane there? Yeah! Who’s this?,” in a gruff, defensive voice.  Then when I tell Jane that I am returning her call about the apartment she changes her inflexion once again and becomes "Nice" Jane. Who do you think you're going to deal with down the road when a problem or depute arises? You guessed it! "Not-so-nice-Jane”!

People are always telling you who they are and what it will be like dealing with them.  It's YOUR job to listen and look for the signs. Remember it's easy putting them into your place, it's hard getting them out!!!

3-     Never rent to single tenants for a multi-family house.
It has been my experience that when you have a two bedroom apartment and two single, non-partnered people want it, you are asking for problems.

Here’s why: two single people are untethered, meaning they are free to pick up and leave it anytime they want. This generally means the other party is left holding the bag for the rent. As a result, there are a few poor options.  They could either pay the whole amount, and if they do, won't last for very long, or leave as well which probably means breaking the lease, or find themselves another roommate which if they don't scrutinize them, like you would do, often leads to a potentially bad match as well as acrimony for the remaining tenant and you the landlord.

I did such a thing once. I rented out a nice multi-unit house to two single teachers. They seemed great! Communication was great, income great, job security great.  However, the outcome...not so great!

Although they had signed a lease and committed to at least two years, the whole thing unraveled in just the first month. One of the tenants met a man, fell for him, had a falling out with her roommate who seemed slightly less enamored with him. In one fell swoop, the tenant was moving out and asking for her security back.  The remaining roommate tried to work things out with us, and did by moving her to another available apartment. However, the moral is that life is unpredictable. With two single people you double your chances for changes. In addition, you have scenarios of adding more cars to the property because so and so's boyfriend decided that he likes his girlfriends new pad better than his and keeps parking in roommate "B's" spot. Roommate "A's" boyfriend takes exception to that hence more drama. When you rent to a couple or family, you lessen or straight out avoid scenarios like this from ever happening. 

Tuesday, May 8, 2012

Lee J. Schneider of Long Island, New York was born and bred on Eastern Long Island and knows all things real estate.  Lee J Schneider has been working in the rental and sales market since 1997.  He’s married (at Gurney’s Inn in Montauk, naturally), a graduate of Bloomsburg University and is a member of Long Island Real Estate Investors Association,(LIREIA).