Leasing is an important part of any real estate investment.  It that an understatement!  It is your business in the rental property sector.  The property is but a vehicle with it’s own benefits, but it is the tenants that provide the income, the cash flow so managing that part of the business, well, is crucial.  The article below covers a very common occurrence.

How To & How Not To Lease Out Your Phoenix Home?

There are many ways to invest in real estate.  One is to simply be a money lender.  While this is not truly real estate investing, it is a way to get a decent return on a secured asset.

Invest in Phoenix Real Estate Indirectly: Be a Money Lender With 8-12% Annual Return

While the reports below cover the single family home market.  It is just as important to follow because these numbers influence every facet of the multifamily sector: rental rates, vacancy, etc.

Read Current Phoenix Housing Reports

In the coming week we’ll update the sales numbers for both December 2009 and January 2010 for the small multifamily sector in Greater Phoenix.

If you do not visit Phoenix Market Trends you may not have seen that we have published a few articles that may be of interest to our readers here at Arizona Apartment Investor.

With a lot of lender owned and short sale multifamily properties selling we put together some steps to help lease them since most will be vacant or you’ll make them vacant before repositioning.

1.  Filling A Vacant Income Property After The Purchase: How To Get The Income Flowing.

Property prices have dropped a lot for all property types.  Although rents have dropped as well they are still at levels which allow both multi-family and single family income properties to cash flow.  The article below reviews a good rental area where prices are very good as are the prospects.

2.  Phoenix Area Real Estate Investments That Cash Flow

This is an interesting read for the longer term and in real estate, investing is longer term so it would behoove you to know where the populations are moving, how and why.

3.  The Shifting Suburban Landscape And The Current Economic Crash

Bank owned properties are very attractive but not always.  We reviewed the market to see at what discount they are selling in proportion to list price and normals sales. 

4.  What To Offer On A Phoenix Bank Owned Home?

Homes are affordable now an many are very inexpensive at around $40.00 and sometimes less per square foot.  Often these are big homes with don’t make the best investments as rental income properties.

5.  $40.00 Per Square Foot Newer Phoenix Valley Homes: The Affordable Big.

This is just starting.  For about half a year now there were restrictions on how many loans an inventor could have and still buy properties.  If you had 4 or more you were out of luck, having to resort to expensive financing with made the investment not work, but now that number has grown to 10.  So investors can dive into this tremendous market filled with cash flow properties, good financing options and lots of potential for wealth building.

6.  Financing Up To 10 Properties Is Available Again.

Artur Ciesielski, (Certified Commercial Investment Member) 602.628.4349

One of the benefits of investing in real estate is leverage.  When used properly leverage will increase your return even in a low to non appreciating market. 

Obtaining financing for a self directed IRA real estate purchase is a bit different then a normal purchase.  First and foremost the loan must be a non-recourse loan in the name of the IRA account.  In other words it’s not the borrower obtaining the loan but the IRA plus some other procedural items.

A lot of people purchase real estate using their entire funds from the IRA: cash, but it’s important to know that financing is available. 

There are only a couple of lenders that will financing real estate purchases through a self directed IRA.  It’s easier to buy a house or 2-4 unit multi-family property then a commercial property.

If you would like to discuss the process, the benefits and procedures in more detail please call me to schedule a time we can meet.  We have been through the process several times.

Read: Using Your IRA To Invest In Phoenix Real Estate

Why would anyone go for negative leverage?  This was done by tens of thousands of people for speculative reasons, it was a bet that what you’re losing on the property from negative leverage will be made up by asset appreciation.  In a steadily growing market this works because the value of the appreciation makes up for the losses due the larger outflow then inflow, but the risk is simply too high if you mistime the buy and sell cycle: if you don’t have appreciation you essentially have an money loosing business because the cost of financing soaks up any cash flow.  If you the cap rate is 4.75 and you cost of financing is 6% your losing money unless you have appreciation.

Positive leverage is almost immune to fluctuation in real estate prices if your investment is long term and your goal is cash-flow rather then appreciation.

Here is what it looks like.  If your net return on the investment exceeds the total cost of leveraging: interest and expenses, then you have positive leverage: borrowed funds need to return a positive number: calculating in risk and possibly opportunity costs -of financing- if you want get more detailed.

Borrow the funds at 6% and the return on the cash flow investing is 7.5% then you have a 1.5% spread.  That is a very simple view of things.  You cost of leveraging and your return can change depending on tax consequences so really it’s the after tax numbers that really count because those are moneys that stay with you: pocket money.

The next question is, is it enough, is the return good enough versus other investments, real estate or not: that’s why some calculate in opportunity costs to determine if and how much to leverage.  We’ll take this on in another article.

original post at PMT

Financing multifamily properties has been and is difficult but it can be done. It’s hard enough to get people qualified for owner occupied home loans. Part of the reason for is multifamily or any investment real estate for that matter is riskier for the lender. If you have to make a choice on skipping payments or maintenance its usually not going to be on your home: it will be the investment property that takes the hit. There are quite a few restriction on financing like no more then 4 properties owned by the buyers including the properties being purchased: higher assets, reserves, and down-payments are required.

While there are some properties out there that are cash flow cows with proper management and other properties that cash flow and require less intensive management its not easy to purchase them so be aware when you start looking.

Please speak with a lender about your ability to obtain financing. Unless you have cash the financing portion will be of greater importance then the property itself. There are quiet a few sources for loans. A good start is with the bank with which you have a relation ship. If they don’t have loans available for you the we can provide you with several lenders with whom you may speak.

There are about 80 multifamily properties on the ARMLS but more in on the open market where the owner is willing to carry the not: these range from a $30,000 fix up to a larger $16,000,000 property and anything in-between.

In the current market where most lenders are overly cautious or with out funds sellers are more willing to agree to seller financing their properties and buyers have more properties to choose with that option.

There are 80 multifamily properties in the Greater Phoenix area where the seller is offering some type of owner financing and increasingly buyers are seeking this out.  There would probably be more such offers but existing financing gets in the way: unless you have a property that is free and clear or one that can be it’s not going to work: though there are other options.

Seller financing is very similar to a loan from a bank but the seller acts as the lender.  The major differences are that the note in most cases is held by the seller until paid- although these notes can be sold, the note terms are usually for a much shorter time then a conventional 30 year mortgage that you would get from a bank -but that does happen as well and the costs to organize seller financing are much smaller then going through a mortgage broker or bank.

As an investor you put down a down payment which varies – I have seen anything from $0 down up, though you’re more likely to come across around 10 to 30% as an initial down payment: you agree on a rate, type of payments – whether interest only or interest and principal: term of the loan – 2-5 years is typical: and several other points.  Otherwise the process of buying is the same.  The only caveat is that it would be wise to arrange payments through a servicer to make sure payments are accounted for.

As a seller there are quite a bit of benefits besides finding a buyer for your property.  A substantial down payment and sufficient credit and the ability and resources for the buyer to pay the remaining mortgage are criteria to look for but it’s up to you: you are the lender. 

There are tax benefits to seller financing as well.  In essence by seller financing you spread out the gain on your property over which every period the term is for plus the pay off.   Depending on your situation this can be of tremendous benefit and savings: this works for investment properties as well as owner occupied properties where there is taxable gain.  Seller financing is an alternative to a Sec. 1031 exchange.  While I can go into depth on the tax benefits this is the part where I step back and where your CPA or tax professional takes over to advise you.

When selling or buying  real estate with seller financing there are forms we use to make the process easy but you can make is difficult as well and there are additional steps sellers can take as well a buyers but I won’t go into those here. 

With difficult financing a seller carrying a note for a short or long term is an which may just help you achieve your goals. 

If you’re considering selling a home with seller financing we can can answer some questions and give you our input and experience.  We have used seller financing bother as buyers and sellers of real estate plus we have participated in such transactions as well. 

A short sale is the term used when you sell your home but actually receive less for it than what you owe to your mortgage company. It is also called a pre-foreclosure sale, because this is generally the only time that this kind of sale is conducted or allowed. The ’short sale’ term fits well because it involves being ’short’ a certain amount of money to your mortgage company based on the sale.

As an example, if you owe $150,000 to your mortgage company and you sell your home for $120,000. You are short (or underwater) $30,000 in the sale.

Should I Short Sale My Home [of multifamily property]?

Whether to short sale your home is a serious decision that shouldn’t be taken lightly. If you absolutely must sell your home and you will owe more on your loan than you receive from the sale of the home, it is in your best interest to approach your lender about a short sale. Short sales are typically brought on by a loss of a job, medical crisis or some other difficult financial situation that requires you to relocate or puts you behind on your mortgage payments.

How Does a Short Sale Work?

When you go through a short sale the overall process is basically the same as a standard sale. You are the seller, and you need a buyer for your home.

The major difference with this kind of sale is, that either you or your representative has to negotiate with your lender to determine how much you will still have to pay back once the sale is complete. There will be a formal contract drawn up that will discuss repayment terms and final cost.

There are not any state-approved real estate forms that are used for a short sale. With this kind of sale it’s always a good idea to have a lawyer in addition to a Realtor because there are many unique forms and contracts and not all real estate professionals deal with short sales.

What Happens After my Short Sale?

When your contract for sale is completed and your home has been sold, you will usually have three options – you can pay off the balance in a lump sum, you can make payments, or the lender can forgive your debt (it never hurts to ask your lender if this is an option – each one is different). There are tax issues involved with a short sale, so it’s very important to understand the impact on your personal financial situation. A short sale can negatively impact your credit score, so do your homework before you go down this route.

Who Can I Talk to?

If you are falling behind on your mortgage payments and considering a short sale, you should seek professional advice. It would be very smart to take advantage of a free consultation with a bankruptcy attorney. Nathan Brelsford is a local Phoenix Bankruptcy Attorney that can help you understand your rights and your options in your time of need. If you decide a short sale is your best option, you will also want a great local real estate agent, so you can find a buyer and get on with the next chapter in your life.

Note:  This is an article posted by a guest author of Arizona Apartment Investor.  Should you contact the author to utilize their services please do your own vetting and due diligence: It us up to you to determine if they can help you and their ability to do so.  Thank you.   Arizona Apartment  Editor

original post: PMT

Residential multifamily refers to 2-4 units properties or multifamily properties financed by residential financing like Fannie Mae. 

In July 12 such properties, duplexes, triplexes and fourplexes sold.  See an analysis just for fourplexes in Greater Phoenix. 

There are 44 pending properties or properties that have found a prospective buyer.  Since the buying process of a small income property is a bit different than a home some of these properties will come back on the maket, more so as a percentage than single family homes. 

In all 738 such properties are active, so investors do have a very high selection of properties even if most of them are low quality. 

What’s ahead.  

There is a lot of interest in multifamily properties.  They can be purchased for as low as $22,500 per unit and its easy to make them cash flow but the big hurdle is still financing.  Unless an investor is putting down a lot of money or buying for cash its more difficult to obtain financing.   It is easier to get financing for larger commercial sized multifamily properties  of 5+ units and especially once you finance over $1,000.000.

We’ll probably continue to see low sales but prices cannot go too much lower.  In so may of these cases the prices are well below replacement cost and often just the land is worth more then the total purchase price.

When we plan to buy a commercial property we must keep in mind that there are significant differences between the most common transaction on the market – single family residence, and multi family building, or a commercial site.

Generally we can distinguish two kinds of commercial property.

First type is income producing, and the other is an owner occupied property. 

An income property produces rental revenue, which is called a rent.  Usually the rent is a source of a mortgage loan repayment.  In the order to qualify for a loan, the rent income must support a loan amount.  The borrower is usually considered a secondary source of repayment.  What lenders consider as primary factors in assessing the quality of the property are the net operating income and the debt coverage ratio.

The other important information lenders seek are: how long are the leases, who are the tenants, what is condition of the property.  Especially in today’s market conditions banks are looking for a high quality deal.

The owner occupied property is a place where the borrower conducts his business.  In such case owner’s enterprise must bring enough income revenue to qualify for a mortgage.  The information the lenders look for in this case is a little bit different.

The most important factors are the quality of the property and quality of the business conducted by the borrower.  Bank has to have a guarantee that the owner has an ability to repay the debt.  The business must be well established, and has to document a sufficient historical cash flow.

In assessing a quality of the property a physical quality is only one of the factors taken into consideration.  The risk of the enterprise is also important issue.  The banks like multi family and industrial buildings because they offer stable income with very little risk.  The other common property types we should have no problems to qualify are office condos, flex spaces, retail strip centers, mini storage facilities.  But there are other types that pose a greater risk to the lender.  Those difficult to lend property types might be a gas station – poses environmental risk; a hotel, a motel or an assisted living facility – single purpose property.  Even restaurants and bars are included in to this property type.  In the last case a cash flow is difficult to prove, and there is no collateral. Usually the lenders require a significant down payment in that type of transaction. 

Another important facet of commercial property transaction is an appraisal.  The inspection must be ordered by the bank. But the worst thing is the fact it is very expensive. The usual fee is $1,500 – $5,000, and must be paid up front.  Naturally there are much more issues to the commercial property transaction, but these will be covered in the future.

If you have additional questions about financing call.  Ralf Sztorc, 623.388.3798

Whether you own or rent your office space, property costs are one of the largest business overhead expenses. That’s why it’s important to comprehend the full ramifications of taking over the title to a property or entering into a lease agreement. Before you sign a lease, work with a commercial real estate broker with a proven track record, and consult with an attorney skilled in real estate law. You should also familiarize yourself with some common real estate terms:

1.     Appraisal. A written report by a state-licensed professional that includes an unbiased analysis of the property’s value and the reasoning that led to that opinion. An appraisal report is required for any property sale.

2.     Broker. An agent who brings together a buyer and a seller, or a landlord and a tenant, in a real estate transaction. All brokers must be licensed by the state in which they work. Most work on commission, and the landlord or seller usually pays the fee.

3.     Build-to-suit. A method of leasing property in which the landlord makes improvements to a space based on the tenant’s specifications. The cost of construction is generally factored into the lease terms. Most build-to-suit provisions apply to long-term (10-year) leases.

4.     Concessions. Benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling or upgrades (also called "build-outs"), and reduced rent for the initial term of the lease.

5.     Escalation clause. A clause in a lease that allows the landlord to increase rent in the future. Rent increases dictated under an escalation clause may be charged in various ways, including:

•     A fixed increase over a definite period
•     A cost-of-living increase tied to a government index, such as the tax rate
•     An increase directly related to increases in operating the property

6.     HVAC. An acronym for "heating-ventilation-air-conditioning" system. In a commercial building, the landlord generally is responsible for maintaining the HVAC.

7.     Lease. An agreement by which the owner of a property (the "lessor") grants the right of possession to a tenant (the "lessee") for a specific period of time (the "term") for a predetermined amount of money (the "rent"). A "leasehold estate" is the space occupied by the tenant. Common types of leases include:
•     A straight, or flat, lease, which stipulates that the same periodic payment (usually monthly) be made for the entire term of the lease.
•     A percentage lease, which uses a percentage of the net or gross sales to determine the monthly rent. This is most often used in retail properties and with a minimum base rent.
•     A net lease, which requires the tenant to pay maintenance, taxes, insurance and so on, along with a fixed rent. This is also called "net-net-net" or "triple net."

8.     Lien. A legal claim filed against a property for payment of a debt or obligation. If a property owner fails to pay a creditor, for example, the creditor can place a lien on the property. A lien can halt the sale of a property.

9.     Sale-leaseback. A transaction in which an owner sells a property to an investor, who then leases the property back to the original owner under prearranged terms. Sale-leaseback deals offer the original owner freed-up capital and tax breaks and the investor a guaranteed return and appreciation.

10.   Sublease. A lease given by a tenant for some or all of a rented property. For example, if a tenant rents 20,000 square feet but only ends up needing 10,000 square feet, they may want to sublet the extra space for some or all of the remaining term of the lease, providing they continue to occupy and pay rent for the property.