Please ensure Javascript is enabled for purposes of website accessibility

Tag: investment

Creating a Successful Real Estate Portfolio

Real estate continues to be among the most valuable investment opportunities. There are various ways to gain returns from a solid portfolio. Yet, knowing how to build a strong property collection is not always a simple matter.

If you’re a real estate agent, clients will come to you for your expertise. This isn’t just limited to selling them a new family home or selling a commercial property to a small business. Agent or property owners alike, there may also be investors who want to collaborate with you in establishing a good selection of properties. Knowing how to create a successful real estate portfolio can see you build mutually beneficial, long-term relationships with investors. Not to mention that your knowledge here can help you target more valuable and relevant property prospects for your company.

Let’s look a little closer at what it takes to create a successful real estate portfolio. 

Clarify the Priorities

What makes a successful real estate portfolio is very much dependent on the investor’s goals. These will influence the approach you take to selecting properties. As such, when acting as an agent for these clients or building your own portfolio, you must clarify the priorities.

These could include:

  • Predictable Income. Some real estate investors will be interested in creating a relatively predictable income from their assets. As such, you are more likely to be focused on generating a solid rental property portfolio. Depending on the budgets involved, commercial real estate can be the most solid target. Still, residential rentals in neighborhoods peppered throughout Denver, Fort Collins, or Colorado Springs, for example, are favored by professionals and families and could also make for a reliable portfolio.
  • Market Relevance. If your investors are looking to see quick sales returns on their portfolio, one of their priorities is likely to be market relevance. This doesn’t just mean focusing on a range of properties that are trending with buyers now. Rather, it’s also about being able to track the markets and forecast what neighborhoods and properties will be in demand in the near future. This could include sustainable houses to sell to increasingly environmentally conscious buyers. It may be creating a portfolio within properties outside cities to account for the rising popularity of remote work.

The market dictates what types of properties are being sought, the most active consumer demographics, and popular locations, among other aspects. Levels of supply and demand can also determine the validity of an investment.

Perform Thorough Research

A relevant and profitable folder of properties can’t arise from a cursory look at how local listings appear to match with investors’ priorities. In other words, identifying prospects that result in good returns must be based on thorough research.

Some areas of focus can include:

  • Market Analysis. It’s almost impossible to identify potential areas for good investment returns without market knowledge. The market dictates what types of properties are being sought, the most active consumer demographics, and popular locations, among other aspects. Levels of supply and demand can also determine the validity of an investment. At the moment the poor supply of homes has caused prices to skyrocket, shooting the typical value of a Colorado home, as of 2022, at $545,794. Part of your role as an investor or real estate agent is to actively follow and analyze these changes to establish where profit could be made.
  • Property Inspections. The most important aspects of a property can’t be determined by a simple review of its location and measurements. While a building may look good on the surface, there can be underlying issues that make it unsuitable for investment. The presence of “sick building syndrome” caused by unseen contaminants could affect the health of occupants or tenants over time. This applies as much to commercial properties as residential. Such issues can mean an investor either fails to retain tenants or has to make costly changes. Performing full property inspections can give you the knowledge to advise investors accordingly and avoid such problems.
  • Community Development. Location is a vital consideration for any real estate portfolio. However, it’s important not to dismiss areas because they’re deemed as low value. There may be plans in place to create positive development in the area. This could be through improved infrastructure, enhanced safety protocols, or new amenities. For example, some local communities have pushed to create places where artists can flourish in places like Loveland in northern Colorado. Do your research about what changes are likely to occur in the near future. This allows you to identify properties that may be low cost now but see significant returns in the near future.

It’s still a great time to buy in the Colorado home real estate market. Even if that were to change tomorrow and a certain sector of the market were to see drastic economic failure, investors are protected via a diverse portfolio. 

Be Mindful of Risks

Any investment is loaded with potential hazards. Being a successful investor is about understanding the risks and managing them accordingly. There are various factors that can determine your, or your client’s, ability to withstand aspects such as market volatility and economic uncertainty. However, there are some steps you can take to help create a more robust and protected real estate portfolio.

These include:

  • Diverse Range. Having a diverse range of properties in a portfolio is important. This method helps investors weather market trends and changes more effectively. The diversity of properties in the portfolio can include various geographical locations, commercial and residential properties, and even rental and sale assets — from Airbnb’s in Aspen to college rentals in Greeley — it’s still a great time to buy in the Colorado home real estate market. Even if that were to change tomorrow and a certain sector of the market were to see drastic economic failure, investors are protected via a diverse portfolio.
  • Professional Guidance. Working with experts is important when creating any solid portfolio. You are a key source of knowledge for your clients. However, it’s also important to build strong relationships with a range of other experts to mitigate risks. This should include reliable assessors to review and inspect properties prior to sale. For rentals, skilled property managers should be in place to screen for reliable tenants. They should also perform regular landlord inspections that ensure the continued good condition of the property.

A strong real estate portfolio can be a great investment for your real estate clients or your business. Building this involves gaining clarity on the investment priorities so you can select appropriate properties. It’s also vital to perform thorough research on the markets, properties, and community alike. Being mindful of risks throughout the process helps you to protect your assets.

There are never any guarantees in investment, but a portfolio based on informed choices can produce positive returns.

 

Noah RueNoah Rue is a journalist and content writer, fascinated with the intersection between global health, personal wellness, and modern technology. When he isn’t searching out his next great writing opportunity, Noah likes to shut off his devices and head to the mountains to disconnect.

Preparation for Condo Investing

Condos can be a great investment, especially for busy real estate investors. Condos require less maintenance than single-family homes and offer nearly equal value.

As of March 2022, the median single-family home value had increased by 15% from the year before, while the median condo had increased in value by 12%, according to the National Association of Realtors.

Condos are typically less expensive, making them a great point of entry for a fledgling investor who may not be ready to take on a single-family home or buy an apartment building. Condo investors can also reap some of the same benefits as buying a single-family home, such as buyer rebate programs and eligibility in tax-deferral strategies like a 1031 exchange.

However, like any investment, you have to do your due diligence. Before you take out an investment property loan, look for these six red flags so you don’t get stuck with a dud.

1. A Noisy Unit

Condo occupants live in close proximity to their neighbors, and if the unit isn’t properly insulated and soundproofed, noise problems could negatively impact occupiers’ quality of life. Renting a noisy condo can be tough, and if noise is a chronic problem, it could lead to frequent tenant turnover and constant complaints to the property manager.

If you’re considering investing in a condo, try to view it at a time when neighbors are home. Can you hear music or television through the walls? What about children or pets? If such activity is audibly noticeable, it’s a safe bet that the unit is going to have some sound.

2. High Fees

Every condo comes with homeowners association (HOA) fees, and those fees can vary widely between buildings. Fees pay for utilities, staffing, building maintenance, and repairs — as well as a reserve fund if the property needs emergency work. Condo fees can average between 60 to 80 cents per square foot, depending on where the condo is located. As a general rule, the more amenities a building has, the more fees you’ll pay. However, fees that are much higher than average could indicate poor management. The costly fees could be a sign that the building needs a lot of work that can’t be covered by the reserve fund.

As a potential buyer, you can ask to see the HOA’s financial documents. That will show you how much the HOA is charging, how it’s spending the money, and how much is in the reserve fund. If some owners are withholding their fees, that’s another red flag. It’s usually an indication of trouble in the building.

3. Dirty Common Areas and Outdated Amenities

Carefully examine the building’s common areas, including the fitness center and swimming pool. If common areas, such as hallways and lobbies, aren’t clean, that’s a big red flag. It can be a sign of lax property management.

The same applies to the amenities. If the fitness center has old machines with “out of order” signs on them, or it looks like the pool has been closed for months, something isn’t right.

Even if you personally don’t object to slightly subpar maintenance, if you’re using your unit as a short-term rental investment, grimy hallways and stagnant swimming pools will get you nothing but negative reviews from tenants.

Before you close the deal, you should always have a licensed inspector examine the unit, just as you would with a single-family home.

4. Substandard Construction

A lot of developers have joined the condo gold rush, and inexperienced or rushed contractors may have built poorly-constructed properties. When you view a unit, look for signs of shoddy construction — cracks in the ceilings or walls, walls and floors that don’t quite meet, windows and doors that stick, and gaps around windows or doors. Ask if there have been any building code violations.

You may want to look into the developer’s history to see if the company is associated with problematic buildings. Before you close the deal, you should always have a licensed inspector examine the unit, just as you would with a single-family home.

5. No Parking

One of the most common complaints among condo owners is a shortage of parking. Many condo buildings have very limited parking for guests and may even aggressively ticket and tow violators. Look for properties that provide generous guest parking. If you buy a property that has limited parking, make sure your tenants understand the situation, or they (and their guests) could be hit with expensive tickets and towing charges.

6. Is It a Good Fit?

When you’re considering a condo, take note of the other owners. You’ll want to make sure the building’s culture is compatible with the prospective tenants in your rental market. For example, if your local rental market is dominated by college students, it’s not wise to buy an investment rental in a building that caters to retired couples. Not only will your tenants feel out of place, their lifestyle may result in a steady stream of complaints from neighbors.

As important as amenities, fees, and parking can be, culture fit is one of the most important factors in tenant satisfaction, and by extension, the ongoing success of your investment.

 

Screen Shot 2021 12 28 At 113128 AmLuke Babich is the Co-Founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers, and investors make smarter financial decisions. Luke is a licensed real estate agent in the State of Missouri and his research and insights have been featured on BiggerPockets, Inman, the L.A. Times, and more.

4 Rules for Short Selling

WHAT IS SHORT SELLING?

Short selling generally entails betting against a stock’s decline. It can yield big rewards, but it’s a complicated and risky venture.

Essentially, you sell a high-priced stock that you’ve borrowed from another investor and wait for the price to decline. Then, you buy more shares at a lower rate and return them to the lender, pocketing the difference in price.

Talk to a financial expert about the best ways to invest your money and if short selling is a good bet for you.

For example:

Stock in a bagged salad company is flying high. As a smart investor, you’ve borrowed 100 shares worth $40 each from another investor and sold them for a total of $4,000 before what looks to be a severe winter, when salad sales typically decline. When a listeria outbreak strikes, salad stock plummets to $25, and you buy 100 shares for $2,500. You then return them to the lender and realize a $1,500 profit.

Investors turn to short selling when it appears they’ve missed an initial opportunity to capitalize on a stock’s success. By speculating on its eventual decline, it’s possible for investors to still make a substantial profit.

POTENTIAL PITFALLS

The biggest risk of short selling is that the stock you’ve borrowed remains high and you aren’t able to buy at a lower price. Some investors look for potential short sales among high-dividend stocks, only to owe thousands of dollars when they continue to perform well.

Consider also:

  • You may have to pay brokerage fees
  • You may need to pay dividends on the borrowed stock

Short selling is not a good choice for people who are just learning to invest or need more security for their money. The risks are high, and it requires near-perfect timing and discipline to get it right.

RULES FOR SHORT SELLING

Professional and amateur investors must follow these four short-sale rules.

1. You Need Permission

Before short selling, you’ll need to access margin trading, which requires permission. A brokerage can help you set up a margin account.

2. Fund Your Margin Account

Margin accounts need to be funded at 150 percent, which means you’ll need to add 50 percent of your potential stock proceeds. If you have 100 shares selling at $10 per share, you’ll need to add $500 to your account.

3. Pay Interest

There are fees associated with borrowing stocks, and you’ll need to pay interest to the broker or brokerage from which stocks are acquired.

4. You Can’t Buy When Stock Trends Down

The only time you can place a short sale order is when stock is stable or rising. When a stock price drops, short sales are not allowed.

SHORT-SALE RESTRICTIONS

No Naked Short Sales

Naked short selling involves selling shares that have not been borrowed or that may not exist. This rule arose during the 2008 financial crisis when panicked bankers and investors attempted to mitigate their losses.

Follow the Uptick Rule

Also referred to as a short-sale restriction, or SSR, the Securities and Exchange Commission restricts the short sale of stocks that have declined 10 percent or more in one day. Once the rule is triggered, it remains in place until the following day.

Holding Stocks in Two Positions isn’t Allowed

Investors can’t hold the stocks of a company in a short (borrowed) and long (owned) position at the same time. Doing so means they’re betting that the stock will crash (short) and soar (long) simultaneously.

Short Sales Must Be Reported

The Short Sale Transparency and Market Fairness Act was introduced in 2021 as an amendment to the Securities Exchange Act of 1934. The bill requires large companies to report short sales within 10 days of the month’s end. Individual investors who place short sales through brokerage accounts must also report their sales.

Short Selling Real Estate

Short selling real estate follows many of the same rules as short selling stocks. Discount real estate brokers can perform a comparative market analysis to help investors find distressed properties that are listed for sale below market value, potentially because of a homeowner’s inability to pay and desire to avoid foreclosure. Investors buy the properties, make necessary repairs, and then sell at market price.

If a homeowner can prove hardship, and an appraisal shows a home is worth less than the mortgage balance, a lender may approve the short sale. A short sale is designed to quickly liquidate the bank’s holding and prevent further loss.

Buying and selling investment properties can result in a large profit, but also a large tax bill. You can save money using a 1031 exchange that allows you to defer your capital gains tax.

 

Screen Shot 2021 12 28 At 113128 AmLuke Babich is the Co-Founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers and investors make smarter financial decisions. Luke is a licensed real estate agent in the State of Missouri and his research and insights have been featured on BiggerPockets, Inman, the LA Times, and more.

Is “growth of income” a better strategy than “growth for income” for 2021?

What a year 2020 has been for investors as the market set new records. With the Covid-19 pandemic spreading worldwide, the Dow Jones Industrial Average set its worst single-day point drop ever when it fell 2,997 points on March 16. Buoyed by news of promising virus vaccines, the market shot up and, for the first time, passed 30,000 on November 24. What’s an investor to do as we look forward to 2021?

Think about your personal financial goals. If you’re like most people, you are investing to generate income. Whether you need that income today or in the future, most people invest with the belief that doing so will provide, maintain, or improve their income.

There are two common but very different approaches to this. First, there’s the Growth for Income strategy, where upward individual stock growth generates income. The second approach is the Growth of Income strategy, which focuses on dividends as the vehicle for generating revenue.

The Growth for Income strategy ties your income directly to the performance of the market. You buy your desired asset (stocks, bonds, gold, real estate), trust that their value will improve over time, and then sell the asset when the price has improved using the proceeds for income.

Think of this approach as similar to an egg producer selling her chickens. As the number of chickens decline, there are fewer eggs for her to sell. It becomes a downward spiral, eventually leading to asset depletion. Inflation is another factor to consider. At a mere three percent inflation rate, the prices of food, fuel, and living doubles every 24 years. If your income has not doubled over that time, your standard of living is lower, and for many retirees, this is a problem.

What can be done to protect income and grow it at a rate that outpaces inflation?

A Growth of Income can not only act as a hedge against inflation but provide income without selling assets. By investing in solid companies with a track record of consistent dividends, you get to focus on income, not price appreciation. Companies such as Colgate, 3M, Coca-Cola, and Clorox all have a history of paying and adding to their dividends. As in the egg producer example, dividends paid are like revenue from the sale of the eggs. The chickens lay the eggs that generate income.

A Growth of Income approach may just be a better strategy than a Growth for Income.

As we look forward to 2021, I recommend focusing on your income, not your portfolio value. When you receive your investment account statement look at your income line instead of your total asset value. Did your income improve, stay the same, or go down? By following the longer Growth of Income strategy, you’ll avoid the wild swings of the market while growing your income. Over the long-term, you may find you have more choices, which may provide greater freedom and security.

Steve Booren Photo Steve Booren is a registered representative with, and Securities offered through, LPL Financial, Member FINRA/SIPC.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Why now is the time to buy gold

I have written about the pros and cons of buying gold in past columns in 2011 and again in 2017. In those cases, gold was gaining attention because of rising prices or because investors were viewing the commodity as a safe alternative to traditional stocks and bonds. Despite a renewed interested in gold in those situations, I could not recommend buying the commodity.

Now, as we approach 2021, I have changed my mind. Owning some gold in your portfolio in the form of an exchange traded fund (ETF) may make more sense and here is why.

The reason I did not like gold as an investment previously was simply because investors didn’t receive any income from holding gold. They were better off in bonds, as interest rates on Treasury bonds were a lot higher at the time. Back then, bonds were not a bad investment. In fact, they turned out to be a very good investment, because interest rates kept falling and bond prices continued to rise.

Today interest rates on Treasury bonds are so incredibly low – less than 1 percent on a 10-year bond, that unless interest rates actually go negative, I do not see how an investor in Treasury bonds can make any money or gain much income in the next three to five years, let alone keep pace with inflation.

Therefore, the lack of income from gold is about the same as bonds now. Owning gold is also less corelated to the stock market than bonds when inflation is an issue.

Investors typically buy gold as a hedge to inflation, political unrest or market volatility. We certainly have election uncertainty and stock market turbulence in 2020 but the biggest factor influencing gold prices long term is inflation. We experienced this back in the 1970s when there was a lot of inflation and gold was a great asset to own.

Political unrest and market volatility have caused gold to rise 25 percent this year, but if the U.S ever gets any real inflation gold could double from $1,889 an ounce today.

All this new debt that the Federal Reserve and Congress is creating in the form of fiscal stimulus to combat the recessionary impact of the coronavirus has caused our national debt to explode by an additional $5 trillion dollars this year. Today, the national debt is $27 trillion and keeps growing daily.

Servicing the national debt has not been a problem thus far, but if interest rates ever rise in future years it could cause an inflationary spike. Moreover, if confidence in America’s currency or ability to repay its debt is called into question, rates will have to increase. If this happens, the price of gold will explode. An interest rate hike will not happen anytime soon, but a vaccine and improving economy in 2021 would really support the gold bulls.

If hedging your portfolio with gold appeals to you, the best way to buy gold is not in physical form since purchasing it that way usually involves handling and processing fees, storage costs and insurance. You can buy gold mining stocks, but then you are subject to specific company risk in terms of employee strikes and mismanagement.

The most liquid way to buy gold is through an exchange traded fund or ETF. There are several to options choose from, so be sure to buy one with significant assets and low fees since that will guarantee more liquidity. It’s also wise to select an ETF that owns physical gold as collateral, which will offer another layer of protection.

This article is for information and education purposes only. The author addresses concepts and theories that may not constitute a complete discussion of the issues. Individuals should consult with their own professional advisor for guidance specific to their circumstances. This material does not constitute legal, tax or investment advice. All investment and financial strategies involve risks, including but not limited to the risk of permanent loss or depletion of financial assets. Past performance is no guarantee of future returns.

Fred Taylor co-founded Northstar Investment Advisors, LLC in 1995. The firm specializes in managing personalized investment portfolios for individuals, families, and retirees with a focus on income generation. He is a member of the Colorado Forum and also served as an economic advisor to Colorado Governor Bill Ritter from 2008 to 2010.