W. Darrow Fiedler

Real Estate Made Simple

Real Estate Investing 101: From Cradle to Grave Part One

Real Estate Investing 101: From Cradle to Grave Part One

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On October 19, 2016

In Investing, Real Estate

If you are anything like me, you know that real estate is an infinitely complex, riveting topic. The real estate industry has endless facets that one can endlessly dive deeper into. When trying to find your way around real estate investing for the first time, it can be entirely overwhelming. That is what I am here for. With almost four decades of experience in the real estate industry, I can lead you through the basics of real estate investing with ease.

The reason why anyone wants to get into real estate investments are simple: Money. One can either make billions of dollars in the industry or, to the opposite extreme, lose billions. There are literally hundreds of ways to make money and build wealth from a real estate investment, but we are going to stick with a few basics to help make the learning curve easier.

The oldest method in the book is to purchase real estate that can be rented for a profit. And example of this would be buying an apartment complex or single/multifamily home that can be turned for a profit. Gaining a profit from a real estate purchase is a marathon, not a sprint. It is a business, not a hobby. In order to make money from a real estate investment, usually one must earn just enough money from the rent that is being paid in order to cover the cost of a mortgage. Then, one can start earning a profit once that mortgage is paid off.

To begin, I will describe the ways in which one can earn money from a property and then go into the popular types of property that people purchase. In Part Two, I will dig into ways to find properties and ways to fund your investments.

4 Ways to Earn an ROI on Your Real Estate

According to Brandon Turner of BiggerPockets.com, there are four key ways of building wealth from a real estate investment, which are the following:

  • “Appreciation: When property values rise, the difference between what you owe and what it’s worth will increase.
  • “Cash Flow: When a property is rented for income, and there is more income coming in each month than expenses going out.
  • “Tax Benefits: Owning investment properties can help offset income from other areas of your life (see your tax advisor for more information.).
  • “Principle Reduction: If you carry a loan on the investment property, each month your amount owed decreases slightly. For example, if you buy a single family home with a thirty-year mortgage, after thirty years the loan would be paid off (with the help of the tenants’ monthly rent payments) and you’ll own the property free-and-clear.”

Now that you know how money is earned in this industry, I will explain the types of property that people commonly purchase.

Popular Types of Real Estate

Turner suggests there are a few different types of common real estate that people invest in for a great ROI.

  • “Single Family Homes,
  • Multifamily Properties,
  • Apartment Complexes, and
  • Commercial Buildings.”

When going into real estate, it is important to keep in mind that it is vital that you choose one type of niche in which to invest. When you spread yourself too thin across multiple different strategies for investing, you become a source of knowledge to no one on real estate. When searching for ways to fund your investment, your investors will be less likely to trust you since you are not an expert in any one field.

For “9 Insightful Ways to Find Real Estate,” and “Finding Ways to Fund Your Investment,” check back next week! Tweet me @wdarrowfiedler with any thoughts or questions.

What to Consider When Investing in Real Estate with a Partner

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On August 19, 2016

In Finance, Investing, News

Investing in real estate is a great way to add to your investment portfolio by securing a physical property that will net you returns in the future. Even so, the prospect of buying an investment property can be daunting for many people, which makes it much more appealing for a lot of first-time investors to go into their first deal with a partner. A partnership helps defray the cost of the investment, and it also provides a buffer for error by distributing responsibility across multiple parties, instead of just one. Still, there are a few aspects of partnerships in real estate investing that can be troublesome if both parties are not knowledgeable about potential pitfalls. Here are three aspects of real estate investing partnerships to be aware of before signing on the dotted line.

1) Who will supervise and pay for work on the property? Part of investing in real estate is often performing standard renovations to make sure that the property nets the highest amount of revenue when it gets put on the market. Before you put money down, have a frank discussion with your potential business partner about whose responsibility it will be to handle the work on the property – who is paying for it, who is supervising it, and who is completing the punch list once it has been completed. This conversation will help to inform both parties about their individual responsibilities, and it will save you an uncomfortable discussion later on if and when important details fall through the cracks.

2) How are you splitting equity? Presumably, the intention of investing in real estate is to increase its value and net greater returns on the property over time. It’s important to mutually agree on a split in equity before the property makes it to the market; if you wait until afterwards, you’ll automatically increase the likelihood that you’ll end up having an acrimonious, partnership-ending conflict over the split in equity later on, which could cost you not only a business partner, but also a significant amount of money.

3) What will you do if one party wants to leave the partnership? As with any business, it’s important to draw up a contract between both parties that clearly and irrefutably outlines what the terms of the agreement are and what will happen if one person decides that they no longer want to be involved in the ownership of the property. If you have a contract in place, then there will be no miscommunication about the roles and responsibilities of each person down the line, and there will be no conflict when one person decides to disengage, because you’ll already have a plan in place for this exact situation and others like it.

While it can be challenging to invest in real estate with a partner, it can also be infinitely more rewarding and significantly more lucrative. So, then, as long as you go into your business arrangement with open eyes and clear guidelines for the functions and division of labor for your business, you will set yourself – and your business partner – up for success in the rewarding world of real estate investing.

3 of the Largest Ongoing Real Estate Projects in Los Angeles

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On April 15, 2016

In News

Across the city of Los Angeles, development and construction are taking place on a massive scale. It seems like everywhere you look, there’s a new mega-building going up, or an older one being torn down to make room for something new. Interestingly, many of these projects are actually quite noteworthy and historically significant, mostly owing to their sheer size. You may have been wondering about some of the largest of these projects – so, without further adieu, here is a list of the 3 largest ongoing real estate projects in Los Angeles.

W. Darrow Fiedler

Major new real estate developments in Los Angeles are sure to change the city’s skyline.

  1. Metropolis: Topping the list is the massive Metropolis property, which is being designed by Gensler and constructed by Chinese developer Greenland USA in downtown LA. Costing over $1 Billion, this project is being rolled out in three phases. The first phase will include an 18-story hotel and a 38-floor residential condo. The second will consist of a 700,000 square foot condo, and the third will see the construction of a whopping 850,000 square foot condo, bringing the total RBA (Rentable Building Area) of the Metropolis to a total of 2,085,000 square feet. Phase 1 is on track to open at the end of this year.
  2. Next up is Korean Air’s Wiltshire Grand Project, which is projected to cost $1.2 Billion and, when completed, will rank as the tallest building in the US west of the Mississippi. Designed by AC Martin, the project is estimated to take another year to complete and should open in April 2017. The Wiltshire Grand will use its 1.7 million square foot RBA to house 900 InterContinental Hotel rooms and 400,000 square feet of office space.
  3. Last on our list is the Irvine Company’s Villas at Playa Vista, phase two of which is expected to be completed by March 2017 and will include a 5-story, 1.1 million square foot multi-family apartment.

All three of these mega-structures are sure to impact the Los Angeles real estate market, not to mention our skyline. I’m looking forward to seeing each of these projects’ final products; please stay tuned for future updates on these LA projects and others to come.

 

Co-Founder of PayPal Launches New Credit Startup

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On April 14, 2016

In Finance, News

Max Levchin, one of the co-founders of Paypal, has announced that he has raised an impressive $425 million of funding for his newest venture, Affirm, the mission of which is to replace credit cards with micro-loans at a point of sale.

The startup’s service, which is called “Buy With Affirm,” allows shoppers to pay forgoods online in a series of monthly installments, in lieu of one lump-sum payment that is often beyond the customer’s means. By submitting your name, cell phone number, birthday and the last four digits of your social security number, you can apply for membership, at which point Affirm’s algorithm considers a number of variables – like the regularity with which you receive paychecks and how liquid your finances are – to determine how much risk is associated with your finances and whether you are a suitable candidate to receive Affirm’s micro-loans.

W. Darrow Fiedler

With Affirm, PayPal co-founder Max Levchin is hoping to disrupt the credit industry completely.

Describing the motivation behind his new company’s mission to Fortune Magazine, Levchin pointed to the fact that many Millennials not only feel no sense of loyalty towards their banks, but actually possess a marked distrust of large financial institutions. This was shown in a research study conducted by Viacom Media, in which 10,000 Millennials were polled about Big Finance and agreed across the board that all four of the biggest banking brands were on their list of the ten least-loved brands in the USA. Levchin’s solution, then, is to provide these Millennials with a banking alternative that offers increased transparency, in addition to assistance paying off larger amounts of money.

Since Affirm’s launch, the number of merchants they’re partnered with has increased steadily. Last year, they were only used by 100 merchants, and this year, they are used by 700. According to Levchin, users are also hopping on the Affirm bandwagon in impressive numbers, and many are coming back again after their first use.

Clearly, some heavy-hitting investors agree with Levchin that when it comes to Millennial banking and credit, something’s got to give. Founders Fund, Affirm’s newest investor, just contributed $100 million to the company’s financial backing, and they have already received investments from Lightspeed Venture Partners, Spark Capital, Khosla Ventures, Andreessen Horowitz and Jeffries.

It will be interesting to see if Levchin is successful in doing for credit what PayPal did for online payments; only time will tell.

3 Tips for Buying an Investment Property

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On March 4, 2016

In Investing

Often, when we discuss being a real estate professional, it’s within the framework of working as a licensed Salesperson or Broker who brings in a primary income by renting and selling properties for clients. What you may not realize, though, is that you can be involved in real estate outside of your primary source of income by investing in properties with the express intention of accruing a passive stream of income from them, in addition to the active income you bring home in the form of paychecks. As a consultant, I often work with clients who could benefit greatly from investing in real estate, but do not know how to make sure they’re investing in properties that will bring in revenue. The following are a few pieces of advice for first-time or inexperienced investors who are looking for some guidance about what makes a property a wise investment.

  1. Figure out what your money will get you where: When beginning a search for a property to invest in, the first step is to determine how much money you can invest in the project and what that money will get you based on the location of your potential investment. Look into properties in your price range in different neighborhoods, and see what competing, similar properties are already on the market. Sometimes, it’s wiser to purchase a smaller property in a more upscale neighborhood, as clients are more likely to rent properties in areas that are on the up and up than in areas that cost less for a reason.
  2. Find out how long the property has been on the market for: Generally speaking, the longer a property stays on the market, the less appealing it becomes to investors and clients alike. The common assumption is that a property that sits on the market tends to have something wrong with it – either the pricing is wrong, the property itself is flawed, or the person who is selling it is not managing the process well and may prove to be difficult to work with. You should always research the length of time that the property you’re considering buying has been on the market for, as well as the amount of time that similar properties in that neighborhood are staying vacant. Invest in neighborhoods where the turnaround time between listing and rental or sale is decreasing across the board, as this is generally a sign that if you buy a property in that neighborhood, you’ll be entering a hot market.
  3. Understand the neighborhood’s amenities: There are some universal signs that indicate that a given neighborhood is improving. Take note of the retail options in the neighborhood, which food purveyors have chosen to set up shop there, and how happy residents are with the local schools and business opportunities. If you can buy a property in a promising market that is currently undergoing some form of gentrification but is still in your price range, you’ll be increasing your chances of bigger returns over time as the neighborhood becomes more established and you can charge more to rent or sell your investment property.

If you do your due diligence and research, you’ll be able to make more informed, strategic decisions about how and where to invest your money. After all, as Sir Francis Bacon famously said, knowledge is power.

 

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