Posts Tagged ‘investment’

2015 in Buffalo

Written by Alan Findlay on . Posted in Investor Insight

It’s felt like a quick 2014 here in Buffalo, but all in all it’s been the best year since I moved here. Momentum is gathering and in certain areas, house prices are rising fast (Overall, Buffalo prices rose 16 percent since May 31, 2006 – highest among the nation’s 100 largest metro areas, according to research by Clear Capital) The biggest risers have all been the more upmarket city districts, like Allentown, Elmwood Village, and North Buffalo, but as expected this action has caused positive house price ripples all the way through the ‘West Side’ and Blackrock –two ‘investment’ level areas that are witnessing widespread gentrification as we speak. I rarely see empty homes any more (I’m always looking to snap them up!) and the blight that had affected many investment level areas in the past is steadily lifting.

As always, lets look at the underlying trends – what’s actually happening in Buffalo, and what does it mean for landlords and potential landlords in Buffalo?

BRAIN GAIN

Looking at the macros, while the population in the metro shrank by almost 1% since 2006, the number of people age 20-34, known as ‘millenials’ jumped by over 10%, one of the largest rise in the country. Thats great news for Buffalo and a great many positive reasons are given herehere and here.

MEDICAL CAMPUS, DOWNTOWN, HARBOR CENTRE & TAX FREE SITES

What are young, economically active people moving to Buffalo for? Or not leaving? This year a whole raft of new critical masses seem to have been achieved. The Medical Campus, and Downtown have been focus points of new construction and job creation. The medical campus continues to grow , while downtown and Harbourside has seen a number of new hotels opening this year together with hundreds of new apartments, re-invigorating the area as a 24 hour mixed use neighbourhood.

RIVERBEND

Elon Musks new state of the art Riverbend Solar Panel Factory  is creating a lot more jobs than first expected. The plan for a medium size facility has been expanded and work has now begun on the largest solar panel factory in the western hemisphere.
STARTUPS and tax breaks

In the 2013 state budget, lawmakers approved a plan by Cuomo to get around the problem of New York taxes. StartUp NY would designate areas near state universities and colleges as tax-free zones, where companies could avoid all state taxes – including employee income taxes – for up to 10 years.

This year the program took off, with businesses clamouring to get in.

Thus far, zones exist at University at Buffalo, SUNY Buffalo State, SUNY Fredonia, Jamestown Community College, Canisius College and D’Youville College. More than a dozen companies have announced plans to move into the sites.

 

Overall, 2014 has gone a long way to diversify the city economy and put Buffalo on a strong footing for broad, steady economic growth in coming years. The confidence for once is real, the long term economic benefits are real and long term. The cities finances are (unlike many US cities) in good order. The difference between Buffalo and other cities in similar situations, of course is that here we can still buy a 2000ft2 4 bedroom home for $30,000.

Happy New Year Everyone.

US Market Powers Ahead Again…

Written by Alan Findlay on . Posted in Investor Insight

Great news for existing investors in US residential market – here, as the UK’s Guardian Newspaper talks about the US markets ongoing recovery. Rising US house prices, coupled with the rising US Dollar (vs Pound Sterling and Euro) continues to confound the investment bears as the Dollar remains the ‘World Currency’ in the face of stalling confidence in Europe and around the world.

A strong US Dollar and a rising market, together with the 25% plus Yields that can still be had, even in respectable Buffalo neighbourhoods, underlines the solidity of the market here in Western New York state.

House for Sale: West Side, Buffalo

Written by Alan Findlay on . Posted in Investor Insight, Properties

Large 4 unit building for sale in West Side, Buffalo, USA. This building, fully let for $2100 a month and in great condition is in an excellent up and coming location on Buffalo’s West Side. The famous ‘West Side Bazaar’ is round the corner as well as the café’s and shops of Grant Street. This would be an excellent growth play as the neighbourhood improves rapidly and potential values and rents increase with demand.

Sale Price – $90,000
Legals and Title Insurance- $2000
Total Cost to Buyer – $92,000
Gross Monthly Rent $2100
Monthly Costs $500
Net Monthly Rent $1600 – $200 management = $1400

Gross/Net Yield – 27.4%/18.2%

IRR in first year assuming no capital growth –
Net Income / Cost = 18.2%

IRR after 5 years assuming no capital growth –
Net Income/Cost = 91%

westferry_multi_buffalo_house

CONTACT US
Tel: +44 20 7193 2079
E-mail: info [at] abbotsinchcapital.co.uk

Education and medicine – booming recession proof industries in Buffalo

Written by Alan Findlay on . Posted in Investor Insight

I was looking through the stats of various state, and cities, looking for trends, and I noticed the chart below.

It plots the increase in employment in Education and Medical professions in Buffalo, since 2002 to it becoming the city’s largest employment sector in both terms of numbers and as a %. As you can see, regardless of the economic situation, the number of jobs here are growing, replacing less highly paid manufacturing jobs, which have fallen, being replaced by a wide range of white collar professions.

Of course this is part of the reason for the GDP per capita rising higher than almost any other part of US in 2011 but what else does it mean for Buffalo?

In Buffalo the health/education sector is 17.9% of all non-farm employment and the biggest single employment sector (compared with Las Vegas at 8.8% or San Francisco Metro at 11.6%). The Buffalo Niagara Medical Campus, which includes the famous Roswell Park Cancer Research Institute, employs over 12,000 people, including more than 500 MD’s, 200 PhD’s, and 1,400 nurses.

This simply means that the largest employment sector in Buffalo is also the most recession proof according to reports:

5 Recession Proof Sectors
– 5 Sectors With Recession-Proof Pay
Siddiqui: “Healthcare is one of the few recession-proof sectors”
UK jobs: the top 10 sectors to be in

These are the kind of growth statistics I like to see bolstering rental incomes, especially if we’re likely to be in for a few rises in interest rates in coming years.

***

Author Alan W. Findlay is a Partner in Abbotsinch Capital with more than 15 years of experience in real estate investment. You can contact Alan by E-mail: alan@abbotsinchcapital.com or by phone: +44 (0) 20 7193 2079.

 

 

Risks of investing?

Written by Alan Findlay on . Posted in Investor Insight

Someone asked me the other day – ok Alan, if I should be looking at about 15% return plus capital growth, there MUST be some risk involved there. What are those risks?

So I thought I’d share my thoughts on this with you.

1. Management
Good management is the overriding factor in making the difference between a successful investment and a bad one. Having bad or ineffective management of the property leads to the downward spiral of the house falling into bad repair, leading to lower quality tenants (good tenants wouldn’t want a run down house) and often ends up with an empty unlettable house and a large renovation bill. Always mitigate this risk and use a reputable recommended management company.

2. Condition
When you buy the house, unless you’re a handyman and live locally, always try to get something recently renovated. This gives you a headache free income, and fewer headaches for the tenants. Key things to look at are the roof, and the boiler/heating/water system.

3. Tenant quality
Tenant quality has a lot to do with what you buy and where, but it pays to try to avoid bad tenants. Having good management and a house in good condition will give the agents a wider range of choices re tenants and lessen the risk that your tenants will be non-payers/messy/causing damage. If you are concerned about the quality of an existing tenant, it is possible to take out insurance to mitigate risks like tenant vandalism and even non-payment.

4. Location
The location of where you buy is a big risk factor in your investment. Of course the cheaper the house and higher the yield, in theory this should mean the riskier the location. Stick to cities with positive economic dynamics, and avoid the very worst areas unless you plan to buy every house in that neighbourhood. Look for locations near to the usual nodes like transport and employment centres, and also nearby to more upscale areas, to win from possible gentrification, and improvement in tenant quality that comes from this. In Hackney, London for example my tenants changed in ten years from being mainly DHSS (government welfare funded) tenants to upwardly mobile professional people, as the transport improved and the area gentrified.

5. Legals
I’ve seen situations before where a buyer uses the cheapest lawyer, or none at all in a transaction. While it may work out quite ok, its often worthwhile trying to simply find a reliable and efficient one, who you know has made all contracts correctly. Strange although it may seem, I’ve seen situations where the buyers lawyer forgot to check the water bills were paid, and after closing the new buyer was obliged to pay the back bill of several hundred dollars! In short, use a lawyer, and preferably one recommended by someone you trust.

I have just outlined the main technical risks that will be in your control that you will be taking when investing in real estate. As you can see there are numerous ways of mitigating those. I always recommend a good attorney, and a good management team who I’ve used for years positively. There are also however many risks that are out of your control – Political risk, currency risk, and also ‘black swans’ connected to those – what if Canada attacks USA? Well I wouldn’t worry too much on that…

The Year of Cash

Written by Alan Findlay on . Posted in Investor Insight

More than any year in the recent economic troubles, this year ahead looks to be the most interesting yet.

The general public are now belatedly coming round to the idea that valuing real estate on a ‘future capital growth’ basis is simply not sustainable. In other words, one by one everyone has finally admitted to themselves, in Europe and the States, that it was just one big bubble.

But the bubble hasn’t fully burst yet – many places haven’t fallen at all. Super-rich enclaves in West London, and Manhatten have been relatively unaffected – why is that? Flight to quality? Rich people haven’t been affected? Well, a bit of both I’d say, but mainly because of a history of cash buyers. According to this BBC article 80% of transactions in some parts of London are cash.

Cash dominated markets are likely to remain more stable than highly geared ones for obvious reasons. They are neither likely to be under risk of foreclosure, nor at the mercy of interest rate rises, rent fluctuations, inflation and of course excessive speculation.

Markets where most people are highly geared give a totally different dynamic, and as the whole residential real estate sector slowly de-gears, it is therefor becoming a more realistically valued market, and less exposed to outside influences like interest rate fluctuations.

You can think of gearing in real estate like air in a balloon. Where gearing is falling, it is likely to have an impact on prices as they deflate to the ‘real’ market price – i.e. without the corrupting factor of bank lending in the equation.

While buying with gearing is great when you can get it, just lets be aware this year ahead that bank money is likely to be retreating from the sector for years to come, and so make your valuations assuming no bank funding and see if it still adds up as an investment then.

Author Alan W. Findlay is a Partner in Abbotsinch Capital with more than 15 years of experience in real estate investment. You can contact Alan by E-mail: alan@abbotsinchcapital.com or by phone: +44 (0) 20 7193 2079.

Successful Real Estate Investing 3 – Focus On Cashflow

Written by Alan Findlay on . Posted in Investor Insight

In the past, there was a received wisdom (usually among agents selling overpriced ‘investments’ for high commissions) to ‘invest for capital growth’ – i.e. don’t worry so much about what the Yield is, just buy where you think is an ‘up and coming area’ or ‘the next big thing’ – these in Europe were places like Capital cities in Eastern Europe (Tallinn, Riga, Sofia, Prague, Budapest) and Holiday destination such as Spain, and in USA places like Las Vegas or Florida. It’s no coincidence that these are the places now hit hardest in the real estate bust , and has taught a sharp lesson to ‘growth investors’ . Fortunately with the advent of the writings of Robert T Kiyosaki (Rich Dad Poor Dad) and his less famous predecessor Dr William G Hill (Think Like a Tycoon) which gave the same message, there are a growing number of investors who use cashflow as their first ‘box’ to tick when looking for a real estate investment.

When looking at the object to buy – the most important thing and the first calculation to make is to check that the deal is ‘cashflow positive’ This means no matter how the market goes, you are making money regularly. The basic calculation will be to work out the difference between rent money in, and money out –lets say for example, you buy a foreclosed Investment Property – an apartment in a complex, in Florida, for $100,000 (sold for $200,000 in 2007). If the monthly rent is $800, the annual rent is $9,600 (gross yield 9.6%) and the service charge is $340 per month (service charges are relatively high here due to pool maintenance and other facilities), the mortgage interest (75% at 3.95% interest rate) is $247, there are $50 more of outgoings, and so the monthly income ($800) minus the monthly outgoings ($340 + $247 +$50) = $163 per month positive cashflow.

However, there are in addition some risk factors worth adding in to make sure the deal is worth it:

1. Vacancies – every year or two there is likely to be some empty time – Calculate in for one month every two years there or one month every year if it’s in a harder to let area (and ask yourself why are you buying in a ‘hard to let’ area?!) Assuming this foreclosure is in an easily letting area with a good tenant pool, then there’s $33 a month to take off the income to cover the potential for vacancy.

2. Mortage Amortisation – currently it’s likely that you’ll be asked to amortise your loan – with the above example, (check our mortgage calculator here) the loan amortised over 15 years will mean the repayment is $553 per month.

As you can see, the above extra checklists will put this ‘bargain’ into negative cashflow territory – $800 – $553 – $340 – $50 – $33 = minus $176 so what on the surface looked like a good cashflow deal, became a ‘growth play’, and isn’t a good investment from the start.
Looking at another example – lets take 63 Simon, Buffalo, on our front page – Rent in per month is $950. Monthly costs are $248, mortgage including amortisation is $330, and let’s take a vacancy of say one month per year to be safe – 950/12 = $80 per month, so there is $950 – $248 – $330 – $80 = $292 positive monthly cashflow.

This is fundamentally important – in every real estate investment you make, every month from day 1 you should be making money.

In Summary

1. Only buy deals with positive cashflow from day 1.

2. Make sure the investment has a good sized pool of potential tenants – i.e. take this into account when selecting 1. Unit size and 2. Area

3. Take into account ALL costs and deductions, not just the patently obvious ones, and assume a conservative scenario at all times.

INVESTOR INSIGHT
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Abbotsinch Capital LLC
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Email: info@abbotsinchcapital.com