Posts Tagged ‘property’

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.

Buffalo Downtown Booms

Written by Alan Findlay on . Posted in Buffalo Areas, Investor Insight

One investor, over a few months back, asked me – where are the attractive areas for young entrepreneurial people in Buffalo? And it was a question that, despite there being some lovely city neighbourhoods, I couldn’t really answer at the time, and it made me think about the central part of Buffalo and the opportunity it presented.

The heart of any city is the most important part. It’s the image the city projects to the outside world – the perception of itself that reflects the cities pride in itself. The thing that tells people ‘we mean business’.

British cities got this ten years ago – inner city areas of Glasgow, Liverpool, Manchester and Leeds sprouted new mixed use and residential developments, boosting the city tax base, cutting flight to suburbs, and creating a pleasant place to live within short commute to work. City centers were transformed, people flooded back, and from long derelict warehouses were created funky new living spaces.

The trend has finally hit Buffalo, and not a moment too soon. From out of nowhere, it seems, dozens of development projects have started coming out of the woodwork in Buffalo’s downtown area – loft apartments, glitzy hotels like the newly renovated Lafayette.

Not only does this positively effect the city tax base, it bringing a whole new style of living to the city, providing a critical mass of attractiveness for upwardly mobile downtown residents. And finally giving a loft with a view, and something to be proud of, for those ‘young entrepreneurial people’ my friend had asked about.


View Larger Map

Buffalo_downtown_developments_january_2012

New building on Elmwood Street, Buffalo

Buffalo_downtown_january_2013

Buffalo City Hall and new building in downtown Buffalo


New_lofts_elm_street_downtown_buffalo_2013

New lofts on Elm Street, downtown Buffalo

Buffalo downtown construction

Construction site in downtown Buffalo

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 to discuss investment opportunities in Buffalo via E-mail: alan@abbotsinchcapital.com or by phone: +44 (0) 20 7193 2079.

 

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…

Story of a Yield Hunter

Written by Alan Findlay on . Posted in Investor Insight

A lot of people ask me – how on earth did you end up in Buffalo? In fact that’s often one of the first things people ask. So here is my story.

In 2000, Hackney East London was a poor neighborhood. When I moved there, my colleagues in the city enquired on my sanity. ‘But I can walk or cycle to work’ I reposted. ‘And it’s half the price of Islington, a mile away.’

East London

But the main interesting things were:

1. Gross Yields were about 15%.
2. The area was jam packed with poor artists and creative people.
3. The architecture was of good quality, with many parks and good bus connections
4. It was right in the centre of London
5. There was the outside ‘lottery ticket’ chance of a new tube line and, perhaps even the Olympics.

Balancing this with quite attractive buy to let mortgage rates, and I had a net return of 30% a year, plus potential capital growth. The area was ripe for gentrification.

Zoom forward to 2008 – yields were down to 6%, prices had more than doubled, and ‘capital growth’ had become a cliché. The bargains simply weren’t there anymore.

Tallinn, Estonia

I’d been looking round Europe for years and years trying to find a new ‘Hackney’ – a diamond in the rough with high yields, and great potential. Estonia, in Eastern Europe had had the same boom and was now illiquid and crashing, and with it potential for bank finance (which could have stabilized the market) dropped to almost zero, and as young people left for the west the demographics were looking ever more precarious. Despite the crash in Europe, I could still not find a decent high yield/economic growth story. That’s when I came across Western New York.

Normally, as any pro investor will tell you, a yield of over 20% usually signals ‘danger – high risk’ So it took a while and a few visits, first to Syracuse, then to Rochester and Buffalo to try to piece together the whole of the puzzle – local knowhow, and most importantly competent local management. I spent hours and hours looking through economic stats and rental history to decipher exactly why were yields here 30% while in San Francisco or Seattle they were 4%, and even in Orlando or Las Vegas they were 6-12% . Even just across the river in Hamilton or Toronto, rental returns were a fraction of what could be had in Buffalo. Buffalo had the same yields as US’s perennial economic whipping boy, Detroit. But Buffalo wasn’t Detroit. Unemployment in Buffalo (at 7.9%) is below the national average (8.3%) compared with 10.8% in Detroit. The population had stopped falling; the GDP per capita was in the top ten large Metros from 2001-2009. This means higher value work was being done in Buffalo. Better quality jobs. I looked into this more and yes, contrary to Buffalo’s image as a ‘blue collar city’ – the biggest (and growing) sectors are also recession proof – Healthcare, Savings banks, University related jobs.

So here we had it. A city that was valued (wrongly, in my opinion) the same as a one-industry town like Detroit. A city with economic growth and value add. A city with some of the most attractive turn of the century housing stock in the country. A city that despite some quite high business tax, is one of the cheapest places to live and grow a business in the US.

Western New York

Coupled that with a good partnership with the biggest buyer in the region, an excellent management team, and a focus on 5 specific neighbourhoods where we’d identified as ‘gentrifiable’ as Buffalo grows again, and here I had it. A new hackney. A new place where, whenever I found myself with some spare cash, I knew I had a home for it at 15%+ return net a year.
As time goes on, along with our growing investor family, we’ve already seen steady capital growth in the areas we focused on, and an improving quality of tenant, but we still have a good few years yet of ultra-high yields before the imperfect market we call real estate catches on and catches up.

 

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.

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.

Buffalo Property Transactions June 2010 III

Written by Alan Findlay on . Posted in Members Only

Buffalo property transactions over $5,000 as listed in records of the Erie County clerk’s office for the week ending June 20.

Highest price: $1,600,000
Average price: $189,615
Median price: $75,000
Number of Sales: 46

• 304 North St., Grace Manor Health Care Facility Inc. to Grace Manor Llc, $1,600,000.

• 310 North St., Grace Manor Health Care Facility Inc. to Grace Manor Llc, $1,600,000.

•47 Wadsworth, Grace Manor Health Care Facility Inc. to Grace Manor Llc, $1,600,000.

• 232 Middlesex Road, Mary Ann Joyce to Paul G. Joyce; Katherine G. Joyce, $400,000.

• 18 Melbourn, David Pierce to Timothy Balch Hopkins; D. Douglas Hopkins; Kyle H. Hopkins, $311,500.

• 500 Crescent Ave., Mark J. Schroeder to Anne Wasmund; James Wasmund, $212,000.

• 165 Mariner Ave., Stephen H. Phelps to Dennis M. Martinez, $205,000.

•893-897 Michigan, New Millenium Medical to Roswell Park Cancer Institute Corporation, $180,000.

• 105 Shoshone St., Michele E. Amoia to Alicia Lombardo; Christopher J. Parisi, $175,500.

• 124 Tennyson, Heiei Rothschild; Heidi A. Rothschild to Emily J. Frazer, $161,000.

• 770 West Ferry, 770 West Ferry Inc. to Kevin Quinn, $159,274.

• 3430 Dolphin Drive, Charles T. Forth; Bridget M. Forth to Paul J. Wilczewski, $143,000.

• 772&766 Babcock St., Lorraine K. Stegura to Diamond Hurwitz Scrap, $120,000.

• 27 Campbell Ave., Laurie Greco; Michael Greco to Camille Petraitis; Thomas Petraitis, $108,000.

• 118 Melrose St., Phyllis M. Porebski; James J. Porebski to Loyal A. Murphy; Brittany L. Maute, $99,000.

•86 Cheltenham Drive, Rebecca J. Schenk to Melissa B. Gallineau, $95,000.

•699&701 East Utica St., Ivor Baker; Shirley Baker to Dunn-Kirk Corporation, $90,000.

•871 Tifft, Timothy P. Scherer; Patrick J. Barrett to Michael J. Aldrich II, $84,900.

•429 Bird Ave., Eugene D. Santercole to David Kohler, $84,000.

•94 Amber St., Kristy N. Kazmierczak to Joelle P. Machnica, $80,000.

• 146 Rounds, Bonita Krull to Latasha N. Simpson, $79,000.

•96 Kamper Ave., Carmelo Ranno to Abram F. Gadikian, $75,900.

• 29 Dana Road, Renee Gorman to Julia Gorman, $75,000.

•419 South Ogden St., Pamela Krawczyk to Amanda L. Ohl, $75,000.

• 73 Brinton St., Lisa M. Salvaggio to Jack T. Celi, $72,000.

• 74 Aldrich, Matthew Smith to Allison A. Bellanti, $71,000.

•468 South Ogden St., Russell Andolina; Mildred Andolina; Russell A. Andolina to Julia M. McKenzie; Robert J. Delregno, $68,900.

• 153 St. Lawrence Ave., Amy Kottler; Andrew Lipkind to Giovanna Crawford, $68,000.

• 115 Greenwood, Stephanie D. Williams to Fannie Mae, $67,100.

• 174 Fenton St., Felix Sowinski; Florence Sowinski to Jessica L. Wright, $61,000.

• 20 Bickford Ave., William J. Artis to Midfirst Bank, $55,764.

• 135 Gold St., Pinnacle Property Solutions of Western New York to Philip S. Porter; Joy T. Porter, $53,000.

•2 Woldwood Place, Natalie Goetz to Debra Abernethy; Kim Abernethy, $51,500.

• 1227&123 Niagara St., Sherrill L. Cooper to Dawkhin Mar Wai, $50,000.

•41 Magnolia Ave.,HUD to John F. Veith, $46,626.

• 75 Davey St., Beverly J. Norton to Irene Wachowski; Peter Wachowski, $45,550.

•453 Newburgh, Andrzej Rodak to Lola R. Shaw, $37,500.

• 313 Plymouth Ave., Samuel Vega to Georgette Waddell, $34,500.

• 225 Thompson, Amy M. Robinson to Donald H. Spencer, $34,000.

• 215 Stockbridge Ave.,HUD to DMR Management New York Corp., $22,100.

• 70 Houston St., Federal Home Loan Mortgage Corporation to Pinnacle Property Solutions of Western New York, $20,000.

• 567 Lisbon Ave., Erik Ballis to YS Buffalo Holdings Llc, $15,000.

• 57 Floss, Michael S. Ceaser to Moshe L. Kauffman; Menahem M. Hanzin, $13,000.

• 1245 Kensington, Michael S. Ceaser to Moshe L. Kauffman; Menahem M. Hanzin, $10,000.

• 75 Sattler Ave.,HUD to Jewan A. Hosein, $6,888.

•Vacant Land/432&434 West Ferry, 84 Group Inc. to London Harris; Katrina Harris, $5,800.

Source. Buffalonews.com

Buffalo Property Transactions June 2010 II

Written by Alan Findlay on . Posted in Members Only

Buffalo property transactions over $5,000 as listed in records of the Erie County clerk’s office for the week ending June 13.

Highest price: $900,000
Average price: $119,792
Median price: $45,000
Number of Sales:30

40 Stanley St. & 1399 Bailey, Joseph T. Ryerson & Son Inc. to 40 Stanley Llc, $900,000.

200 Delaware Ave., Unit 1503, Uniquest Delaware to Wayne W. Mertz; Patricia M. Mertz, $835,000.

209 Nottingham Terrace, Emanuel Amato to Cynthia Brickell, $348,000.

450 Linwood Ave., Bridget M. Hesse to Anna M. Carr, $290,000.

116 St. James Place, Peggy A. Todoro; Carl A. Todoro to Carlie A. Todoro-Rickus; John K. Rickus, $135,000.

28 Capen Blvd., Clarence Platner; Mildred T. Platner to Britt A. White; Adam W. White, $118,000.

28 Hollywood Ave., Michael H. Ork to Mariellen F. Trevean, $113,500.

387 Forest Ave., John Brinkworth to Daniela Kayser; Jonathan Kayser, $105,000.

20 Midland St., Anthony Calabrese; Carol M. Feeney to Ashley M. Feeney, $85,000.

132 Cumberland Ave., Patricia Halligan; Thomas J. Halligan to Diane Hupp; Matthew J. Hupp, $64,000.

352 West Ave., Marjorie A. Mancinelli to Andrew J. Baker, $63,000.

17 Aldrich Place, Ralph F. Siller; Helene A. Siller to Amanda Felt, $62,500.

477 East St., Black Rock-Riverside Neighborhood Housing Services Inc. to Zamora Janerky De LaPena, $52,500.

1089 Tonawanda St., Gary Nuchereno to Harold R. Niesen, $49,000.

89 Gallatin Ave., Josephina Figueroa; Efrain Figueroa; Josefina Figueroa to Dhalma Figueroa, $47,000.

123 Auburn, Xan O’Connor to Jessica L. Hernandez, $43,000.

102 Greenwood Ave., Andrew Shedyak; Majed Majed to Johnny Majed, $40,000.

231 Ideal St., Joseph Corbi; Armando Corbi; Janet Sieczkarek; Angela Segiel; Angeline Corbi to Gregory R. Imiola, $40,000.

232 Potomac Ave., Alyssa M. Navarro to Shaira I. Hernandez, $35,000.

105 Frank Ave., HUD to Ronald Planter, $34,000.

411 Dartmouth, Shirley B. Mazourek to Keith Canazzi; Equity Trust Company, $24,000.

51 Albert Ave., Joseph A. Puccio; Helen M. Puccio to Barbara Anderson, $20,000.

88 18th St., Fannie Mae to Tamla Moo, $18,000.

141 Metcalfe, Robert M. Smith to Pensco Trust Company; Linda Canazzi, $16,500.

120 Roosevelt Ave., Robert Jacobson; Marolyn A. Jacobson to Federal Home Loan Corp., $15,251.

Vacant Land/Washington St., Upwood Realty Associates to Western Regional Off-Track Betting Corp., $12,000.

373 Grider St., Michele D. Paige; Lorence A. Paige to Keith Canazzi; Equity Trust Company, $11,500.

181 15th St., Fred R. Tutino; Ferdinando R. Tutino; Annie J. Tutino to Great Lakes Property Maintenance, $7,000.

124 Victoria, Bernest E. Tubbs to Larance Russell, $5,000.

510-512 High, Wallace David Hull; Wallace D. Hull to Bjorn K. Perry, $5,000.

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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Why Invest In USA? Why ‘Rust Belt’ Cities?

Written by Alan Findlay on . Posted in Investor Insight

USA has the largest real estate market in the English speaking world. It also is one of the most diverse.There are arguments on both sides for investing in US assets but events are beginning to show that the US$ is behaving as a ‘haven’ currency, retaining and even strengthening against the British Pound and Euro and is perceived as having more internal stability, within a more dynamic economy.  However within the country, investing successfully depends on a number of factors taken together as a whole, and different locations have been affected in very different ways throughout the USA.

‘Rust belt’ cities in the NE area of US such as Rochester, Syracuse, Buffalo, Detroit, and Indianapolis have been in the unusual position of missing the real estate boom, and missing the downturn. As a result, a large number of attractive properties can be purchased for ‘yesterdays’ prices – relatively low cost (typically $20,000 – $40,000) and extremely strong cashflow (typical Gross yield 25-35%). Gearing of up to 60% can be obtained on these properties and there while the focus on these units is income, there always remains the potential ‘bonus’ of capital growth. The Gross yields in these cities are some of the highest in the world, and this largely negates the income/debt servicing risk that ‘normal’ real estate is exposed to. For example, if a typical gross yield for foreclosed residential property in Florida, California or Nevada is 8%, then if there is a prolonged vacancy period or a drop in market rents due to large numbers of foreclosures in the area (flooding the market with rental properties), or a rise in interest rates, then there is a real chance of negative cashflow, which negates the reasons for buying the real estate in the first place.

Tangible commodities such as high income government backed real estate can provide a strong and safe cashflow while protecting against the future risks of both deflation and inflation.

In summary

– We believe US$ Assets are more likely to hold their value than Euro or pound in the medium term.

– Locations within USA with Strong cashflow, and a high number of private renters and government backed tenants are more attractive than ‘normal areas’ in the current economic climate, where the tenant market is often limited, and immature, and yields too low to make an attractive investment.

– Steady cashflow is a much more secure way to make a return on investment than hoping for capital growth, which may or may not happen.

<< Back to US Property Investor Insight June 2010

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