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Cities and counties across Kentucky are quietly adding new local taxes on everything from your home to your insurance premiums — proof that who you elect locally hits your wallet hardest. By Jesse Brewer, Boone County Commissioner Why local tax decisions matter Our local governments in Kentucky hold more taxing power than most people realize, and maybe it’s time we all start paying closer attention to who we’re electing at the city council and county commission levels. These are the leaders making decisions that reach directly into our pockets, yet too often they escape real accountability. We shouldn’t be taxed on every single thing. Look — most cities are even taxing us on health insurance in Kentucky! The state can’t tax it, but counties and cities sure can. Health insurance is already unaffordable for many, so why on earth is it acceptable to add another tax on top of it? Before squeezing hardworking citizens with property taxes, insurance premium taxes, and hidden local fees, governments should first be looking at how to cut expenses and spend more efficiently. Escrow and hidden taxes If you’re one of the estimated 1.7 million households that own their home in Kentucky, then there is an even better chance you are part of the 1.3 million estimated households that have a mortgage and escrow their taxes and insurance. And why wouldn’t you do that? It’s not only convenient for you but oftentimes your lender will require it. But if you do escrow, then there is a good chance you may not even see your insurance bill with all of its itemizations on it — potentially making you unaware of a hidden insurance premium tax in Kentucky. The law behind it: KRS 91A.080 In 1994 the Kentucky legislature passed a law, now KRS 91A.080, which allows the state, as well as cities and counties, to levy a tax on various insurance products. These include, but are not limited to, life, casualty, fire, vehicle and marine insurance. Translation: if you own a house, car, boat, motorcycle, or a business with errors and omissions insurance, liability insurance, or nearly any other type of policy, it’s subject to this tax. The state does have a few exemptions that cannot be taxed, and those include health insurance, title insurance when you purchase a home, and workers’ compensation insurance. Other than those few, nearly every policy in Kentucky is taxable. How much is the insurance premium tax? The state of Kentucky started the insurance premium tax at 1.5%, but in 2020 the state raised it to 1.8%. The tax was originally created to fund pension liabilities for police and fire. But here’s the kicker: Kentucky is one of just 10 states that also allows counties and cities to levy an additional local insurance tax. These local tax rates vary by jurisdiction, ranging anywhere from 5%–15%, on top of the 1.8% state tax. This means your homeowners insurance, auto insurance, and business policies in Kentucky may all be carrying hidden local taxes. Extra fees on top of taxes As if the taxes weren’t enough, the state also allows insurance companies to tack on a “facilitation fee”  for collecting them. This fee is either: 5% of the tax collected , or 2% of your total premium —whichever is less. Here’s a simple example: If your annual insurance premium is $1,000 and your local tax rate is 5%, you’ll pay $50 in tax. On top of that, the insurance company can charge up to $7.50 as a fee for processing the tax. If both your city and county charge this tax, you’ll pay the fee twice—once for each jurisdiction. Just how widespread is this tax? So just how many taxing authorities have an insurance premium tax in Kentucky? According to research from as recently as 2023, 362 cities and 50 counties in Kentucky levy an insurance premium tax . In Boone County, where I serve as an elected commissioner, we do not have an insurance premium tax of any kind at the county level. If you are interested in seeing a full list of who has a premium tax and what their corresponding rates are, you can visit the Kentucky Department of Insurance website or click here: 2025-2026 Tax Schedule.pdf. The bottom line: Hold local officials accountable At the end of the day, taxes don’t just come from Frankfort or Washington, D.C. — they’re being decided right here at the city and county level in Kentucky. From property to insurance premiums, local governments keep finding ways to dig deeper into the pockets of hardworking Kentuckians. If we want that to change, then we need to start paying attention to who we’re putting in office and holding them accountable. Local elections in Kentucky matter more than most people realize, and the only way to stop hidden taxes from piling up is to demand smarter spending, greater efficiency, and leaders who put citizens first .

Now that Congress has passed the highly controversial and widely debated “One Big Beautiful Tax Bill,” there’s a lot to unpack—most of which I’ll leave to others. While the bill touches on everything from tax-free overtime pay to changes in Medicaid, I want to zero in on just one aspect that impacts real estate and small businesses: accelerated bonus depreciation . If you're a seasoned real estate investor or a small business owner who buys equipment, you’ve probably heard of “accelerated depreciation.” But for those who haven’t, it's an accounting method that allows businesses to deduct a larger portion of an asset’s cost earlier in its useful life—rather than spreading it out evenly over time. In simpler terms: you get bigger tax write-offs sooner, which can significantly boost your cash flow. This strategy gained traction with the 2017 Tax Cuts and Jobs Act and has now returned—at full strength—in the 2025 tax bill. Here’s how it works: You can deduct more of an asset’s value in the early years, which lowers your taxable income right away. That extra cash flow gives business owners more money to reinvest—whether into properties, jobs, or other growth areas. We saw this play out after 2017, especially in the real estate sector. How It Works in Real Estate Let’s say you buy a $1,000,000 investment property in 2025. Under IRS guidelines, 20% of that value is considered the land (which isn’t depreciable), and 80% is the building (which is). So you’re working with $800,000 in depreciable value. Before accelerated depreciation, you’d depreciate that $800,000 over 27.5 years: $800,000 ÷ 27.5 = $29,091/year. In a 25% tax bracket, that’s roughly $7,273 in annual tax savings . But with accelerated bonus depreciation—also called 100% bonus depreciation —you can depreciate certain parts of the property much faster. Things like carpets, appliances, electrical fixtures, cabinets, fencing, and landscaping qualify. That’s where a cost segregation study  comes in. It breaks down the property into components with shorter useful lives, letting you deduct more, faster. Example with Bonus Depreciation Let’s stick with our $1,000,000 property example: $200,000 : Land (not depreciable) $800,000 : Building Of that, about $320,000  can be reclassified via cost segregation and depreciated fully in year one The remaining $480,000  continues on the standard 27.5-year schedule Year One Deductions: $17,454 (standard depreciation on $480,000) $320,000 (bonus depreciation on short-life assets) Total first-year deduction: $337,454 If you’re in a 25% tax bracket, that means over $84,000 in tax savings —just in year one. The Trade-Off The catch? You’re front-loading your deductions. That means in future years, your standard annual depreciation drops to around $17,454 instead of the $29,091 you’d get without bonus depreciation. And when you sell the property, you may face higher depreciation recapture taxes—so it’s smart to consult a tax advisor. Strategies like 1031 exchanges  can help mitigate those consequences. Final Thoughts Bonus depreciation isn't just a tax gimmick—it’s a cash flow accelerator. For real estate investors and small business owners, it frees up money to hire, reinvest, and grow. And frankly, putting more capital in the hands of business owners and job creators sounds like a much better use of funds than letting it sit in the federal treasury. If you own investment property or run a business, now’s a good time to revisit your tax strategy . — Jesse Brewer, Real Estate Investor, Broker, and Boone County Commissioner

When deciding to acquire a new piece of property, it’s really important to understand the financials —that’s the process of underwriting. Not all underwriting is done by banks, and there are varying degrees of how in-depth you can (and should) go. Generally speaking, the larger the property (dollar-value-wise), the more precise your underwriting analysis needs to be in order to avoid costly mistakes down the line. One of the most common mistakes investors make when underwriting a new property acquisition is relying too much on seller-provided data and not enough on their own projections. Not everyone operates a property the same way. This applies not just to expenses, but also to income potential and future plans for the property. While the seller’s data gives you a baseline understanding of the asset, there are several key points you should keep in mind when doing your own underwriting. Property Taxes: The Most Overlooked Expense The biggest and most commonly overlooked cost—with a huge impact on your operating expenses—is property taxes. Sellers will often share what they currently pay, but they rarely mention the reassessment that happens when the property changes hands. How real is this issue? Let’s say you’re buying a property in a district where the tax liability is 2% of the assessed value. The seller purchased the property about seven years ago for $300,000 and pays roughly $6,000 a year. Over the years, they’ve raised rents, and now—thanks to market growth—the property is worth $1,000,000, which is what you're buying it for. Once the sale closes, the property will likely be reassessed based on your purchase price. That $6,000 tax bill you relied on? It becomes $20,000 per year—a $14,000 annual increase, or $1,166 per month in added expense you didn’t anticipate. To put that into perspective: if you’re using a cap rate evaluation (see blog on cap rates for details), and your cap rate is 7%, this unexpected tax jump negatively impacts the valuation by about $200,000. That’s a huge difference in both property value and monthly cash flow. Vacancy Rates: Don’t Fall for “Fully Occupied” Another common mistake I see newer investors make is misunderstanding vacancy. If the property is fully occupied at the time of sale, the seller will often present their financials with $0 in vacancy loss. But over time, maintaining 0% vacancy is impossible—even under the best conditions. To have zero vacancy, every new tenant would need to move in on the exact same day the previous one moves out. Each unit would need to be in perfect condition—no turnover work, no cleanup, no downtime. Even if there’s just one day between tenants, that counts as a vacancy. Depending on your market, vacancy rates will vary, but most banks use a standard 5% (give or take). If you're a solid operator in a decent market, 5% is absolutely achievable—but ignoring it entirely will give you an unrealistic picture of your financials. The Underwriter’s Mistake: Double Counting Vacancy Sticking with the theme of vacancy, there’s another issue that comes up during financing or refinancing—and it’s one that trips up a lot of investors. Often, when submitting numbers to a bank, an investor will report income based on what they actually collected over the last year. That’s great—it reflects real performance, including any vacancy that occurred. But many bank underwriters don’t truly understand how these properties operate. They look at your submitted income, assume it reflects full occupancy, and then apply a standard 5% vacancy deduction on top of it. That means the bank is double-counting vacancy—once in your actuals, and again in their underwriting—which can artificially deflate your projected cash flow. I’ve seen this time and time again, and it can be the difference between getting approved for a loan or not. When submitting your financials, be clear: the income number you’re sharing is based on actual collected rent over the past 12 months. If there was no vacancy during that period, then yes, the bank will still apply their standard vacancy rate—just as you should when evaluating seller financials that claim 0% vacancy. Insurance: Not All Policies Are Created Equal Another overlooked expense in underwriting is property insurance. There are several variables that can significantly affect your premium, and pricing can vary drastically—even for the same property. If you’re taking out a larger mortgage than the seller had, you’ll likely need more coverage, which increases your premium. If you’re using replacement cost coverage and they were using actual cash value, that’s another difference. If they have a larger portfolio and you're newer to investing, they might be receiving volume discounts you won’t qualify for yet. The point is: never assume your insurance cost will match the seller’s. Always reach out to your insurance carrier and get a quote based on your situation. If you plan to shop around, get a declaration page with itemized coverage details so you can request apples-to-apples quotes from other carriers. Property Management: Budget for It Sellers who self-manage often don’t include property management expenses in their numbers. But if you’re a newer investor with a full-time job or just want to be more passive, you’ll probably need to hire a professional property manager. This can become a sticking point when trying to make a deal pencil out. Personally, I always argue that a seller’s time has value, even if they’re not paying someone else to manage the property. But that argument doesn’t go far when it comes to lender underwriting. If the deal only works by excluding a management fee you know you’ll need, it may not be a deal worth doing. At the very least, forecast those expenses into your underwriting. To do that, contact a few local property management companies. Don’t just get their base fee—ask about additional costs for maintenance coordination, leasing fees, admin charges, and anything else they’ll bill for. That’s how you get a real sense of your future operating costs. Income Upside: What the Seller Isn’t Doing So far, we’ve talked mostly about expenses—but don’t overlook income potential. You might be thinking, “How can I collect more income than the current owner?” Simple: many landlords settle into a routine and stop optimizing their properties. They miss out on rent increases, amenity fees, and opportunities to reposition the asset. Look for opportunities to add value through renovations and improvements. New flooring, paint, fixtures—these upgrades can justify higher rents and attract better tenants. And don’t forget other income streams like pet fees, late fees, parking, or even laundry. Capturing rent growth that the previous owner left on the table is one of the most sought-after opportunities in real estate investing. Final Thoughts: Do the Work, Avoid the Regret No matter what type of asset you’re looking at, it’s essential to perform full due diligence. Take the seller’s numbers with a grain of salt—especially on variable expenses—and make sure you recalculate fixed costs like property taxes, insurance, and management. Doing this allows you to make your best offer confidently, knowing you’re buying an investment—not a problem that eats your cash and keeps you up at night.

In 2024, just over 65% of American households—roughly 85 million—were owner-occupied. Of those, nearly 90% carried homeowners insurance. If you’re one of them, chances are you’ve felt the sting of rising premiums. Since 2019, homeowners' insurance rates have climbed about 38% nationwide, with some regions hit even harder. A few states have seen increases of over 50%, while others have experienced more “modest” (and I use that term loosely) hikes of 10–15%. As of this year, the national average annual premium is $2,329 for a $300,000 home. Whether you own or rent, insurance costs impact your bottom line—either directly through your own premiums or indirectly through higher rent as landlords pass along the costs. So what’s driving this spike in insurance costs? There’s no single culprit, but a few key factors are doing most of the damage. 1. Natural Disasters Are Becoming More Frequent—and Expensive. We’ve seen a rise in extreme weather events: floods, tornadoes, wildfires, hurricanes—you name it. Insurance companies aren’t just reacting to past claims; they’re bracing for future ones. And to do that, they’re raising premiums today to cushion for tomorrow. 2. Inflation Is Hitting Construction Costs Hard. We’ve all felt inflation at the grocery store and the gas pump, but it’s also pushing up the cost of rebuilding homes. Labor, materials, and logistics are more expensive than ever. When it costs more to repair or replace a home, insurance companies have to pay out more on claims, and that cost circles right back to us. 3. They Just Don’t Build ’Em Like They Used To. You’ve heard it before—and in this case, it’s true. Many older homes were built with higher-quality materials and craftsmanship. Today’s construction often emphasizes cost-efficiency over durability. That means more homes made of lightweight materials like wood frames instead of brick, which translates into greater vulnerability to storms and fires, and more total losses instead of repairable damage. 4. Reinsurance: The Insurance Behind Insurance. Here’s a lesser-known factor with a big impact: reinsurance. It’s basically insurance for the insurance companies. Reinsurers step in to cover part of the losses when claims exceed certain thresholds. As claims rise and rebuilding costs soar, reinsurers have increased their rates too. And just like everything else in the economy, those costs trickle downhill, landing right on our doorstep. When you add it all up—weather disasters, inflation, declining construction quality, and reinsurance premiums—it’s no surprise insurance costs are going up. The bottom line? Whether you’re a homeowner or a renter, this is a shared burden. And unfortunately, it’s one more example of how macroeconomic trends and global challenges hit close to home—literally. Jesse Brewer is a real estate investor, broker, and elected county commissioner in Boone County, Kentucky.

Running a scattered-site property management company like CAP Real Estate keeps me on my toes. One minute I'm crunching numbers, the next I'm mediating a tenant issue, and then I'm strategizing about our next acquisition. It's a constant juggling act, and without the right tools, it would be impossible. That's where Rent Manager comes in. We've been using it since the beginning – it's the only software we've ever known, actually. And honestly, I'm not sure how we'd manage without it at this point. They recently did a piece on us for their blog, and it's a pretty good overview of how we use the system. You can check it out here. It's funny because when you're in this business, you're always looking for ways to make things more efficient. Rent Manager has been a real game-changer for us in that respect. One of the biggest things for us is the flexibility of the platform. We've built so many custom processes using Rent Manager's features. From tailoring owner statement packages to generating the exact reports we need, it's all there. The mobile apps, like rmAppSuite Pro, have also streamlined our entire work order process. Our maintenance techs can use it in the field, which means faster turnaround times and happier tenants. And rmResident? That's been our tenant's best friend. They can pay rent, submit maintenance requests, and access their lease info all from their phone. It makes everyone's lives easier. One of the things I appreciate most, though, is the support they offer. Their team is always willing to help, and Rent Manager University has been a lifesaver for training our staff. It's a pretty comprehensive system, and there's always something new to learn. We're even expanding our services now, offering back-office support to other property management companies. And as we grow, I know Rent Manager will be right there with us, helping us scale and continue to provide top-notch service. If you're in the property management business, I can't recommend Rent Manager enough. Do your research, but in my experience, it's the most customizable and comprehensive solution out there. It's an essential tool in our toolbelt, and honestly, I don't know what we'd do without it. Check out the full article on the Rent Manager blog to learn more about how we use it and how it can help you too.

Historically, when a person wanted to buy a new home, they would sell their existing home, take the equity from that, and apply it to purchasing a new home. This would create the “move up” buyer from their starter home since their families were growing and they were in a better position with their career to move up to a bigger home, and this would open their starter home for a younger home buyer that was in a different season of life. Then, as time progressed and their children aged, they would sell that home, take the equity they gained from that, and downsize to a home, often in a different location of the country or style of home, and a person from a starter home would then move into that home, and the cycle repeated itself for years. With the recent rollercoaster of events with interest rates , a lot of homeowners are starting to rethink this position.  During the post covid era, interest rates fell to historic lows, and a lot of homeowners that purchased a home or decided to refinance their existing home locked in a long-term mortgage that was around 3%, some even less than that, and then with the Federal Reserve’s aggressive stance to fight inflation interest rates soared to as high as 8% for some borrowers.  When that is compounded with a lack of inventory in the market, a lot of homeowners realize that they have a lot of value with the cheap money they have borrowed and are choosing to capitalize on that by keeping their existing home as a rental and purchasing a new one to move into , especially since rates are starting to come down some for borrowing, not to the levels as mentioned before, but low enough that with the additional income spread they are earning on their rental home there is enough to cover the difference and then some, all while continuing to build equity in the rental property that can one day be liquidated.  Now you may be thinking, how would the numbers work out for that, and who would take care of it?   Using an example from a house in my area, Northern Kentucky, I’ll walk through some high-level numbers with you. Let’s say you have a home worth $350,000 (the median price in our area is just shy of $300,000). It’s the standard 4-bedroom, two full-bathroom cookie-cutter subdivision house. You have a loan on it for $280,000 (which is 80% of the appraised value), but you secured a loan during the interest rates bottoming out at 3.5% on a 30-year mortgage. The principal and interest payment on that mortgage would be $1,257 per month ( to calculate different amounts, I like to use this free mortgage calculator online: https://mortgagesolutions.net/mortgage-calculator/ .)   In our area, the average property tax rate is close to 1.7% of the assessed value, so in this case of our example, that would put the annual tax bill at 1.7% of $350,000, otherwise stated at $5,950 per year or $496 per month. Insurance for this home will probably cost you about $1,700 per year or $141 per month. The total cost of taxes, insurance, principal, and interest comes to about $1,894 per month. This home, in a typical area, would rent for about $2,500 a month. Take out some expenses for hiring a property manager and a little bit of put back for other expenses you are looking at a net income from your rent, say $2,200 per month, and then you back out your hard cost of ownership that leaves you with approximately $300 a month cash flow.  At this point, you are thinking, “Yeah, that sounds great, but is it worth it?” and in the words of the great salesman Billy Mays, “But wait, there’s more.”  When paying the rent and the mortgage, you must look at a few things.  One of the biggest, and often overlooked, is the principle you recognize (or gain) each year.   I suggest running a loan amortization schedule with the loan, and you can do that here: https://www.calculator.net/amortization-calculator.html  or use your own.   You start off gaining over $5,300 a year in principle pay down, which when you put it monthly is an additional $441 a month, then you start getting upwards of $8,000 - $10,000 per month once you hit years 10 and beyond. So now your $300 a month cash flow is closer to $740 a month with the principle paydown.  In addition to the principal pay down, the interest on your loan may be tax deductible as a business expense.  That analysis is different for each property owner and outside the scope of this article, so I suggest you consult your tax professional.  The same goes for property taxes as well as insurance, all items that could help reduce your tax liability.  Before you decide to sell your home, I suggest you look at your overall financial goals as well as your current means . If you can hold onto your property and still purchase the new home you want, then it may make sense to take this course of action. Remember that real estate has created more millionaires than anything else in this country and continues to be a haven for those trying to build and preserve their wealth.  Over time, that second home can add a substantial amount of cash to your retirement picture, so don’t be too hasty to unload it today to save a few hundred dollars a month on a new mortgage when you may be able to keep it, make up that same money (and more) in cash flow and equity gains plus gaining market appreciation and potential tax benefits against your current working income.

I know a lot of investors that look for apartment buildings that are distressed in some form or fashion, or the property is a “value add” opportunity.  Before I get into the content of this blog, let me first explain what I mean.  “Value Add” opportunity is just what it sounds like.  It is an opportunity for an investor to purchase a property that is “distressed,” meaning there is something wrong with it, such as it has a lot of vacancies, has been poorly managed, something is physically wrong with it, and it needs a lot of work or a combination of the three.  So, when an investor purchases a “value add” opportunity, they are purchasing a property with these problems, which is usually all three or sometimes even more, and they are going to put in the money, time, and resources to cure these problems and increase the value of the property.  So, now that we have defined what a value-add opportunity is, I’m going to talk about the repositioning of the value-add project itself.  Repositioning is the actual process you go through as an investor to take the property from its distressed state to its market value state.  This is the act of getting rid of bad tenants, doing renovations to bring the property up, and then putting new tenants in, often in that order or something very similar.  If the property is a larger multifamily property, then chances are you will start to work on some of the property while leaving some existing tenants in for cash flow reasons.  These tenants that you inherit are the real subject matter for the “double dip” theory I’m about to expand upon. Depending on the time of year and the geographic location of your value-added property will determine how much of the “double dip” effect you will experience.  The warmer it is outside, the less of an impact, or rather, the quicker you will get through the dips. But if it’s colder outside and you take over a property in, say, late fall going into the winter months, then you can experience “tenant hibernation,” and the double dip may take a few extra months to fully work itself through the cycle.  The first dip in occupancy you will experience is the easy one to spot.  This “first wave” is tenants who simply do not pay their rent.  You will find these people out within the first 30-90 days of operation.  They will at first have an excuse as to why they didn’t pay.  If it’s in the first month, it will be something along the lines of, they were confused and didn’t know where to send it, or They paid the old owner, doing this is a stall tactic while you give the benefit of the doubt, etc., or they will simply avoid you.   Some of these will pay for a partial or even full month the first month or two, but you will have identified these wonderful human beings within the first ninety days of operation.  The second dip , or second wave of deadbeat tenants, is a little harder to spot, and depending on the time of year you are taking over the property, it could be prolonged.  These tenants are the problem tenants.  The ones that pay their rent, but they are a nuisance to the property.  They have junk all over, they piss in the hallways, they are fighting with neighbors, or they have a spouse they are always arguing with or something.  These tenants make it hard to get good new tenants in.  Now, if you are taking over in the summer or spring months and it’s warm outside, you will find this tenant relatively quickly.  They like to frequent the property outside by drinking and carrying on, so it’s not hard to spot; however, if you take over when it’s cold or in the fall going into cold months, you may not spot them for quite some time since you are initially dealing with the non-payers and these tenants will pay initially then slip into hibernation on you and not emerge until spring.  The problem with this happening during the winter months is if you are doing your job right and repositioning the building, then you have new tenants moving in.  So, you will take your initial dip in occupancy with the non-payers, start to come back up, then you will have the second dip of asshole tenants, and then you will dip back down again, and then after that, you will start to steadily climb back up with a better tenant base.  Unfortunately, there isn’t a cure for this.  The only known cure is to buy a property completely vacant, and not everyone can do that, or those opportunities are not always available.  The best you can do is ask the landlord during your due diligence for bank deposit records of paying vs. nonpaying tenants.  Make sure the deposits match up to what the rent roll they are providing you.  If the rent roll says $10,000 per month and they are showing you consistent deposits in the $7,000 - $8,000 per month, then you know you need to ask questions.  Did new tenants move in?  Why the discrepancy?  For the second dip, this is harder.  You must make multiple trips to the property before you buy it and when you first take over.  You need to interview tenants and ask them who the problems are.  Call the local police before you purchase the property and ask how frequently the police are called on the property.  Trust me, if there is a tenant that is always getting the police or fire to call on them, you will find out soon enough, and chances are they will be part of the second dip of tenants you must evict.  Jesse Brewer  Licensed Real Estate Broker and property investor

If you own rental property and self-manage, then chances are you have considered at some point hiring a property manager at some point, or maybe you are considering it now.  If you are on the fence about hiring a property manager for your current or future investment properties, then here are five reasons why you might want to lean more toward the side of hiring one.  Reclaiming your time -   Owning an investment rental property can take up a lot of time, and often, the time you need to spend taking care of something comes at an inconvenient time in our day-to-day routine.  Tenants have needs, and things go wrong in a house or apartment If you are the manager, they are going to call you wanting a resolution.  Whether it be getting someone to clear the clogged toilet, fix the leaky sink, get them in because they have lost their keys and are locked out, or whatever the case may be.  Issues come up and take time, and time is a commodity that most of us do not have enough of. Helping source manpower and other needed things - right now, manpower and general labor are at a premium, and most of us are having a hard time getting qualified folks to show up and do the job.  If you have just one or two properties, you may not garner the same response and attention from a qualified tradesman that someone who manages, say, 1000+ properties would get.  So, by allowing a manager to manage your properties for you, there is an increased probability that your property will get the service it needs promptly instead of just trying to do it all on your own. Financial reporting - The back-end financial reporting on your investment property is just as important as the day-to-day needs of taking care of the property.  You can save or lose thousands of dollars in paying for things you do not need to, not accounting for expenses for your taxes properly, and not being able to identify issues promptly.  Good reporting can keep you current with the expenses and trends of your property and save you a lot of money and headaches in the long run.  Maximizing the investment - A lot of the self-managing owners I talk to generally do not keep up with the current market rates and trends on rental rates and apartment finishes to be competitive in the market.  A good property manager can help with both since they are doing this full-time and are plugged into their markets to see what the rental rates are.  Chances are, if you own a property and manage it yourself, there is a likelihood that you are leaving money on the table in rental rates that can be maximized sometimes, these increases in rates can offset most of the expense of a manager and you can pay for it and still enjoy the other benefits of a good management company.   Avoid burnout  - If you self-manage a property, then there is a high probability that you will eventually experience burnout, and if that happens, then you will be less likely to continue to invest in real estate and grow your portfolio and opportunities, thus negating the very reason you started investing in the first place.  A good manager can keep your perspective fresh and positive and focused on opportunities to earn profit from good investments. No matter what type of property you have, there are benefits to hiring a manager, and often, the savings and value they can bring to the table more than pay for their services.  Here at CAP Real Estate, we specialize in residential real estate, such as rental homes and multi-family housing.  If you would like to schedule a consultation to see how our services can benefit you, please contact us using the form below.

Property managers are just like any other professional trade.  You have some good ones, some bad ones, some that are burnt out, some that are new and trying to get started, and some that are just mediocre.  There are things that I always suggest to clients to look for when selecting a property manager, and while you may not find one with all the qualities, traits, and skills that you want, it is important to get one that you feel is best suited to work with you and your ownership/investment style.  With that said, here are some of the most desired traits I recommend in looking for a property manager: Licensed real estate agent  - Most states require property managers to be active licensed real estate agents. Those who manage property and are not licensed real estate agents are most likely practicing real estate without a license, and that is a crime punishable by fines and other measures of the law.  The way some people do this without a real estate license is that they are direct w2 employees for a larger property company. That is the only way to manage property that you do not own for someone without a real estate license is to be a w2’d employee of the owner. Type of experience - A lot of managers will tell you that they have experience (and maybe they do), but often it’s not the type of experience that is needed.  There are so many different property types, and each type requires different management styles, so you want to make sure you are finding someone with experience in your type of property.  If you own older “C” class type housing (if you are not familiar with property grades, see my blog about how to grade your investment property ) but the only experience they have is with newer class “A” products, then chances are this manager is not going to be a fit for your portfolio.   Do they own property themselves – For me, this is one that I think is important.  I have found that the experience I got from being an owner of property myself has been invaluable.  I equate it to the same lines as would you trust a cook who never eats their food type of thing.  Other property owners know the struggles, hardships, risks, and the importance of budgeting and preparing for issues that arise.  I fully endorse using a property manager who also has (and is currently) walking in the same shoes as ownership as you are.  Property management software  – Make sure that whatever manager you use has good software that is easy for you to understand the reporting from.  I’ve seen too many property management reports come out that are hard to understand and follow, and this leads to other problems that could cost you, the owner, thousands of dollars and wasted time.  Ask them to see a sample report, and then ask them to schedule some time with you during your first few reporting cycles so that you understand how the reports flow.  In addition to the reporting, make sure that your manager offers you online portal access so that you can check things on your own time as opposed to having to wait for them to reply with information.  Speed of info will often help alleviate problems and allow for quicker decisions on other important items.  Report release and frequency - At a minimum, property managers should be releasing monthly statements to the property owners, but more importantly, when they release them.  If they are 40 -60 days in arrears of reports, this could cause problems if expense issues are piling up that you are not finding out until it’s too late.  Ideally, you will want to see a report no later than the 15th of the month for the previous month, and any sooner than that, consider it a bonus.  Be sure before you sign a contract with a management firm to ask about this and find out when they release their statements and, more importantly, when they pay you Here at C.A.P. Property Management, we use software that not only has owner portal access but is very user-friendly.  We also believe in speed in getting info to our owners, so in addition to updates during the month about big expenditures that are coming due on the horizon, we also get our clients out their statements within 5 days or so of the month for the preceding month.  If you would like more information on our reporting and what we can do for you, please email using the form below for a free consultation.

There are all sorts of deeds when it comes to real estate, and each has a different type of purpose.  While certain deeds may be limited to different states for reasons, I’m going to list out the different types for Kentucky and Ohio. General Warranty Deed - This deed is considered the best for the grantee because it offers the most legal protection.  The grantor makes promises about the property, including that there are no prior claims.  This is the most common deed used, and in residential transactions, most lenders will require this type of deed as a loan condition.  Used in Kentucky and Ohio. Special Warranty Deed – This deed offers the grantee more limited protection than a general warranty deed.  The grantor promises that they have not created any issues, liens, or other defects on the title while they owned it.  This would be a common type of deed used when a bank forecloses on a home because the previous owner did not pay their mortgage.  Used in Kentucky. Quit Claim Deed - This  is the type of deed to transfer a property in a non-sale situation, such as a transfer between family members or if you are taking it from your name to an LLC. You created or some other entity for asset protection.  There are no assurances that the grantor has an ownership interest in the property, it merely states that IF THE GRANTOR DOES, then they release those ownership rights. Used in Kentucky and Ohio. Special Purpose Deed - These deeds are used in court proceedings or allow those acting in an official capacity to make property transfers without incurring personal liability.  Someone who is an executor of an estate may use one of these or a special warranty deed when selling a property from an estate.  Used in Kentucky and Ohio Transfer on Death Deed – These are deeds that can be used in Ohio and allow property owners in Ohio, as well as certain other states, to pass real estate directly to a designated beneficiary upon their death.  This is an estate planning tool that can help you avoid probate court and save money and time.  Always consult your estate planning experts before utilizing a tool like this to make sure it’s the right fit for your needs.  Master Deed  - This deed is used when a condominium owner must file with a local government agency when a property is being divided into condo units.  These are used in most states. Fiduciary Deed - This is used when an owner of a property can’t sign a deed for legal or other reasons.  Commonly used when there is an estate being settled but can be used in other circumstances. They are also known as Trustee's deeds and are used in Ohio and Kentucky as well as several other states.  Survivorship deed – This deed transfers real estate ownership to two or more people as joint tenants. When one of the owners dies, the surviving owners automatically inherit the deceased owner’s share of the property without going through probate.  They are used in both Kentucky and Ohio, as well as several other states.

If you invest in commercial real estate, you may have heard the term debt service coverage ratio (DSCR), which is the property’s ability to cover its mortgage.  DSCR is a key factor that lenders and investors consider when assessing a property’s financial health. Lenders will have minimum DSCR requirements based on the loan project the borrower is seeking and will take into account not only the DSCR of the property but the global DSCR of the borrower(s) themselves, meaning that if you have a property that does not cash flow well but has a lot of potential upside to increase the value and cash flows, they lender can consider the financial strength of the borrower as a whole to make up for the properties lack of performance. On the other hand, the adverse can come into play as well if you have a property with great DSCR, but the borrower is not so strong and can pull the property down then the lender may not want to make the loan or require additional collateral or equity (down payment) be put into the transaction.  Now that you know what DSCR is, let’s look at how to calculate it. The formula is not as complex as it sounds, and we will look at how to calculate the DSCR of a property as well as an investor globally that has multiple properties.  Step 1 – calculate the property's Net Operating Income (NOI)   Step 2 – Determine the annual debt service (loan payment) and include the principal and interest payments. Step 3 – Divide the NOI by the annual debt service. Step 4 – Multiply by 100 to convert the DSCR from a decimal to a percentage.  For example, let’s say a property generates an annual NOI of $500,000 and it has a yearly mortgage payment of $400,000.  Using the DSCR formula, you would do the following:  $500,000 / $400,000 = 1.25.    The DSCR is represented by “x” after its value.   Most lenders want to see a debt service coverage ratio on a property of greater than 1; however, when you are looking for larger commercial-type loans, the lenders want to see a DCSR of greater than 1.2.    When calculating the DSCR of a potential investment, it is important to put in good data to determine the properties NOI.  A lot of investors will rely upon the seller's financials for this, and that is a mistake.  As an investor, you must use expense numbers that you would incur while operating the property.  This means accounting for things like property taxes reassessing to the new tax value, increased insurance cost, and other expenses such as 3rd party property management (if you are using one), allowing for a market correct vacancy allotment, etc.    So, to calculate an investor’s global DSCR, you would use the same formula as for a property; however, you are using the investor’s total net operating income and dividing it out by the annual debt service payments.  If you need to calculate a DSCR on an individual to determine their ability for a residential mortgage loan application, you would take the individual's total gross income (including all their wages, pensions, dividends, rental income (NOI), interest earned) and divide that out by their total debt service obligations, which includes principal and interest on any mortgage, car loan, boat loan or anything with debt payment.  What this does is essentially give a picture of how well their overall income can cover all their debt payments from different sources.   The formula would look like this:  GDSCR = total gross income / total debt service. A higher GDSCR means that the borrower has a greater ability to manage debt levels and shows an ability to be able to repay, whereas a lower GDSCR could mean the opposite.  Different lenders require different levels of GDSCR for different loan programs.  It’s best to have an idea of your GDSCR when looking for a home or investment property so you can be more equipped to secure financing when you need it, making you a more prepared borrower and able to execute the transaction.

When shopping for a new home, you will often hear things from real estate agents that you need to be “pre-approved” or “pre-qualified” for a loan.  While these two terms sound the same and are often confused with one another in their meaning, they mean entirely different things and have different weights for your purchase offer when accompanied by it.  A pre-qualification for a home loan is a quick and simple process that gives you an idea if you can qualify for a loan or line of credit.  With this, the information you provide the lender with is usually verbal (or just stated) without having to submit documentation.  With a pre-qualification, you have not made an application to the lender yet, but it does show potential sellers that you have contacted a lender and that you are moving forward in the direction of securing a mortgage loan when you need to get one.  While it may not carry as much weight as a pre-approval, it is a sign that you are somewhat starting to be prepared and not looking to waste a seller’s or a real estate agent’s time.  A pre-approval  for a home loan is a written letter from a lender that says you are likely to qualify for a loan up to a certain amount.  There is still a review that is needed of your financial history, including things like your current credit score, assets you currently have, income that includes dividends, pensions, and other investments, as well as your current debt obligations.  It is not a guaranteed offer for a loan, but it can help you in the home-buying process since it shows potential sellers that you have already started the process of obtaining a mortgage and are well on your way to ensuring a successful closing transaction.  A pre-approval is much more detailed than a pre-qualification since you have taken the time to submit actual financial statements such as your W-2, bank statements, tax returns, and other requested items.  Remember, when shopping for a new home, it is important to make sure that you are eligible and qualified to get a home mortgage loan as well as know what your borrowing capacity is.  It’s best to be prepared and know what your budget is instead of finding your dream property only later to learn it’s out of reach because of your current financial situation.  A prepared borrower makes a great buyer; those are words to live by when shopping for a home in this competitive housing market.

When purchasing a new home or investment property, there are a lot of additional costs and fees associated with the transaction.  Some costs are associated with selling a piece of property, as well as the cost of purchasing one. These various fees are to different 3rd parties as well as the lender and are often referred to as “closing costs,” which are not to be confused with buyer “prepaid” when we will discuss after we break down the closing cost. In this article, we'll talk about the Buyer fees on a customary real estate transaction.  These are fees that most buyers pay when buying a home and taking out a mortgage.  Some of these fees may vary from state to state, but as a rule of thumb, these are the consistent fees you will see on a transaction.   Application fees - Just as it sounds, this is the basic fee that a lender will charge to process and take a borrower’s loan application.  They do this to ensure that the borrower is serious, but it is also a revenue generator for the lender.  While some lenders may not charge a fee at all, others may charge as much as $500. If you have an existing relationship with the bank, such as a car loan or checking account, it may be something you can ask and negotiate with them to reduce or eliminate.  Appraisal - To secure a mortgage, a lender will require an appraisal, and this is a fee that the borrower will need to pay.  Residential appraisals vary in price, but they will cost somewhere between $500 - $700.  This is one of those fees that lenders cannot get around or have much control over since the appraisals are assigned by a 3rd party process to avoid lender fraud and help protect the consumer by not having a property’s value falsely inflated to make the loan process work.   Attorney fees - The title pretty much sums up the description.  These are the fees that the attorneys charge for the transaction to do several things.  These fees can vary depending on the location and complexity of the transaction, but for a relatively simple transaction, you can anticipate them to be between $500 - $1,500, and they cover things like reviewing contracts and loan documents as well as being a general transaction counsel and facilitating the actual closing.  Document and Courier fees - This fee covers the cost of delivering all the necessary documents for the closing and generally costs $30 to $50.  This is one fee that, in my opinion, you as a buyer should ask for to be waived since, in the day of modern technology, most documents are delivered electronically; however, a lot of buyers and their agents do not know that some of these fees can be negotiated and do not ask.  Real Estate Commissions -   This is one fee that has historically and customarily been paid for by the sellers; however, with the recent lawsuit settlement in Burnett et al. v. The National Association of Realtors et al. where the NAR settled for violation of antitrust laws involving commissions.  Now, as the new rules come into effect regarding commissions, this is a fee that you can see on either side of the settlement statement depending on how the contract and transaction are negotiated between the buyer and seller and their respective real estate agents.  Inspection fees – This is a transaction fee that you may have to pay regardless of whether you close on the home or not.  It’s the fee to have the home inspected, and it is also an optional fee for you, the buyer, unless your lender requires it.  Along with this fee, you may have a termite inspection fee, radon inspection fee, or lead base paint inspection fee.   The home inspection fee, which is the most common, is around $500, while the other inspections can run anywhere from $150 - $500, depending on the size of the home and the level of detail you need.  Title Insurance (owner’s optional) - This is an optional policy that protects the buyer’s financial interests in the property from title issues.  It covers the full value of the property and lasts if the buyer or the heirs of the buyer have an equitable interest in the property.  It will protect against all claims that predate the purchase of the property, such as the previous owner’s failure to pay the contractor’s liens or property taxes.   When purchasing a home, if the seller has a policy in place from their purchase, then there is a good chance that the same issuer will discount the policy for the new buyer.  This isn’t a guarantee, but it is worth asking your real estate agent and closing title company representatives if there is an opportunity. The cost of these policies is set by state statutes and vary state to state, in Kentucky a title insurance policy will cost approximately 0.5% of the home price, but these rates can change with new state regulations, so it’s always best to consult the title agency for an exact quote.  Title Insurance (lender’s policy) – Unlike an owner’s title insurance policy, lender’s policies are not optional.  This policy will protect the lender from title issues that could impact their investment in the property and only covers the amount of the loan and will expire once the loan is paid off in full.  These rates can vary from state to state but are set by state regulations and generally cost less than 0.5% of the home purchase.  Title search/title exam fee – This is an exam of the property’s title records to verify the current owner’s legal rights to the property.  It also looks for defects, liens, or other issues that can cause new buyer issues. If there is a mistake in the exam, your title insurance policy would cover the mistakes and defects, should you have happened to purchase it.  Typically, a title exam costs between $200 - $300 and is paid at closing with the other closing costs.  Loan origination - This is a one-time fee that a lender charges a borrower for processing the loan. The fee is a percentage of the overall loan.  Sometimes, it can be as low as 0.25% up to 2% of the loan.  If you have the conversation at the start of your loan process, you may be able to reduce this fee significantly, especially if you are a class A borrower and have multiple options of lenders to choose from.  Recording fee – This is a fee paid to the local county office where the new deed and mortgage documents are recorded.  These fees not only vary from state to state but can also vary from county to county within the state.  Typically, you can expect this fee to be anywhere from $50 - 150 dollars.  Survey fees – Most states do not require a property survey to be completed for a real estate transaction, it is often recommended that you do one.  This can cost anywhere from $200 - $700 on average, depending on who you hire to do it and how big the property they are surveying.  Credit report fee – This is the fee the lender can charge to pull the credit of a borrower.  The fee is usually between $15 - $30 but varies depending on the state of the credit information and provider.  Some lenders may not even charge this fee, but others do, so it’s best to have the conversation up front so you can anticipate the total costs of your real estate purchase.  Flood certification fee – Most lenders are going to require this to ensure the property is not in a flood zone.  This fee can vary depending on location, property size, and terrain challenges if needed, but most residential transactions have this cost below $200.

A lot of people who are investing in real estate often confuse CAP Rate and ROI (Return on Investment) as being the same, but they are different.  The cap rate is the expected return based on the property value, but the ROI is the return on your cash investments, not the market value.  There are a few key differences between cap rates and ROI’s when determining an investment’s potential.  The cap rate formula considers only the net operating income (NOI), which is the income that is left over after all the operating expenses have been paid, but does not consider any debt (mortgage) obligations that encumber the property.  It is a good calculation to use for a quick and dirty analysis when comparing properties and what a quick look at which one may have the most potential.   The ROI is a little more in-depth and considers the annual cash return after the debt payments and other operating expenses.  It also looks at your actual cash investment, not the current market value of the property.  This is a big difference since the cap rate assumes an all-cash investment, whereas the ROI considers how much money you are putting down, transaction cost, as well as any other cash injection for renovations and repositioning of the asset.   Deciding whether to use cap rates vs. ROI to compare properties is a big decision.  Personally, I recommend using both.  The cap rate calculation assumes that there is no debt on the property, whereas ROI can be used since it only considers the amount of money you are putting down on the property, in the case of a real estate transaction, your down payment and other hard cash you are putting into it.   Now that you have a better understanding of the difference between CAP rate analysis and ROI, I’ll break out a formula to calculate each of them. CAP RATE formula:   Cap Rate = Net Operating Income (NOI) / Current Market Value (or for the sake of analysis to determine if you are going to purchase a property, it would be what you are paying for the property.) So, if a property is generating $100,000 in annual net income (NOI) and has a purchase price of $1,000,000, it has a cap rat rate of 10%. The equation would look like this: $100,000 / $1,000,000 = .010 or 10%.     This is important to take with a grain of salt since you are using the seller’s provided information on expenses if you can substitute expenses that you know you will have, such as adjusted property tax values, adjusted insurance values, and your cost for management and other operating expenses that the seller may not have included.  Return On Investment (ROI) formula for cash transactions ROI = Net profit / total investment Example - You paid $100,000 in cash for a rental property.  The closing costs for the property were $1,000, and you spent $9,000 remodeling the property, but you collected $1,000 in rent each month. A year later, you have now earned $12,000 gross, but your expenses, including the utilities, taxes, and insurance, total $200 per month, or $2,400 for the year, earning you $9,600 net operating income. The property’s ROI would look like this: $9,600 / $110,000 = .0087 or expressed as a percentage, 8.7% Return on investment in year one.  Assuming all things stayed the same on this investment for operating expenses in year two, but you didn’t have to do any renovations or closing costs, your ROI would look like this: $9,600 / $100,000 = .096 or 9.6%. The ROI for financed transactions is a little different.  We are going to use the same example as above but apply loan leverage.  So, let’s assume you took out a 30-year loan on the property with a fixed 4% interest rate.  You took out a conventional loan, putting down 20%, or in this case, $20,000, borrowing $80,000.   The payments for an $80,000 mortgage for principal and interest would be $381.93 per month.  We will add in the same $200 per month to cover utilities, taxes, and insurance, making your total monthly outlay $581.93, and we will keep the same rental income at $1,000 per month ($12,000 for the annual term).   Your annual return on this was $5,016.84, calculated by taking the NOI of $418.07 (which is the $1,000 - $581.93) multiplied by 12 months.   Now, to calculate the ROI, it’s going to be a little different.  In our earlier example on this property, we paid cash for the investment, but here we are utilizing leverage, and since ROI is a return on investment that is based on our cash outlay, it will look like this.   $20,000 for the down payment, closing costs were $2,500 (since financed transactions have higher closing costs than cash transactions), and renovation work was $9,000 for a total cash outlay of $31,500. ROI = $5,016.84 / $31,500 = 0.159 or expressed as a percentage of 15.9%. You can see in the case of applying leverage that the return increased significantly.   Now, taking the same example, assuming all things were the same in operations for year 2, but you do not have the closing costs or renovation loan, your ROI would look like this: $5,016.84 / $20,000 = .2508, or expressed as a percentage, 25%, and the bonus here is we did not factor in the I.R.R. (Internal Rate of Return), which is unique to each investor because it considers tax saving implications and things like interest payments on borrowed money for investment business purposes can be considered a tax deduction against other incomes.

If you have been in the market for a new home in the last few years, you know the challenges many buyers, especially those looking to purchase their first home, are experiencing. For those of you who have not been in the market lately, consider yourselves lucky; however, I am confident that you are aware of the difficulties buyers are having finding a home they can afford The media correctly reports that we are in a housing affordability crisis. The coverage has spurred calls for local and federal government to do something about the situation. But this is not a new problem. Looking back at the financial crisis of 2008, which was led by the subprime mortgage meltdown, many builders could not keep up with population demands and trends for housing.  Banks’ reluctance to lend, coupled with marketplace uncertainty, resulted in many builders sitting on the sidelines and not willing to take unprecedented risks. This underbuilding caused a ripple effect that dwindled future demands for the next 10 to 15 years. Since generational behaviors and patterns tend to shift from one generation to the next, this was one of the ingredients that went into the pressure cooker that is now the current problem we have today. As the economy and housing markets improved, builders once again started building but were unable to keep up with the current demands, a situation augmented by excess demand from the earlier backlog. Another key ingredient is a lack of a trade workforce. For years, many younger folks were opting for traditional college education rather than trade schools. For a time, if you went to a trade school over college, it was you “weren’t smart enough” or could not afford it. This trend continued for several years, and it was only in recent years that the messaging around this started to change. Another one of the more complex ingredients in this housing affordability is hyper-inflation. This topic alone has been front and center in countless articles and interviews and is layered in from other issues in the economy.  When the Federal Reserve prints money and keeps pumping it into the market, it devalues the money that is already in place. When that happens, prices go up. When prices go up on goods and services, then wages must also rise to maintain standards of living. But wage growth in the already strained building trade work pushes up the cost of housing. This is a cycle that repeats itself and compounds the existing problem. While it is often overlooked, one of the key issues that led us to this boiling point is interest rates, right before and during the pandemic, interest rates plummeted. They dropped fast and hard and stayed there for quite some time. When the cost of borrowing became next to nothing, home buyers spent more money on a home while locking in longer-term debt. Or they took advantage of low borrowing costs and refinanced to pull cash out of their home . The new money flooding into the market left homeowners with cash to hire contractors for large-scale home improvement projects, putting additional strains on the building trades workforce and material supply chains.  Low interest rates created some other unintended consequences. Most residential mortgages are fixed at the originated rate for a 30-year term. If the borrower does not refinance the home or pay additional principal on the loan, then the mortgage payment will remain constant (except for changes to insurance costs and local property taxes). Since most people tend to either refinance or sell their home within five to 10 years, this has not been an issue – until now. Against this backdrop of the housing market, the Federal Reserve moved to slow down historically elevated levels of inflation, which contributed to the excess printing of money. Meanwhile, the federal government forgave billions of dollars of student loan payments, allocated stimulus monies, and took other drastic steps. The Fed had only had two steps to take: First, they stopped pumping extra money into the market, and Second, they began to aggressively raise interest rates at a historic pace. In less than two years, the 30-year interest rate on a mortgage went from around 2 to 4 percent to more than 7.5 percent, which crippled buying power. In addition, homeowners with low rates now feel stuck because if they sell their home to purchase another one, they must do so at a much higher rate, which drastically increases their monthly payments. This results in potential buyers/sellers staying on the sidelines and putting even more stress on the already dwindling supply. So, what happens now? There seems to be a growing opinion for local government to step in, but the options are limited. Local government could allow variances for zoning density, issue some tax abatements, or even potentially offer some bond financing for large-scale projects. However, it is unclear if such steps would have any significant impact. The challenge with tools is that their effectiveness will not be known or realized for years to come.  We did not get to this current state of the housing market overnight, and we surely will not get out of it overnight. Population trends are shifting again as younger generations are having fewer kids, which could create some stabilization by reducing the needs of today’s market. But those are long-term changes that do not answer the short-term demands of today’s buyers. The only genuine advice to anyone looking now is to be patient but also persistent and have flexibility when looking for that first home to purchase. Jesse Brewer is an elected Boone County Commissioner as well as a licensed Real Estate broker.

Shopping for property insurance can be one of the most daunting and overwhelming tasks when owning real estate.  Beginners and seasoned investors alike are often pulling their hair out trying to find not only the right policy for their needs but also being sensitive to the cost since owning investment real estate is a cash flow business.  While there is no exact formula for success in shopping for insurance, there are some steps you can take to not only save yourself some money but also make sure you have the right coverages in place.  If you are going to have a career in investment real estate, one of the greatest assets you will have is your ongoing relationships with service providers, and a relationship with a great insurance agent is one of them. With a good insurance agent, you can count on them to periodically review your policies when they are up for renewal to ensure you are getting the best deal possible. It will also help you understand just what exactly you need as far as different coverage amounts, types of policies, and other pertinent information.  As with all relationships, it does require some work.  If you are not actively buying property, you can still work to maintain the relationship with the agent by making them referrals and sending them holiday cards.  While it seems kind of basic, these things go a long way, especially currently, with everyone being on the go.  It shows you value the relationship when you take a moment to show them appreciation.   One good way to keep your insurance costs down is to understand what coverages you need.  Your insurance agent can help you with the options, but you will need to know what is best for you.  Often, investors will take out a policy that is full replacement cost.  This may be because that agency requires it, or the investor simply does not know any better because that is what they are used to for their house.  While this is a personal risk tolerance policy decision, I ensure the amount that covers my entire investment plus some additional in case of a total loss situation and I need to raze the demolished structure.  If there is a mortgage in place, the insurance needs to be enough to satisfy the mortgage, recoup any hard cash I put into the deal, recoup any additional dollars I put in for renovations, and then a little cushion.  This can save you thousands of dollars in premiums, and since this is a cash flow business, I would prefer to have as much cash coming in as possible, all while hedging my investment dollars and liabilities should the rare chance of a total loss.  The risk is that if you do have a total loss, you will not have the funds to rebuild entirely; however, you will have recovered all your investment and still have the lot to sell off or keep and build something new on should you choose to do so.  While keeping with knowing what coverages you need, it’s also important to make sure you have the right number of coverages for personal injuries.  Things like slips and falls do happen, and tenants can sue, looking for an insurance payout.  While this is rare, it does happen, so you need to make sure you are protected.  There are also a lot of other coverage riders available to you that you may not be aware of and would want.  Things like loss of rental income should a tenant be displaced, code enforcement coverage, which is a rider you can purchase that will kick in should you have a large loss, and local building enforcement requires you to bring the property up to current codes.  This is something you see in older buildings typically, but if you are in this situation, the insurance will only cover “what was existing” even if it is not up to code, and it will be on you, the insured, to bridge the gap.  So, on all my properties, I purchase anywhere from $25,000 to $50,000 of code enforcement coverage just in case I have this happen to me, and yes, I have had to use it throughout my career.  It is important to also know what insurance companies require you to remedy on a property before purchasing it.  For example, a lot of insurance companies will require you to replace Federal Pacific Electric panels and their stab-lok breakers.  They were manufactured and installed from the mid-1950s up until about 1986, so if you are investing in multi-family and you are newer to the business, then there is a good chance that this is vintage you are going to be looking at.  Insurance companies may require you to replace these since they are known to be prone to overheating and causing malfunctions, and when that happens to electricity, there can be a real concern for a fire and safety hazard.  If you acquire a property and then the insurance company sends an inspector out, they may require you to change these or cancel your coverage. Depending on the location of the panels and other factors, this could cost a few thousand dollars per panel, if you are like me and focus on multifamily properties, you can see how the costs will add up quickly on this.  Be informed and find out what insurance carriers will allow and not allow, and keep in mind just because they allow it now does not mean they will in a couple of years, and if they have a policy change, they can still require you to make a change or deny you the coverage renewal.    Looking for insurance is a very important step not only in the acquisition of a new property but also in the ongoing ownership.  You need to keep up with new building trends, restrictions on coverages, and property conditions, as well as make sure to eliminate threats that could trigger claims, such as dead trees too close to the property or a tenant with a dog that is considered a vicious breed (such as a pit bull) since there are a lot of carriers that have breed restrictions.  I also recommend paying attention to surcharges and other fees that are outside the policy premiums so that you do not get sticker shock when you see the total of the statements.   I know this sounds like a full-time job in and of itself, but the further you grow in your investing career, the easier, and even more important, this becomes.

Recently, I saw a local news story about a family that got scammed out of $3,300 trying to rent a home right here in my home county.  The family’s story is not unique, but sadly, it is becoming more and more of a growing issue in our society.   Housing-related scams were up nearly 300 percent in 2022 and growing at an alarming rate.  With the rental market becoming more and more competitive for families due to rising interest rates, restricted supply, and many other factors, scammers are taking advantage of hard-working families in search of housing.   Unfortunately, there is no foolproof way of ensuring that a potential renter is not being scammed; however, there are some simple steps you can take to greatly reduce that risk if you pay attention and look for them. Always ask for an in-person tour of the home. Most scammers are trying to avoid meeting you at the property. They want you to first send money. This is a big Red Flag. Do not send money; instead, schedule a tour, but don't go alone or take cash with you.  If you like the place, offer to go get a cashier’s check (or even take one with you). This will provide an extra layer of protection that can help against physical acts of violence and other criminal acts.  If the rent is too good to be true, then chances are it is.   In this competitive rental market, property owners know the value of what they have in a good rental home.  If you see a rental price that is too good to be true, then I would suggest doing a little further investigation to ensure its legitimacy. But do not let a person give you the “fear of loss” sales tactic. Do not send any money to hold the house - no matter how good the price - before you get to tour the rental home.  Look the property owner information up in tax records .  In this day and age, most information is accessible online.  I would suggest getting the name of the person you are working with and then looking up the property tax records (in Kentucky, the Property Valuation Administration, and in Ohio, the Auditor) and seeing if they match up.  If the property is owned under a limited liability company name, then you should take the next step to go to the Secretary of State's website and look up who owns that business.  This is not always going to match up 100 percent of the time, especially if you are dealing with a management company or a leasing agent.  If that is the case, see tip number 4. If you are working with a management company or leasing agent, verify their credentials .  All leasing agents and management companies have to be licensed real estate agents to legally be able to lease and rent property that they do not own.  If you are working with one of these folks, get their name and ask them for their license number.  You can easily go to the Real Estate Commission office website and look up a licensee online.  In Kentucky, it’s called the Kentucky Real Estate Commission ; in Ohio, it is the Ohio Real Estate Commission .  If they do not own the property nor are licensees, they may be scamming or renting property illegally.  So protect yourself by doing your homework. If the listing details are vague, then do some more investigation.   Not every property owner is going to have full details of the home, but you should expect some details.  If they just list “ house for rent” or something similar, ask questions.  How many bedrooms bathrooms, what is the basement like, etc?  The trick here is to find details about the home that only someone familiar with it would know.  Questions about school districts and bus routes, etc., can all be found online, so focus on details that only someone who has been to the property would know.  There is no tenant screening process.    If someone is willing to let you move into the home without so much as filling out an application, then be concerned!  Even small, private owners have access to screening services. With the cost of evictions and missed revenues on the rise, landlords today must be very cautious.  So, if you get someone willing to rent to you without some sort of screening, then there is an increased chance that they do not own the property and could be just after your money.  They want you to move into the home right away.    If someone is trying to forego a screening process and move you in right away, then chances are they need to move quickly because they do not own the home and are scamming you.   There is no sure-fire way to ensure you are not getting scammed, but if you follow the tips I’ve outlined above, then you can surely greatly reduce the risk. And if you do find that you have been scammed, report it to local law enforcement right away. In addition to law enforcement, make a screenshot of the advertisement just in case it is taken down before authorities can see it.  After you have reported it to law enforcement and saved yourself a digital copy of the ad, then report it to the website you found it on so that they can start their investigation and remove the ad so no one else gets taken advantage of as well.

We've all heard the stories from the mainstream media and from politicians running on housing control platforms about how the faceless, corporate capitalist landlords evict people with zero remorse. Housing groups everywhere are calling for reform and are demanding that property owners be more lenient with tenants who are unable to pay their rent, an argument partially driven by the COVID eviction bans. To understand the true cost of an eviction, we first need to touch on the process of how an eviction works. For the sake of this article, I will focus on my home states where I do business, which are Kentucky and Ohio, both of which are considered by industry standards to be “landlord friendly.”  I will also use the rent of $1,400 since that is the median rent in Kentucky, which is $700 less than the national median.  With most leases, the rent is due between the 1st and 5th of the month.  For example, my leases state that rent must be received by the end of business on the 5th of the month; however, we do allow it to come after that if it is postmarked by the 5th of the month, which is a common practice among landlords. Once the rental payment is late and a notice to vacate has been posted, it is usually around the 10th of the month.  Often, a tenant will then contact the landlord and give their story or explanation as to why rent hasn’t been paid yet. Keep in mind that the landlord is still responsible for things like the property taxes, the mortgage payment that is due monthly, the insurance payment as well as any maintenance problems that could have come up.   A landlord may give the resident a few extra days to pay, but absent a payment, the eviction is usually filed around the 20th of the month. In Kentucky, the local jurisdictions set the court dates to hear evictions. Dates and times vary, but typically, an eviction case is heard within seven to 12 days once a date is established. So, the case is usually heard around the 27th to 30th of the month. If the eviction is granted, the judge generally follows the custom of giving the tenant seven days from the judgment to vacate the premises; that is also the state requirement. However, some judges have been known to give an extra week depending on the circumstances of the case.  Assuming a judge follows the custom, we are now around the 5th of the following month. For the landlord, that means a second month of no income because a tenant who is under active eviction is not going to pay the rent. Other costs, court fees, and legal fees can total another 400 dollars.  The tenant will have been given until midnight of the 7th day to vacate. But as we all know, the courts and the administrative portions of law enforcement do not work at midnight, so the next business day, a landlord must file a “writ of possession.”  This filing costs an additional $40, Judges often hear cases on Thursday. However, many judges and their staff work half days and often do not work on Fridays, so the case can get pushed back into the following week. In our timeline, we are now around the 15th of the second month. So far in this process, we have had two full rental payments not come in, the tenant is still in possession of our property, and we must still maintain the property and pay the taxes, mortgage, and insurance on the property- all while we are not generating any income. Once the writ is signed by the judge or magistrate, it is then sent to the sheriff’s department and must be scheduled for the set-out. The set out is where the sheriff accompanies you and your workers, and you physically go to the property. The sheriff removes the tenant, but the landlord must move all their belongings out to the street and “set them out.”    As with most administrative functions in government, you can guarantee that this isn’t “same-day service.” The setout can take from two days up to a week, not to mention the additional costs and issues for the landlord. Most cities will give you only 24 hours to leave items at the curb before fines are levied.  These setouts can vary drastically in cost, but if you have gotten to this point in the process, you can anticipate, at a minimum, that you are spending an additional $500 to remove the items from the rental unit and then dispose of whatever the former tenant has left behind.   Once the setout is completed, we are now at the 20th of the second month.  In more than 20 years in this business, I can tell you that I have never seen a unit that was rent-ready, clean, and good to go for a new tenant to move into after an eviction. There is almost always trash left behind, painting that needs to be done, touch-ups that need to be made and repair any intentional damage to the property, which does happen.  Even absent major damage, the cost is now at about $1,000. It takes a week to 10 days to get the apartment ready to rent, so our timeline of having the unit ready to rent is now on about the 5th, the third month.  So, to cap our cost so far here, on a $1,400 rental, the landlord is out three months of rent for a total of $4,200; legal fees of $440; set out costs of $500; and another $1,000 to prepare the unit for a new tenant. The total under this scenario is a whopping $6,140. Now that we have the cost, a lot of people are thinking while that seems like a lot of money, all landlords are still rich. That's simply not true. In this business, a landlord’s profit margin is thin.  Approximately 92 percent of every rental dollar goes to pay the landlord’s expenses, such as property taxes, insurance, mortgage, maintenance, and more.  So, with our illustration of the $1,400 rental, approximately $1,288 of that are expenses, and only $112 each month would be considered the owner’s “profit margin.”     On an annualized basis, that equals $1,344 of profit, making the total cost of eviction as much as $6,140. To put it another way, four-and-a-half years of profit margin are lost - and this is assuming that there are no other major issues or evictions that occur.     There are those out there who think all property owners that rent property are part of some large faceless corporation; that is not the case. In fact, according to the NAHREP (National Association of Hispanic Real Estate Professionals) , a trade organization that advocates for sustainable Hispanic homeownership, around 80 percent of landlords own or manage less than 20 rental units, with a majority owning or managing only one to four units.   To put that in a different perspective, data released by the U.S. Department of Housing and Urban Development, around 23 million rental units are owned by small landlords.  Most owners of rental properties, including single-family homes, have full-time jobs and careers. So when a tenant does not pay their rent or leaves behind a lot of destruction to a property in need of repair, the landlord has to come up with the necessary funds. It is not usual for a landlord to borrow against their 401K retirement account, get a cash advance, borrow on credit cards, or even seek a bank loan. My advice to landlords is to hire good property management to help mitigate these risks and costs.  Make sure you have a good screening system in place and be able to articulate your reasoning for your qualifications and standards. Jesse Brewer Jesse is a Boone County Commissioner as well as a real estate broker who owns and manages rental housing.

Many homeowners recently purchased a home in the last couple of years that has an interest rate in the 7 – 7.25% range, and with the recent news of the Federal Reserve lowering the federal funds rate for the first time in 2 years, a lot of them are thinking about refinancing their home.  Sounds like a good idea, right?  Well, maybe, or maybe not, depending on the situation.  Before we get into the economics of it, first, let’s understand what the Federal Reserve interest rate means and how it impacts the economy.  The federal funds rate is not the rate you pay for a mortgage loan; it is the rate at which the central bank loans money to other banks, otherwise referred to as the bank’s cost of funds.  Based on the bank’s cost of funds, you see the advertised rates for mortgages and other loans.  The banks, like any other business, have an overhead and a need to turn a profit.  You will see rates advertised as 1 – 2 percent higher than the federal funds rate for mortgages typically, which are longer-term debts with fixed yields.  In addition to the rate spread, the banks will also have fees on the borrowing transaction, which go towards their overhead and profit margins.  When the Federal Reserve lowers the federal funds rate, banks pay less to borrow money from one another.  Banks, in turn, lower interest rates on loans (including mortgages) and credit cards, lowering the costs of borrowing money to buy cars, homes, and other big purchases.  All these factors are intended to induce economic growth.  With borrowing costs lowered, consumers have an incentive to spend and invest more.  This is why you see housing values and sales spike during lower interest rates because borrowers can “afford more houses” because of a lower interest rate.   Now that we have a basic knowledge of the Federal Reserve let’s dive into whether the time is right to refinance your home or not. For the sake of the math on this discussion, I will use national home averages and interest rates, keeping in mind that your situation may be different and may require some additional consultation.   In the last 18 months, the national average for a home was approximately $412,000. For the sake of this analysis, I am going to assume that the home was purchased with conventional financing and that the payment is principal and interest only, this will help keep things simple and avoid us having to calculate things like mortgage insurance, local property taxes and other borrowing costs that are associated with loans that do not have 20 percent down payments. We will also assume that the mortgage rate was 7% and that the borrower paid the customary closing cost for the loan. Typically, closing costs for a home are anywhere from 2 – 6% of the purchase price. So, for the purchase price in our example of $412,000, you can expect a range of $8,240 to $24,720, which is a wide range.  In my experience, if you are putting 20% down on a loan and have moderately decent credit, you are going to be on the lower side of this range, so we will use $10,000.  This $10,000 will cover things like your appraisal fees, lender fees, real estate attorney fees, title insurance, recording fees, and other costs associated with the transaction.   We will use the national home average value as our purchase price with a 20% down payment as an example, so that would put the amount borrowed at $329,600.  Using a free mortgage calculator (and there are several you can find online or in the app store on your phone, the one I like to use is this one: https://mortgagesolutions.net/mortgage-calculator/  because you can add in the taxes (assuming you have the correct tax rate) as well as insurance to get full monthly payment, without having to look at a bunch of advertisements for bank loans)  We get a monthly principal and interest payment of $2,193 per month.   If you are only 18 months into this loan, you have been paying primarily interest with little principal reduction.  Assuming your refinance is to just lower your monthly payment, your new mortgage balance would be just shy of $325,000, with you paying down just over $4,000 in principal reduction and just over $34,000 in interest payments  (You can calculate this by utilizing a free mortgage calculator with amortization schedule.  I like to use this one here: https://www.calculator.net/amortization-calculator.html , which also has the regular mortgage calculator function but does not have the interest and insurance component like the one I mentioned above.)   Now, you are 18 months into this loan and have paid $10,000 in closing costs as well as $34,000 in interest. Your payment is $2,193 a month, and you want to determine if refinancing is right for you.  Assuming you are not pulling cash out of the transaction, borrowing $325,000 at today’s current interest rate of 6.1%, you will have a new monthly payment of $1,970, which is a reduction of $213 per month; however, you will be resetting your loan back to a full 30 years as opposed to being 18 months in, and you will have an additional closing cost of approximately, which tends to be right about the same as a home purchase unless you are getting a special from a bank, which does vary from bank to bank and market to market.  For this example, you can anticipate another $10,000 in closing costs, and do not be fooled by lenders telling you that you can just roll the closing cost into the new loan amount. Yes, you surely can do that, but that not only means you’ll be paying them back over time but also paying interest on them that is compounding.  To save the $213 per month, you’ll be spending $10,000 in new loan closing costs, and to get to the same amount of time of paydown that you did on the previous loan, you will have spent an additional $31,318 in interest.   Even taking the interest you are spending out of it, which you shouldn’t because that is sunk money you will never recover, you will not recover the new closing cost of $10,000 in savings until you are 47 months, or one month shy of 4 years, into the new loan.  Refinancing this soon into your loan with rates only being 1% less than what you are currently paying does not make much economic sense; however, if your reasons to refinance are different, such as you are looking to get cash out for a new investment, a life status change or some other reason then instead of a refinance you should look at other options such a HELOC (Home Equity Line of Credit).  The closing costs of HELOC are generally under $1,000; they are fast and easy to renew.  You will pay a few hundred dollars each year to renew it with your bank, and the rate is higher by a couple of percent, but you only pay interest on the amount you pull out and use, and if rates drop in the market, your HELOC rate should fall with it.  Remember, each person’s financial situation is different and may require some additional analysis or factors to be considered.  I suggest before you make the decision that, you consult with your financial advisors, who have a complete understanding of your whole financial future, and then make the decision that is right for you. Jesse Brewer has been a real estate broker and investor for over 25 years, as well as an elected county commissioner in Boone County.

In these market times, if you are a real estate investor, then you are familiar with the term “Value Add,” but if you are not familiar, value adds simply means doing something to a property to improve its value.  Typically, this refers to cash flow properties, more specifically apartments, but the term and its application can be applied to any commercial income-producing property, and it means you are doing work to increase the cash flow, which increases the value.  It may include doing physical upgrades to get higher rents, bringing in new management to run the property more efficiently, or filling vacant units with paying tenants.  All of these things would increase the cash flow, which increases the value, thus making it a “Value Add” opportunity or project. Typically, when a “value add” opportunity is taken out to market, it is advertised as such, and usually, these properties are distressed, have a lot of deferred maintenance, occupancy issues, and/or have some other functional problems such as poor management or negligent ownership. In most cases, these deals are priced very inexpensively and are perceived to be a great deal.  They are easy opportunities to identify, and if the property is in a decent location, the competition can be very fierce, and many investors are lucky to have a short window of time to perform due diligence and execute a contract.   In most instances, these “value add” opportunities are typically in neighborhoods that would be classified as a “C” grade or even a “B” grade neighborhood on a scale where “A” grade neighborhoods would be considered the most desirable and “D” would be considered economically challenged and crime-ridden.  It is not very common to find a true “value add” opportunity in B neighborhoods, and it is extremely rare to find a true “value add” in an “A” class community.   Typically, most of the “value add” opportunities have too many problems that conventional bank financing is not an option.  Investors trying to get into these deals are forced to either pay all cash or secure some type of bridge financing to get the deal. After that, they have to hit a carefully projected proforma to get the cash flows coming in and seasoned so that they can either sell it or obtain a conventional loan.  It is because of the upfront cash needed to purchase and then bring the property to where it needs to be that most of these deals are in the “C” grade neighborhoods that are sought after.   In this market of new opportunities of the “value add,” there are deals to be had across any property class; however, often, the more expensive ones in the “A” class are either overlooked or not recognized because, on the surface, it may appear to be a performing property but once you dive in and peel back the onion you may discover a great opportunity, or you may be able to “manufacture a value add” opportunity where many others have failed to recognize it even existed.  In the Cincinnati market, for example, most C-class apartment deals will trade in the $20,000 - 25,000 dollar range, B-class deals will trade in the $25,000 - $35,000 range and A-class deals will range anywhere from $35,000 - $60,000 per door and sometimes even more if it is a new construction product.  When it comes to purchasing a “value add” project, you can expect to pay 8 – 10,000 less per door than these figures (give or take) and then inject approximately 3- 5000 of capital per door, thus having the remainder for your profit.  Seems pretty simple, right?  Well in theory, it is, but I can tell you there are great opportunities missed because investors are so focused on finding a property that is distressed and has all the signs of a classic “value add” opportunity that they will oftentimes overlook that A class property, that is fully occupied, but under rented, the deferred maintenance may not be that great, the management has the perception of doing a good job (note:  I said perception because at one time they probably were doing a decent job but they have become outdated for the market and property and are no longer maximizing the properties true potential) and the price is much higher than the opportunities they are comparing to,  which would be the distressed C and low B class deals.   Now I know what you’re thinking: “Sure, sounds good in theory, but when has this happened?”  Well, I’m not only going to describe in theory, but I’m also going to outline a few examples of an advertised “value add” opportunity as well as some that were manufactured. After you read these case study examples, you will then ask yourself which opportunity you would prefer for yourself, and then maybe you will view these types of opportunities as possible investments for your portfolio. Example 1 - This property was a 24-unit property in a class-A area in Northern Kentucky, maybe 3 miles from downtown Cincinnati.   The property was owned by the same family for thirty to forty years and was maintained very well.  It was dated with older kitchens, but everything was in very good shape.  Each unit has two bedrooms, hardwood floors, and there were garages for tenant use.  Other tenant features included tenant-paid heat and water.  The landlord had kept this property at 100% occupancy and rarely had a vacancy.  When we analyzed his rent roll, we discovered that the majority of his tenants had lived there for fifteen years or more.  One of the glaring things we noticed was the level of rent he was achieving.  The average rent for one of these units in this prime location was $625 per month, but some of his older tenants were paying even less than that.  Our team did some market research, and we felt that we could easily achieve $800 per month if we did some updating to the interior of the units.  The property was purchased for $1,000,000, and the seller gave a credit of $10,000 for some roof work that needed to be completed.  We put together what we felt were sufficient upgrades to the units to help us achieve the higher rent.  The cost to make these renovations was approximately $5,000 per unit.  We were calculating an increase of $175 per month, or an annualized $2,100 increase in revenue for a $5,000 investment when you do the math, that’s a 42% ROI (return on investment) for the updates to the property.   The construction on the new units started, and we found out that we underestimated the market on these and wound up fetching $850 per month in rent instead of the $800.   With a $120,000 investment into the units, the income increased by $64,800 per year.  The value created on this was over $600,000, making the fair market value of this property close to 1.6 million dollars.  So when you factor in all the costs of about $1.3m, you can see where this class A value-add had a hidden opportunity to create $300,000 of equity in as little as 18 months.   Example 2 -- For our second property, I’m going to talk about an advertised class C deal in Cincinnati.  This property consisted of 99 units, and it was plagued with every issue you could imagine.  Vacancy, deferred maintenance, several units that were down, major items needing to be replaced such as roofs, plumbing lines, windows, exterior curb appeal, and even some structural issues needing to be addressed.  The property was purchased for 1.355m ($13,686 per door), and the renovation budget of $5,202 per door ($515,000) was set.  One of the problems going into this was the property realistically needed a renovation budget of closer to $750,000 to complete the needed repairs.  The end value of this property would be roughly $22,000 per door ($2.178m).   So you can see here that the owners of this property put out a lot of risk and ultimately wound up investing $2.105m to create an additional $73,000 in value.  In my opinion, this is an awful lot of work and risk in a riskier grade of property to only create $73,000 in value.  Keep in mind this was one of those advertised “value add” opportunities that were perceived to be cheap and a good deal.  Now I’ve given you two side-by-side real, live examples of an advertised class C “value-add” and a class A “manufactured value-add” deal.  After analysis of each deal, considering all the numbers and size, which deal would you feel better about being a part of?  I’m not trying to say that all C-class value add deals are bad, but the points I’m trying to make are the following: Don’t overlook an opportunity because there is no initial appearance of a value add.  You need to learn the submarket fundamentals of the property and look for areas the current ownership is not capitalizing on that you may be able to take advantage of. Don’t overlook a property because of its initial price offering and size.  As you can see from the two examples I outlined above, the smaller, higher-class deal is a much more lucrative opportunity than the larger advertised value-added opportunity. Just because a property is offered up and perceived as a value-added opportunity does not mean that it truly is.   When you do identify a great opportunity, do not be afraid to take action.  It’s important to remember that no matter what property type or opportunity you are looking at, it’s important to be thorough and efficient in your due diligence so that you can make an informed, calculated, but not too hasty, decision on whether to invest or not.  More importantly, it’s also crucial that you surround yourself with the proper support and team members of real estate brokers, property managers, contractors, and other supporting personnel because you can be given the grandest of opportunities but fail miserably and fast if you do not execute them properly.  Finding and identifying the opportunity is only the beginning of a successful value project.

One of the most common statements I get from newer investors is, “I don’t know where to start.” They know they want to do real estate, but they are not sure what. The idea of being a “Land Barron” and owning and controlling land is appealing to all of us. There is a reason that the game “Monopoly” is one of our all-time favorites: we all love to own real estate. Then, some want to flip houses. Make the “quick and easy money” that they see people on TV making. Well, first, there is no easy and quick money to be made. Secondly, it’s not as glamorous as they show on TV, and what TV does not show you is the headache, pitfalls, and aggravation of finding the house to flip and then actually going through the process. There is a strategy that has been around for years that combines the two. A lot of people do it; most people know what it is but are not sure what to call it. The industry never gave it a name for a long time. Several years ago, I started calling it “Buy-Fix-Up-Rent.” I didn’t make the strategy; it was shown to me; however, I did give it a name so I could talk about it, and I’ll explain what it is below. Buy –Fix-Up–Rent is a good way to build long-term wealth and add quality assets to your portfolio and balance sheets. With the deals on the market today in this economy, I’m seeing some good opportunities to turn properties into 15-20% cap rates on rentals based on purchase price plus renovations in regards to what can be achieved in the rental market. You can also add some monthly cash flow to your books as well as take advantage of some great tax write-offs. (NOTE: Please consult your tax professional before making this decision. Do not base your tax decision solely on the content of this post). This strategy takes cash to acquire and renovate a property. You will not recoup your investments quickly enough solely by renting to be able to purchase more. Another drawback might be related to the management aspect if you do not want to be a landlord, then holding rental properties could be a nightmare full of headaches for you unless, of course, you utilize a third-party property management company, like C.A.P. Real Estate. CAP Real Estate offers comprehensive property management and back-office support solutions that will fit your needs and help you on your real estate investment journey. Message us using the form below to talk about your real estate investment needs. It is a popular belief that rehabbing a house is easy. Just go in, throw down some carpet, paint a few walls, and you’re finished, right? WRONG! One of the most expensive endeavors a landlord faces is the turning of a vacant property for the next tenant . There are so many variables to consider, i.e., paint, flooring, trash removal, and much more. Some will be regular occurrences, while others can be minimized and possibly eliminated. Now, keep in mind if you get a tenant who is just outright destructive to your property, then turning your vacancy will take longer and involve much more than the norm. But if you did a proper job of screening, then your tenants are more likely to act responsibly. There are invariably hidden items that will impact the timeline to complete the renovations. This is expected up to a certain point, so be sure to budget for overruns and cost averages.

So a lot of people think that FHA (First Time Home Buyers Assistance) loans are a good thing for the American people, and on the surface, that assumption would be right; however, if you start to look at what is all involved with FHA loans and what the fees are, you may soon realize just how screwed the American people are when they take these loans.   Take a $100,000 home loan, for example, and I’m using that to keep math simple for this exercise.  If a person is going to use an FHA loan, they will need a down payment of 3.5% (in this case, $3,500), leaving the amount they are borrowing at $96,500.  This is important as this is where people start to really get screwed and not even realize it.  If you are using an FHA loan, you must purchase Mortgage Insurance Protection (commonly referred to as MIP) on the amount you are borrowing.  So, for this case, if they are borrowing $96,500, their upfront cost of MIP is $1,688.75, which is just under half of the down payment.   Secondly, you must pay an MIP premium over the life of the loan of .85% a year.  So, with this loan, it calculates out to $820.25 per year, or when you break it down a month, that’s an additional $68.35 per month, and this is all because you utilized the “FHA” loan product.   So, year one additional cost for this loan product is $2,509.50, and remember, this is on a $100,000 home.  There are a lot of people who stretch this limit and purchase homes well over $200,000 using FHA, so this cost can easily double, and let’s not forget that these monthly premiums will never go away if you amass enough equity in your home, no they are there the life of the loan so you have to refinance (paying more loan cost for a new loan) or sell the home to get rid of them.  Most people do not know that conventional loan products are available with just 3% down.  The difference is you must have a 660 credit score to use instead of a 620.  The advantages are the MIP cost is considerably lower (less than 50%), and once you have 22% equity in your home, they will take the MIP off at no charge.    So, my advice is if you want to buy a home, don’t rush out and use an FHA loan, work on your credit, be smart, and get a better and more affordable loan product.

The old saying goes, “Cash is king,” and while that is true, cash is king in the marketplace. No matter what asset you are buying, a strong contender is vying for the top spot, waiting to dethrone the cash king, and for now, it’s the prince called credit.   Ever since people have been investing and buying anything, cash has always talked, and bullshit has always walked, no matter what.  Today, if you have the cash, then at the end of the day, you can close the deal, and that is all that sellers ultimately care about.  Most of the time, they could care less about what you will do with the property once you buy it, nor how qualified of a buyer you are, if you have the cash, they know you will close it.   Today’s marketplace is experiencing a major shift, and more and more people are becoming worthy buyers based on their ability to obtain credit. Interest rates are at historic lows and continue to decline. Add to that the scarcity of creditworthy buyers due to the fallout of the crashing housing market, and a perfect storm has been in the works for creditworthy individuals to come onto the scene.  Now I know what I said before that “cash is king,” and yes, cash is still king; however, the credit-worthy investor is starting to change the landscape.  With interest rates being lower and lower, credit-driven investors can push up the pricing they are willing to pay because they are factoring in leveraged returns and tax benefits that cash buyers are not able to take advantage of.  To take it a step further, the influx of credit investors that are paying more is causing a false market compression, increasing the asset's value higher than what it truly is and making it harder and harder for the cash buyer to remain “king of the ring” because they are not able to pay as much.   The smart investor will put their cash with their credit and utilize both.  So instead of purchasing an asset for all out cash, even if they are able, the savvy investor will leverage that cash with cheap credit (assuming they are able, or they can team with an able credit partner), and not only will they see better returns they will be able to take their stockpile of cash and let it work even more across more assets.   Jesse Brewer  Licensed Real Estate Broker and property investor

Property grading is one where investors identify the quality of a property.  Like other investments, most real estate investments are graded with a letter to identify what class they are.  Properties are considered “lower risk and higher class,” while B, C, and D tend to slide down the scale in terms of risk, quality, and headaches.  With that said, I’m going to describe below some of the most common traits and characteristics, as well as the pros and cons of each property type.  Keep in mind that each different grade of property will come with its own set of pros and cons, and it’s up to you, the investor, to decide which type of investment property works best for you.  Class A - Class A property is a newer property that is in the most desirable areas.  Generally, class-A properties will be of newer construction and offer amenities in their properties, such as fitness centers, clubhouses, pools, and things of that sort.  Often, class A properties offer the least amount of rate of return from a cash-on-cash perspective; however, they do offer the highest level of appreciation and the least amount of headaches and issues in management.  Usually, the buyers of these types of properties are more seasoned, larger syndication groups, and often, they have them built.   Class B - Class B property is one of the most desired classes of property because most class B properties used to be class A, but due to the age of the property or lack of new amenities, it is graded as a class B.  A lot of owner-operators that start in lower-class property tend to sell and trade up into class B, and you can earn a very nice return in this space.  Class B properties tend to fetch good rents and come with minimal headaches, thus making it a highly desired asset class for investors.  Class C - Class C property is one where most investors find themselves investing early on in their careers.  Typically, these types of properties are in neighborhoods that are over fifty percent rental and with a portion of those renters being on some form of subsidized housing. They are generally older properties and do not have any amenities, and you will find them in need of updating and repair.  Within the class C property, you find a varying degree from C- to C+, and a lot of investors tend to gravitate towards the C+ type of property because they come with a little more headache than, say a B property; however, the cost of entry to these properties are generally lower, and the rents are close to the B grade types making these properties desirable for cash flow and returns.  You will hear a lot of investors say that the C property class is a “younger investors” game as they require more hands-on management and work but generally produce larger rates of returns and profits for the effort.  Class D - Class D property is a function of its condition.  Most of the time, when a property is considered class D, it’s really a lower class C- to C property, but it has been neglected severely and needs repair; however, there are some instances in certain geographical areas that a property is truly class D because it is in a very bad neighborhood and no matter how much you improve its physical condition that it will always remain this class, but as a general rule most property of this class can easily be improved to class C with some capital investment.  Like with anything else, property grading can be very subjective and is often based largely on opinions.  When evaluating an investment property, it is important to make sure that the property is a sound investment that fits your needs and portfolio.  If you are searching for a long-term appreciation play, then you will look at the higher-grade B to low-grade A properties most likely, if it’s cash flow you seek, then chances are you will gravitate towards properties that are considered in the lower-to-mid-C class.  No matter what your investment strategy or management needs are, C.A.P. can help you identify opportunities that suit your needs.  For a free consultation, please email us using the form below.

Whenever anyone is selling a property, most potential investors always want to know why it’s being sold.  Not only is it human nature to want to understand the history, but their reasoning on why they are selling could impact you as the buyer in a multitude of ways going into the transaction.  During my 20+ years of being involved in investment real estate, I can tell you that all sellers generally fall into one of four categories on why they are selling: They are motivated by price: These are the lease-motivated sellers, and if you are in the market for a real bargain, then chances are you will not find it with one of these sellers.  This seller is purely motivated by an increase in market conditions that is going to garner them a nice profit, and while many of us are like this, this seller is generally the least motivated since they do not have to sell and most likely are running their property well.  Opportunity motivated: These sellers are motivated to sell because another opportunity has presented itself, and they would like to take advantage.  An example of this may be that they own a 10-unit building, and now they have an opportunity to purchase a 40-unit building, so they want to sell this property to move into the newer property.  These sellers are generally a little more motivated than the price-motivated ones, but you need to be cautious because if they do not hit their pricing, they could just as well keep the property, refinance it, and get the money they need for the new investment that way. Change motivated: Sellers motivated by change are very similar to sellers motivated by opportunity.  Some differences with these sellers may be that they are changing other areas of their lives, such as their employment, the area where they are living, or something along those lines, and they are looking to potentially sell a property that they self-manage because they have an opportunity to take advantage of a major change in their life. Depending upon the significance of the change could determine just how motivated they are, so when negotiating with a seller like this, keep that in mind and see if you can help create the change they are seeking. Problem-motivated : Sellers who are motivated by problems are generally the most motivated in the market.  These sellers have an issue that they need to resolve therefore, the sooner they can resolve that issue, the more relief they will have.  Some of these problems could be job loss, divorce, partnership breaking up, death, or some other extenuating circumstances.  It is with these types of sellers that you will likely have the most success in finding a bargain.   The reason a seller is selling their investment property can be just as, or in some cases, even more important than, the property itself.  So, as you look for opportunities, remember to find out as much as you can about the back story and the sellers’ motivations so that you can work to create a workable and winning solution for both you and them.  Here at CAP Real Estate, we work with all different types of sellers and buyers, and we do as much upfront work as we can to help ensure smooth and easy negotiation and transaction.  If you want to find out more about how we navigate this process or what opportunities we have available, please send us a message below for a consultation.