I met with a client earlier this week who has funds available to purchase an investment property, and we were contemplating what might make the most sense in the Harrisonburg.  Here's what we came up with...

Seek properties listed at prices under market value in neighborhoods (subdivisions) where it is easy to understand market value.

If we consider, for a moment, townhouses and duplexes in the City of Harrisonburg --- we find that most of these properties are barely viable investment properties given their current market value and the rental income that they can generate.  Most new-ish two-story townhomes in the City are selling between $155k and $165k, and might generate $850-$950 per month in rental income.  When you consider 80% financing, insurance, taxes, association fees, you'll likely have (on average) $900 of rental income to offset (roughly) $900 of monthly expense.

This "barely break even" scenario can make sense to some investors --- they are not only in it for the monthly cash flow, but also for the tax savings, principal reduction and appreciation.  But consider this --- if you can purchase a townhome in one of these communities between $135k and $145k, the scenario can be quite different.  Dropping the purchase price by $20k reduces your monthly obligations by approximately $110, which creates a nice buffer between income and expenses.  Furthermore, you will likely be picking up some "instant equity" because you are buying below market value.

A few important notes:

1. You likely won't be able to purchase any property $20k below asking price or $20k below market value.  There are, however, some properties for which this would be possible.  Sometimes we can determine that by the asking price of the property compared to recent sale prices in the neighborhood.  Sometimes we can determine that by when the owner bought the property, which might suggest how much they need to make the deal work.  Sometimes we can only determine that by making offers on properties.
2. One important caution --- don't get too excited about the "instant equity" right off the bat.  If you buy a townhouse $20k below market value in that neighborhood, and then several other owners sell at that same price point, your perceived equity will have vanished for the time being.

If you have funds available (10% - 20% of the purchase price) to buy an investment property in Harrisonburg, I'd be more than happy to help you sort through the available properties to find some of your best options. 

Feel free to call me (540-578-0102) or e-mail me (scott@cbfunkhouser.com) to get started.

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

When considering the purchase of an investment property, you ought to account for the following investment benefits:

• Cash Flow Before Taxes - if your rental income is $900 per month, and your expenses (mortgage, etc) are $800, you have positive cash flow.
• Principal Reduction - unless you have an interest-only loan, each monthly rent payment helps to reduce the principal balance of your mortgage.
• Tax Savings - this can vary significantly depending on your individual financial situation, but the "loss" (including depreciation) on your investment property can be used to reduce your tax liability.
• Appreciation - though our current appreciation rate is somewhere between -1% and 2%, this is (in a longer timeframe0 an important investment benefit.

To help my clients understand these benefits, and to better understand the investment property that they are considering purchasing, I use the investment analysis worksheet below. 

Click on the image for more detail.

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Fannie Mae's current policies don't allow an investor to finance any more than four properties backed by Fannie Mae.  Thus, if you own the home you live in, you could only purchase three additional properties as an investment.  This has directly affected several of my clients who have had to stand on the sidelines, or seek a commercial loan as they considered recent investment purchases.

THE GOOD NEWS --- effective March 1, 2009, an investor will now be able to finance up to 10 properties through Fannie Mae!

Fannie Mae does, however, put some rather significant limitations on this new policy.  This summary is my interpretation of the new policy, but I encourage you to talk to read the policy yourself as well:

• The highest loan-to-value ratio will be 70%.
• The borrower must have a minimum credit score of 720.
• No bankruptcy/foreclosure during the past 7 years.
• No mortgage delinquencies (30+ days) in the past 12 months.
• Rental income on proposed and current properties must be documented.
• Reserves must be shown for the proposed and current properties.

Again, these changes won't go into effect until March 1, 2009, but if you meet the criteria listed above, you'll soon have significantly greater financing options on investment purchases.  This is great news for the investors who have keyed in on good opportunities in our market but who have been called back to the sidelines due to this financing restriction.

Thanks to Jeremy Hart, a fantastic Realtor in Blacksburg, VA for bringing this to my attention!

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

One of my clients forwarded me a story from the Atlanta Journal-Constitution, which discusses new Fannie Mae and Freddie Mac rules that states that Fannie and Freddie will only back up to four real estate loans by one person. 

This new four-loan rule apparently replaced a previous limit of 10 loans, and was is in place to keep inexperienced or start-up real estate investors from over-investing.  The four-loan limit does not allow for any exceptions for income, assets or credit scores.

In checking with a local lender, I was told that if a borrower has more than 4 non-owner-occupied homes and a primary residence, no one but a commercial lender can help them on their next investment purchase. 

So, what is the solution??  One option is to move several existing residential investment loans into a commercial "blanket loan" thus removing residential loans from their balance sheet. Commercial loans on residential properties don't count against the four loan limit if they are in an LLC.

If any lenders or investors know of any other options with this new loan limit, please let me know!

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Some investors wonder whether there are any good opportunities anymore in buying investment properties. 

You will find good investment opportunities if...

1. you are willing to put down a 10% - 20% down payment
2. you are willing to break even instead of expecting to have a significant amount of positive cash flow
3. you plan to keep the property for three or more years
4. you are willing to patiently wait for and thoroughly research available properties
5. you are willing to make exploratory offers to conclusively determine the amount of flexibility in a given asking price

Here are two good examples of potentially sound investment purchases...

• 870 Merlins Way, Harrisonburg, VA
• 880 Merlins Way, Harrisonburg, VA

If you're interested in seeing either of these properties, or having an investment analysis for these or other properties, feel free to call (540-578-0102) or e-mail me (scott@cbfunkhouser.com).

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Can it be done? YES! Is it easy and fun? NO!

Properties in Harrisonburg and Rockingham County that are being foreclosed on are almost always advertised in the Daily News Record as an upcoming "Trustee Sale." When I see good opportunities in these notices, I post the trustee sale details on my blog.

Oftentimes, information about these foreclosure sales is available several weeks before the actual sale, and thus interested buyers sometimes wonder if it is possible to short circuit the foreclosure proceedings, and buy the property before the sale. The simple answer --- yes, this is possible. However, there are typically a few obstacles:

Owners in denial --- or seclusion --- or anger!

Being in situation where you can't pay your mortgage any longer, and the bank is foreclosing on your home is not AT ALL a fun situation to be in. I don't at all intend to make light of the unfortunate light that some homeowners find themselves in. And thus, if you are hoping to purchased a foreclosure property prior to the trustee sale, it is important to consider the perspective of the homeowner.

Many such homeowners are in denial --- thinking or hoping that they will catch up on their mortgage payments such that the sale will not take place. Others will be very difficult to reach, and it won't be possible to discuss a way to help them sell their home without being foreclosed upon. And some homeowners will be downright angry if someone contacts them about their home, and it's status as a pre-foreclosure property.

The lender can't sell you the home before the trustee sale, so if you are to attempt to purchase it beforehand, you'll have to deal with the homeowner. Be careful how you broach the subject, and be sensitive to a time of difficult life circumstances!

The timing will be tight!

While there are often several weeks between the first notice of a foreclosure and the actual foreclosure sale, if you are financing the purchase, you will need every last day of it if you hope to purchase the property before the sale takes place. If you are purchasing the property with cash, or if you already have your financing lined up, you may not have as much of a time crunch.

Sometimes the lender will postpone the foreclosure sale if they can be assured of a pending successful sale of the property that would pay off their loan. If they have doubts as to the buyer's performance, or doubts as to whether the purchase price will pay off the remaining balance of the loan, they may foreclose as planned.

If you are going to attempt to buy a foreclosure property before the sale, be sure to have all of your financing details arranged ahead of time!

Those second lenders don't like being in second place!

Finally, it is important to recognize that there is sometimes a second mortgage or line of credit on the property being foreclosed upon. If a primary loan of $180,000 is being foreclosed on, it won't necessarily work for you to swoop in and offer the owner $181,000 because you know this will pay off their first mortgage and because you know the property is worth $200,000. If a second mortgage (of perhaps $10,000) is in place, the owner won't be able to sell the property to you unless they have other funds in place with which to satisfy the second loan.

The potential existence of second mortgages doesn't mean you shouldn't pursue a foreclosure property prior to the sale, but it does mean that it will be worthwhile to do some preliminary research before making a proposal to the homeowner.

It can be beneficial for multiple parties to purchase a home before it is foreclosed upon. You, the buyer, can get a good deal on the house. The seller can avoid a foreclosure scar on their credit history. The lender can avoid the hassle and cost of foreclosing on a property. But if you are going to attempt this feat of real estate acrobatics, be sure to review the factors above and consider how to adjust your proposal to make the scenario work best for all involved parties.

Some additional light reading on foreclosures:
- Types of Foreclosure Opportunities
- How & Why To Buy Property At A Foreclosure Sale

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

No --- that's not a cap rate!!

Simply put, a "cap rate" is a measure of how quickly your investment is being returned to you.

By your "investment" I mean the value of property that you have purchased. 

by "returned to you" I mean the amount of money that a property generates in a year.

The cap rate formula is . . . Net Operating Income / Purchase Price

So if you buy a property for $160k, rent it for $975 per month, and have $1,500 of annual expenses, you have a cap rate of 6.375%.
( ( 975 * 12 ) - 1500 ) / 160,000 = 6.375%

Care to know more?  Read these . . .
What Is A "Cap Rate"?
Harrisonburg Single-Property Cap Rates
Harrisonburg Multi-Family Cap Rates

Would you like help calculating the cap rate on a property you own, or are considering purchasing?  Call me (540-578-0102) or e-mail me (scott@cbfunkhouser.com).

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Cap rates vary over time, as market conditions change.  Here is a brief analysis of current cap rates for single properties in the Harrisonburg area as of May 2008.

1337 Devon Lane, Harrisonburg = 6.5%
3 bedroom, 1.5 bathroom, 1254 SF townhome
Sold for $130,000 in March 2008
Projected rental rate = $900/month
( ($900 per month x 12 months) - ( $328 insurance + $778 taxes + $708 POA + $500 repairs ) ) / $130,000 sale price

1308 Bradley Drive, Harrisonburg = 6.7%
4 bedroom, 2 bathroom, 1352 SF townhome
Sold for $147,900 in January 2008
Rental rate = $100/month
( ($1100 per month x 12 months) - ( $373 insurance + $821 taxes + $1620 POA + $500 repairs ) ) / $147,900 sale price

1014-6 Blue Ridge Drive, Harrisonburg = 6.0%
3 bedroom, 2 bathroom 1108 SF condo
Sold for $103,500 in February 2008
Projected rental rate = $750/month
( ($750 per month x 12 months) - ( $261 insurance + $587 taxes + $1560 POA + $400 repairs ) ) / $103,500 sale price

You can see in the examples above, that current cap rates are in the 6% - 7% range.  However, these cap rates decrease if an owner is paying a management fee for someone else to manage the property for them.  With a management fee of 9%, the cap rates above would be 5.8%, 5.8%, and 5.2% respectively.  The cost analysis above also does not include utilities, advertising, or vacancy.

Related Posts:
Harrisonburg Multi-Family Cap Rates
What Is A Cap Rate?

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

The "cap rate" or capitalization rate of a property is what I call an an "investment measure."  It is a value that compares the income generated with the acquisition cost of an investment. 

For example, if you purchase an investment property for $160,000 and it generates a net income of $16,000, then the cap rate for the property is 10%. 

To take it a bit further, let's look at this example of a Beacon Hill townhome as an investment property:

Purchase Price:  $160,700

Gross Operating Income:  $10,476
($900/month - 3% vacancy)

Operating Expenses:  $1,479
($949 taxes + $405 insurance + $125 POA dues)

Net Operating Income:  $8,997
($10,476 gross operating income - $1,479 operating expenses)

Capitalization Rate:  5.6%
($8,997 net operating income / $160,700 purchase price)

A few other notes about cap rates:

• The cap rate is independent of financing.  It is not a measure of whether an investment property is a "good opportunity" when your particular financing scenario is included.
• Your analysis of operating expenses sometimes would also include management costs, repairs, utilities and advertising
• The cap rate of a particular property can be helpful, but even more helpful is comparing the cap rate of several properties that you might purchase.

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

For some time now, I have been posting the details of foreclosures on my blog. I began to post all Harrisonburg and Rockingham County foreclosures because I have had clients interested in buying foreclosed properties. I'm making a change starting today, that I believe will still well serve my clients, and those interested in foreclosure properties.

First, let me explain that I categorize foreclosures into three areas:

• Terrible Opportunities - where the original amount borrowed (or my estimate of its current balance) is at or above the assessed value. Here is one example, where the original loan was for $231k, and the current assessed value is $157k.
  
• Good Opportunities - where the original amount borrowed (or my estimate of its current balance) is close to, but below, assessed value. Here is one example, where the original loan was for $270k, and the current assessed value is $316k.
  
• Great Opportunities - where the original amount borrowed (or my estimate of its current balance) is well below the assessed value.  Here is one example, where the original loan was $87k, and the current assessed value is $196k.

A few observations about the people who may be interested in foreclosure properties:

• Investors who hope to flip foreclosure homes (buy, fix, sell for profit) would likely be interested in the "great opportunities."
• Buyers looking for a home for themselves would likely be interested in the "good opportunities," and certainly the "great opportunities" as well.
• I have yet to meet someone who is interested in the "terrible opportunities," mainly because they aren't likely to be able to buy them at a reasonable price -- the bank will take the houses.

Unfortunately, for those who hope to do well buying a foreclosed home, most foreclosures in this area fall into the "terrible opportunities" category.  For example, yesterday a home on Chestnut Oak Lane was in the Daily News Record with an original loan amount of $343,920 --- and an assessed value of $316,700.

As I move forward, I will only be posting the foreclosure properties that I would categorize as a "good" or "great" opportunity.

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property Characteristics
Finished SF	1,232
Circa	1947
Bedrooms	3
Bathrooms	1
Lot Size	0.143 acres
Pricing
Original Amount of Deed of Trust	$159,205  (10/11/05)
Assessment: Land	$42,000  (2008)
Assessment: Improvements	$123,400  (2008)
Assessment: Total	$165,400  (2008)
Trustee Sale Details
Date/Time	March 20, 2008 at 10:00AM
Location	Rockingham County Courthouse
Deposit	Lower of 10% or $15,500

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

 

Property Characteristics
Finished SF	2,400
Circa	1997
Bedrooms	3
Bathrooms	3.5
Lot Size	0.234 acres
Pricing
Original Amount of Deed of Trust	$269,600  (11/3/06)
Assessment: Land	$80,000  (2008)
Assessment: Improvements	$235,700  (2008)
Assessment: Total	$315,700  (2008)
Most Recent Sale	$337,000  (11/3/06)
Trustee Sale Details
Date/Time	March 18, 2008 at 4:59 PM
Location	Rockingham County Courthouse
Deposit	10%

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property Characteristics
Finished SF	913
Circa	1974
Bedrooms	3
Bathrooms	1
Lot Size	0.256 acres
Pricing
Original Amount of Deed of Trust	$107,860  (1/26/06)
Assessment: Land	$24,200
Assessment: Improvements	$73,100
Assessment: Total	$97,300
Most Recent Sale	$135,000  (1/27/06)
Trustee Sale Details
Date/Time	March 11, 2008 at 8:15 AM
Location	Rockingham County Courthouse
Deposit	Lower of $10,500 or 10%
Contact	Glasser and Glasser, P.L.C. 757-321-6465

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property Characteristics
Finished SF	2,509
Circa	2005
Bedrooms	3
Bathrooms	3.5
Lot Size	0.121 acres
Pricing
Original Amount of Deed of Trust	$247,200  (3/29/06)
Assessment: Land	$65,000  (2008)
Assessment: Improvements	$233,600  (2008)
Assessment: Total	$298,600  (2008)
Most Recent Sale	$309,000  (3/30/06)
Current Asking Price	$339,900  (2/27/08)
This property is currently for sale -- click here for details.
Trustee Sale Details
Date/Time	March 18, 2008, at 5:00 PM
Location	Rockingham County Courthouse
Deposit	10%
Contact	Bierman, Geesing & Ward, LLC 301-961-6555 www.bgwsales.com

Per the Daily News Record, February 27, 2008

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property Characteristics
Finished SF	900
Circa	1974
Bedrooms	3
Bathrooms	1
Lot Size	0.459 acres
Pricing
Original Amount of Deed of Trust	$102,400
Assessment: Land	$25,000
Assessment: Improvements	$74,600
Assessment: Total	$99,600
Trustee Sale Details
Date/Time	March 18, 2008 at 4:59 PM
Location	Rockingham County Courthouse
Deposit	10%
Contact	Bierman, Geesing & Ward, LLC 301-961-6555 www.bgwsales.com

Per the Daily News Record, February 27, 2008

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property To Be Sold:  1182 Portland Drive, Harrisonburg

Date/Time of Sale:  Friday, March 5, 2008 at 3:15 p.m.

Original Principal Amount of Deed of Trust:  $177,882

Assessed Value:  $193,000

Deposit:  $15,000 or 10% of the sales price, whichever is lower

For Information Contact:
Samuel I. White, P.C.
5040 Corporate Woods Drive, Suite 120
Virginia Beach, VA 23462
757-457-1460 (call between 9:00am and 11:30am)
ASAP# 993440

Per the Daily News Record, February 21, 2008

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property To Be Sold:  111 Middlebrook Street, Harrisonburg

Date/Time of Sale:  Friday, February 29, 2008 at 9:30 a.m.

Original Principal Amount of Deed of Trust:  $260,775

Assessed Value:  $260,400

Last Sale:  $274,500 (April 3, 2006)

Deposit:  $26,000 or 10% of sales price, whichever is lower

For Information Contact:
Glasser and Glasser, P.L.C.
Crown Center Building, Suite 600
580 East Main Street
Norfolk, VA 23510
File No. 61895
757-321-6465

Per the Daily News Record, February 18, 2008

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property To Be Sold:  80 Shotgun Spring Road, New Market

Date/Time of Sale:  Friday, February 29, 2008 at 8:00 a.m.

Original Principal Amount of Deed of Trust:  $90,000

Assessed Value:  $130,300

Last Sale:  $66,500 (November 30, 2000)

Deposit:  10% of sale price

For Information Contact:
Bierman, Geesing & Ward, LLC,
attorneys for Equity Trustees, LLC
4520 East West Highway, Suite 200
Bethesda, MD 20814
(301) 961-6555
www.bgwsales.com

Per the Daily News Record, February 12, 2008

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property To Be Sold:  7110 Rocky Bar Road, Elkton

Date/Time of Sale:  Friday, February 22, 2008 at 9:00 a.m.

Original Principal Amount of Deed of Trust:  $92,800

Assessed Value:  $155,700

Deposit:  $5,000 or 10% of sale price, whichever is lower

For Information Contact:
Stephen B. Wood
Friedman & MacFadyen, P.A.
1601 Rolling Hills Drive, Ste. 125
Richmond, VA 23229
804-288-0088
Ref# 213234

Per the Daily News Record, February 6, 2008

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com

Property To Be Sold:  7415 Lilly Square, Dayton

Date/Time of Sale:  Wednesday, February 27, 2008 at 9:40 a.m.

Original Principal Amount of Deed of Trust:  $35,000 & $61,000

Assessed Value:  $155,700

Deposit:  $10% of sale price.

For Information Contact:
Hill & Rainey Attorneys
2425 Boulevard, Suite 9
Colonial Heights, Virginia 23834
(804) 526-8300, Ext. 124

Per the Daily News Record, February 6, 2008

Receive Updates by Email

Subscribe

Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com