MORRISSEY MONEY MATTERS
The Property Management Firm
East Patrick Lane Suite #1 Las Vegas, NV 89120-3259 702-357-9635 www.ThePMFirm.com
By George Morrissey
>December 2017, Since 1981 Copyrighted PSI
WE SELL HOUSES AND HAVE FOR DECADES. AND WE ARE DISCOUNT REAL ESTATE BROKERS TOO – SO OUR FEES ARE MUCH LOWER AS COMPARED TO THE LOCAL FEES OTHER
BROKERS CHARGE. We have been involved with hundreds of sales in our careers overseeing a variety of agents also under our wings too!
HAPPY HOLIDAYS TO EVERYONE!!!
WE TRULY VALUE AND APPRECIATE YOUR BUSINESS!!! WE APPRECIATE ALL OUR VENDORS TOO WHO HELP US
HELP YOU FIX, REPLACE, MAINTAIN AND SERVICE ALL OUR RENTAL PROPERTIES!! ONE SHOULD REMEMBER WE – DO NOT MARK UP – OUR MAINTENANCE BILLS AT ALL LIKE OTHERS DO!
IN JANUARY OF 2018 WE WILL BE SENDING ALL OUR RENTAL PROPERTY OWNERS THEIR
- ANNUAL SUMMARY REPORT OF ALL THEIR INCOME AND EXPENSES FOR THEIR RENTAL PROPERTY WE MANAGE FOR THEM
- An explanation summary letter
- A 1099 (required by the IRS) showing the total income we collected for you for the property we manage for our
Let’s talk about why we do this. Why we want to own rental house. WHY TRY TO INVEST?
IN THE OLD DAYS of having a decent job and saving money for the future so you can “take care of your family and retire” really does not work anymore for most of the world population. In my dad’s day, he and his friends could work for twenty years and get pension or retirement checks from their employer and be fine once they retired. My father was fortunate enough to be able to attend the WEST POINT ACADEMY even after being like the 3rd alternate (others ahead of him dropped out, and failed the physical and/or other validations to get in). So, my father graduated and had went into the Air Force. There was no Air Force Academy, so he had a choice of the ARMY or the AIR FORCE and he felt at the end of the day having “3 hots and a cot” and sleeping in a bed that night was better than roughing it out in the cold trenches. He retired after 22 years as a Lt. Colonel with a pension to boot! We live in Florida, Alabama, Virginia, Hawaii, and finally settling in Las Vegas where he retired. He began investing in Real Estate rentals before he retired, and was working part time in the Real Estate business as an Agent and later as a Broker before he retired. His pension was decent and after he passed away my mom still gets to enjoy receiving his pension because he decided to make that choice early on – leaving the remainder to my mom vs. getting a bigger pension check while he was alive (An excellent choice for bad circumstances as it turned out – as he passed away somewhat young over 22 years ago).
SO WHY INVEST? Because you can’t get “ahead” much anymore relying on your future pension (if any) or social security checks “to live on” when you are ready to retire.
Many feel (including me) that if you are financially “in decent shape” because you have invested and done well is now (the real reason to invest) you can:
Be a good citizen and contribute to society (you could vote, report crime, not be a criminal because you are not “in want”).
Not be a burden on your fellow man (you would not be homeless for example)
Take care of your family, put food on the table, pay your overhead, provide them with clothes, fun, cars, shelter, education and more.
Pay your fair share of taxes (but not too much! Owning rental real estate usually lets you pay lower taxes).
Because you don’t want to work for the rest of your life and you want to be able to take care of your family, yourself, and not be a burden for this world.
If you run a business – you are providing jobs. Owning houses and hiring vendors is creating income for others in a variety of industries. Owning property means you are paying property taxes (which usually support firemen, schools and police). You are paying for insurance helping that industry and usually getting a loan so paying interest.
There is good and bad interest. Good interest (good debt) is debt being paid by another (by a tenant paying rent for example) and that is affordable. A 3-5% mortgage interest is insanely GOOD. This is almost always tax deductible for everyone and very affordable. Having a car loan or credit card payment usually has benefits by paying that interest. Good “low cost “debt like a mortgage allows you to make money. When rents go up over time and your debt is in a “fixed rate” your mortgage debt payment will not go up (with some slight adjustments for interest and insurance) – so the banks over the long term get creamed in this financial area. Therefore, other countries like CANADA do not allow 30- year mortgages anymore. They WANT you to refinance. In CANADA they give you a 15, 20, 25, or 30-year mortgage but it is ALL DUE and payable in 3, 5, 7, or 10 years. They FORCE you to refinance at those markets CURRENT rates. This makes you pay your mortgage at HIGHER rates with HIGHER payments way before you thought you would and it may (it usually does) push the mortgage term out farther. So, you could pay your mortgage for 40-50 or 60 years. So, DO GET that 30-year fixed rate mortgage when you can here in the good old USA when you can.
If you own rental property you are providing housing, and since you are “healthy” when it comes to your investments, you can afford to fix the rentals and keep the housing “decent”. This allows for a better structure for your tenants, who would then tend to stay longer, cutting down on your vacancy, turnover, and other related expenses.
With being financially comfortable, you can give more to charity. You might also have more time to volunteer too.
With more time, you could pursue other time intensive projects like collecting, writing, speaking, competing etc. all on an elevated level. And you can become better than the “average bear” as you can devote more time to these pursuits.
Again, these reasons and many others are good reasons to WANT TO INVEST and not just rely on the government or your employer’s pension to take care of you and your family.
SOME IDEAS ABOUT INVESTING
Decide you want to invest.
Check your budget to see what funds (cash) you must invest with. You may want to contribute a significant amount of your funds for your next investment but you for sure don’t want to take your last dollar to do so. I have been approached by more than a few investors who were dying to get started but had no money or not enough and any mistake they would make could wipe them out – so I directed them to strengthen up their assets and lower their current debts before doing so.
Think about which would help you the most. Here are some thoughts:
If you are young you probably want more GROWTH. Why? Your money may be invested for a longer time and, so you want it to grow in the future. Besides, if you lose some money – when you are young – it is easier to recover – than when you are older.
Of course, if you could use some more money to live on, INCOME is worth considering too. Income can come from rents, interest earned and dividends.
All will consider how much risk and safety an investment has. Many want BIG returns, but this means they must shoulder and incur greater risks. Most have heard of the old saying “DON’T PUT ALL YOUR EGGS IN ONE BASKET”. The funny thing is that one of my mentors JACK MILLER taught us with education
“YOU CAN PUT ALL YOUR EGGS IN ONE BASKET! JUST WATCH THAT BASKET!!!”
Warren Buffet says you “BUY WHEN THERE IS BLOOD IN THE STREETS”. This means you buy when there are troubles and tough times and the public is scared to invest. So, when all the foreclosures were taking place in Las Vegas and around the country THAT was the time to buy. Now is an appropriate time to buy also, because prices are rising, but it is not as easy or as inviting as it was before.
INCOME is certainly a consideration.
SAFETY always comes up too and these three can be a combination in many investments. Houses can be insured and are considered very safe by financial institutions.
My underlying goal is to buy investments (plant the seeds!) which grow into trees and will give me income streams for my life. I want to spend the income (the rents, dividends, interest earned) and save the Principal -meaning the shares of stock and the rental houses. And one day my money will make me money, and/or my assets will make me enough money that I don’t have to work anymore (I still may) but can be pickier with my time – maybe travel more – and what I do. This can give me FREEDOM when accomplished!
I do read a lot, talk to others, and use various tools to think about investing. Having been a Stockbroker in the past, and a licensed life insurance agent along with my background with my Finance Degree – I have been exposed to a lot of various strategies and investments to consider. I keep going back to rental houses though as a good solid foundation of something real to invest in.
I do listen to advice and hear opinions, but I am very aware of their bias when giving me that information. I don’t mind if another stockbroker is talking to me and trying to “sell me” another investment, but I do keep that in mind and decide to go forward or not.
Currently I act as my own stockbroker and have done very well in that area dealing with some extra money and funds in my IRA.
I like the idea of buying a house and not a condo. I don’t want an HOA telling me what to do and charging me every month for the rest of my life too. So, for long term hold property – which really is my regular thinking – I try not to buy property with an HOA!
But I am guilty of breaking this rule as I own several with HOA’s.
I use the tried and true measuring stick of the following property to be my number one choice. A one story, 1500 Sq. or so three bedrooms (or bigger) with a 2-car garage (no converted garage, no carport), no pool, with a fenced in backyard. This house needs to surround by other houses, so any bad guy must jump over a neighbor back yard to get into mine. Also, there should be no alley, school, 7-11, store, commercial building or other “nonresidential “house within 10-20 houses (if not more) at least near my house. I don’t want a corner house either. I don’t want school kids cutting across my front yard, or customers of a store throwing trash around my house, or an alley way letting a bad guy case my place, or a park have that occasional 4th of July party, circus, or big cookout making lots of noise on the “wrong day” for me (or my tenants). I do want all those amenities nearby, just not on my street or corner. I also don’t want my house at the end of a T intersection – which is where I used to live when I first got married – so that cars “not” making the turn would end up in our front yard. This happened every year on New Years Eve (not kidding!) and on other holidays sometimes too!
I think of the house getting a 30-year mortgage with a fixed payment, so I can afford it forever. If the payment is too expensive than I don’t want to buy it. I want the rent to cover the payment. I can break even and when aggressive with a good property with enormous potential appreciation I can even stomach having a small negative cash flow from $100 to $200 a month. This is like a forced savings program and I know over time that this negative cash flow will go away as rents rise.
Decide what you understand (if not get help) you want to invest in.
When buying real estate, most people (not all) get a new loan. So, go and get prequalified With a lender (who invests in the same state as the property you are buying in) to see what type of loan and the amount they would give you (lend you) to buy an investment property.
TRADE SECRET – do NOT go to your home town and your favorite bank to get that loan if they are not located in the same State and/or City of the location you want to “buy in”. Why? Because they won’t know the market, will have different rules to apply to their loan (that may not apply – especially here in Las Vegas), and they may charge MORE since they are going across state lines – having to pay 3rd parties to support the loan etc.
First –One must have the “will” to take the time and energy and money to try and go out and make a worthwhile investment. If there is no interest than no one goes through the trouble (and it is trouble but worth it) to make an investment. So now there is an interest.
Second – One can educate themselves over a brief time, long time, or have professionals help them. The problem is how much they retain and be able to use this knowledge effectively. Another problem is they may get advice that is just a “myth” from their bartender, or other friend. And sometimes the “pro’s” are not as good as one thinks they should be, so they give you AVERAGE advice, and not the real “deal”. I have traded advice and feelings of what to do the WRONG WAY from clients and customers who just have had bad advice, or believe a rumor, or just have not figured it out. That’s one reason why I write these articles and newsletters. To try and help educate others. Sure, I have made mistakes, but I surely will NOT make a representation of something that I truly don’t know about, or just know is not true. I still see what they call “puffing” by other people in the real estate business telling others what they want to hear or what they think is correct and it’s just plain not.
BUYING A NEW HOUSE VS. A RESALE HOUSE WHICH IS BETTER?
Well… The new houses should have all the latest in construction and design “figured out”. So, the use of their space is better. All the warranties (think Air Conditioner, Hot water heater, appliances) start from DAY ONE. So, you have longer warranties. You can offset this by buying a HOME WARRANTY for a resale house – though many (including me) are not big fans of a home warranty. We know with decades of experience with them that they really don’t want to spend a lot of money on your house – because they will lose money. The new house usually has a smaller lot than a resale house and so is much closer to the neighbors. Your property taxes may be lower (because of the smaller lot) but it just won’t be as appealing in the long run – where you can “spit “and hit your neighbors window. The new house is usually at the edge of town because the land is vacant out there. Inside and nearer the center of town is usually all built up. Other vacant land will be near the new house too – not yet built up. So sometimes (many times) a buyer will NOT know what will be built a few blocks away – and sometimes they are businesses or things you don’t want in your neighborhood. So that could be a disadvantage of not having all the land already built on. And when you buy a new house you pay retail (top dollar) for most every “add on”. An add on may be an alarm system you pay extra for, upgraded carpet, a refrigerator, ceiling fans etc. With a resale house, the owner already paid for these, so they are usually “included” and not marked up on top of the price. The resale house already has the statistics you can research for crime, the schools, traffic and other things. The new house area is not as seasoned so has less research for you. The builder on negotiations will be tougher than most resale buyers (builders are pros remember). But in a strong market it doesn’t matter as much.
One mistake many new homes buyers make is they “skip” having a Realtor (like Me, Robyn, or Bill) go with them when they buy a new house. The buyer thinks they will get a better deal (they won’t). The builder already has a master appraisal for all the houses, so they won’t lower the price one dollar for you vs. another buyer. Otherwise they could have a class action lawsuit or group mad at them and would make values variable and harder to get loans for. The builders may have a sale on upgrades or something from time to time but won’t lower the price. And they also WILL NOT LOWER THE PRICE IF YOU AS THE BUYER SHOW UP WITH NO AGENT HELPING YOU. This is because
the builder already has in his/her budget to pay a commission to a Realtor/Agent/Broker who brings in a buyer. They know that the buyer who had representation closes escrow like 10x more than a buyer on their own. Yep, builders have cancelled deals too and they don’t want that as it wastes everyone time and money.
And when a buyer has an agent with them (like me, Robyn or Bill). We know what “extras” are worth it to include and which ones are not! We can guide you on what to consider or not and what is worth it or not. For example:
A refrigerator. Do not buy from the builder as you pay top dollar. Buy this on your own. Alarm System: This depends but with many wireless systems available now, you might want to buy this on your own.
Adding a patio when the house is built (covered) that is part of the house and then is part of the lawn. This WOULD be a good addition and only cost you a few dollars a month extra on your loan, it would cost too much MORE if you bought this after the house was built and had to add a contractor to do the patio with new permits, new construction etc.
SUMMARY OF BUYING
A NEW HOUSE VS. A RESALE HOUSE THE DIFFREENCES
|XXXX||LATEST IN CONSTRUCTION|
|XXXX||LATEST IN DESIGN|
|XXXX||PAY TOP DOLLAR MARKET PRICE|
|PAY A LOWER PRICE THAN MARKET||XXXX|
|SOME APPLIANCES INCLUDED||XXXX|
|XXXX||BRAND NEW WARRANTIES|
|HOME WARRANTY AVAILABLE||XXXX|
|XXXX||SMALLER LOT USUALLY|
|BIGGER LOT USUALLY||XXXX|
|KNOWING ALL ABOUT SCHOOLS||XXXX|
|KNOWING THE AREA BETTER||XXXX|
|ESTABLISHED BUSINESSES EXIST||XXXX|
|XXXX||BRAND NEW EVERYTHING|
|KNOW YOUR NEIGHBORHOOD||XXXX|
|XXXX||OWNER IS A PRO SELLER|
|MORE NEGOTIABLE USUALLY||XXXX|
|XXXX||BETTER ENERGY COSTS USUALLY|
MORE AMENETIES INCLUDED XXXX
YARD USUALLY FINISHED XXXX
PRICE MORE FLEXIBLE XXXX
TERMS MORE FLEXIBLE XXXX
THE BOTOM LINE!!!
USUALLY BETTER DEALS ARE
WITH THE RESALE PROPERTIES XXXX
When you add it all up almost always you get a better deal with buying a resale house. You will be able to scout the area better in advance. You will know what to expect with schools, shopping, transportation, and businesses that support the area.
I have bought a house Brand New, a Condo or two, A townhouse or two, a foreclosed house, and Resale houses of course. I have purchased them with all cash transactions, and have also qualified and borrowed getting a 30-year fixed rate loan. A variable rate loan sounds good at the beginning but can come back to bit you later when rates change so I almost always recommend buyers to consider getting a 30-year fixed rate loan.
Always, always, always, have a Realtor/Agent/Broker go with you on the first “visit” to ANY new home/condo development. They can guide you and help you immensely and it normally won’t cost you a dime but will end up saving you money! Once you visit a new house and then try to bring in an agent later, the builder will NOT pay that commission and still charge you the same price! So be sure and ALWAYS have your favorite Buyers Broker go WITH you when you visit ANY new development to buy.
The local market is now stronger getting places rented which is good for all of us landlords and has a lower supply of inventory making sales go faster and prices continue to rise. My family is KEEPING our property for now and if we sell we will wait for a lull in the market when prices flatted out but that is not the way it is right now. We are long term holders and have been through many markets. We truly believe owning rental houses for the long term is an investment that does better than most other investments – but has that “yeech” factor of having to deal with tenant problems too. That’s why most of us started managing property for our family and then other decades ago. Tenants are people too and if you treat them right they can stay a long time making your property even more profitable.
I hope you all have a great holiday season! From the staff here at the PM FIRM
Bill, Robyn, Sodonia, Law, Becky, Cheryl, Nick, Latanya and myself! Happy New Year!