Debt Coverage Ratio and Real Estate Investments - Positive Cash Flow

Investment properties financing is essential in order for the investor to limit the amount of money he/she puts out of his/her pocket when investing in an income-producing properties; The Debt Coverage Ratio indicator or DCR finds out whether the property generates enough money to cover the debt for one year.

A DCR of 1.00 means you have exactly, greater than 1.00 means you have enough and some left, and less 1.00 means you don't have enough to pay the mortgage. Most banks like the property to have a DCR of 1.20 or higher before they give you a mortgage.

DCR= Annual Net Operating Income / Annual Debt Service

For example, an investor purchases a single home investment property for $62,000 with a monthly rent of $1,600, vacancy rate of 3%, monthly mortgage payments of $1,200, and total annual expenses of $3,000.

DCR= Annual Net Operating Income / Annual Debt Service

DCR= $15,624 / $14,400

Subtracting the annual expenses and vacancy rate from the annual rent income, and dividing it by the mortgage payments for the year calculates the DCR. Most investors employ the use of real estate investment software to calculate the debt coverage ratio.

Investor should know the DCR of each potential investment property. Real estate investment software often allows investors specified the benchmark level by which to accept or reject a property based on the DCR specified by the investor.

The following values have an impact on the Debt Coverage Ratio calculation:

MONTHLY RENT

VACANCY RATE

MORTGAGE PAYMENTS

ANNUAL EXPENSES

The annual expenses include maintenance, property taxes, and other expenses incurred y the operation of the property.

GPS and Real Estate

When I began in residential real estate agents navigated from home to home the old fashioned way - with a paper map! When Global Positioning Systems (GPS) became available as units mounted on the dashboard, I acquired one. The GPS for me is a critical tool for the practice of residential real estate selling. The last 2 vehicles I have purchased had built-in navigation devices.

The GPS is particularly helpful in those areas where the streets change names frequently or they stop and start in different sections of the community. Arlington, Virginia is one of these communities in which the GPS is extremely helpful. Before having a GPS, oftentimes the buyer client would be in the front seat instructing me on where to turn. With a GPS the buyer and I can focus our conversations, and it allows me to identify more easily for the buyer community amenities and points of interest. Realtors in the listing information often include directions to the home, however those are often written assuming the driver is starting from a central location. But typically when an agent is out showing buyers homes, we are probably not starting at a central location but rather coming from another home in a residential neighborhood. Navigating back to the main roads and then figuring out where one is from that place and getting to the next can be a nightmare! The GPS allows one to focus on driving, rather than worrying about getting lost.

What I found though is that the GPS is not a thinking person! I have had a GPS take me in what I knew was the most out of the way direction. Also the GPS doesn't know about traffic patterns in a community and possible construction sites. So I believe that having a thinking person involved is still the preferred means of navigation. Even with a GPS, I still use a paper map to identify the properties to view and to lay out a plan for the order of the homes to see. Buyers have told me that they appreciate having the full perspective of the area that only a paper map can truly provide. I plug in all of the addresses into the GPS individually; that way if the client decides to change the order of homes to view from what I had originally mapped out, or a seller has requested we arrive at a time frame different from what was originally planned, those changes can easily be accommodated without the GPS having to recalculate the route.

In thinking of the fabulous uses of a GPS as it relates to my life, it made me think of another correlation. I have found that many people think that just by doing some research on the Internet that they can find out everything they need to know about home buying and selling. That would be like believing that a GPS and a paper map is all you need to get around. Again, having a thinking person aboard is still the preferred method! That is the same in navigating the process of home buying and selling, it is still best traveled with a seasoned real estate professional that can assist through the process.

Credit and Real Estate - The Connection

The financial system of the United States of America can be pretty confusing, especially to the common person. One question that is often asked is how the credit crisis affects the real estate market. The answer may not be obvious, since the finance and real estate sectors are distinctly separate entities. Taking a good look at how the two relate does reveal how the two interact, and how a crisis for one affects the other.

The current economic crisis has seen a marked downturn in credit for everyone, as well as a serious loss of real estate value. This is because credit is so strongly intertwined with real estate that they will fall and rise together, like twins joined at the hip. Think about it: most homes are actually bought on credit. There are very few people who have enough money on hand to buy homes outright, so most people turn to lending companies and banks for assistance. This is the biggest amount of credit that any average person will owe, and so it pretty much defines the relationship and importance of credit in real estate. Without a means of acquiring property while not having the money on hand, the real estate market would stagnate and shrink.

Now, what happens when a crisis strikes the credit world? Economic downturns lead to the loss of capital, and so banks and financial institutions lose a fair amount of money as well. This in turn means that they have less money to pay for purchases on the behalf of their clients, thus reducing the amount of credit they can extend to customers. If the loss means that the upper limit on loans goes down, or that loan approvals need to become more selective and strict, then applications for home loans go down too.

With less loans having sufficient values and fewer loans being approved, there is less activity in the real estate sector. The slowdown means that prices will stagnate and drop over time due to age-related losses on properties. A house which could have been sold brand new for tens of thousands of dollars will lose several hundred in value as long as it is exposed to the elements without someone to live inside and take care of it.

Some experts argue that the current economic crisis is a vicious cycle of events that started with the loss of faith in the American way of doing things. The Iraq war in recent years, as well as the anti-terrorist hostilities for almost a decade saw the USA's strong involvement. Some saw it as meddling with affairs outside one's place, and so lost appreciation for the USA. This meant that less people wanted to go to the USA or invest in American companies, leading to losses in real estate and credit. As can be surmised from previous statements, these losses can cycle back on each other and make everything worse. With the new President, Barack Obama, there is hope for major changes that can save the US economy, though only time will tell.

Goal Setting and Real Estate Investing

Whenever you begin a journey, it is important to know where you are going. As well, it is just as important to know where you are starting from. If you want to go to Chicago for instance, starting from Los Angeles or starting from New York will take a different route. Investing in real estate is the same way. You will begin to see how your unique personal situation will help shape your portfolio of investments. Before you invest in anything, you need to know where you are in terms of income, expenses, assets and liabilities. Knowing where you stand now is critical to how and what you invest in.

If you have not done so recently or ever, write down all of your income and the sources of that income. Next, write down your expenses. This usually takes a bit longer and may take a bit of investigating to find accurate numbers. No one else needs to see this. Accuracy is important. Next, write down all of you assets. These are the things you own that have value. Then, write down your liabilities. These are the amounts you owe to others. Add up the difference between what you make and what you spend. Then, calculate the difference between what you own and what you owe. This will be an eye opening experience for many people.

A person who wants to get the most out of life often has a number of goals they are working on at the same time, in both their personal and business lives. Setting goals is the first step to turning dreams, ideas and wishes, into REALITY!

Recent studies show that less than three percent of the population has written goals. It is no surprise that these are the very same people who are the most successful people in our society. When you set a goal, you commit yourself to a CAN DO attitude. You begin the process of doing what you are dreaming and that is truly a key to success.

Why is it so important to set goals? Mostly it has to do with how the brain works. Setting a goal puts a certain part of your brain into action, especially if your goals are written. If you really want to kick it into overdrive, tell other people about your goals. The more you think about your goals the better your chances of taking action and achieving those goals.

Setting personal goals gives you focus and will solidify an individual's attention into a particular area to the exclusion of other thoughts and activities. The human brain processes thousands of tidbits of information every second. This information comes from the senses, memories and thoughts. The brain processes all of this information and decides which things are the most important to handle now. When you write down your goals, the brain gives more importance to these written priorities. It's like a memo from the President, it gets more attention. If you are constantly thinking about, reviewing and rewriting your goals, your brain becomes more focused and will be much more aware of related opportunities and available resources, which are important to the success of your goal.

When you set a goal, your brain becomes more aware of the opportunities associated with the goal that you might have overlooked or not given any attention to if you had not set that goal. Have you ever noticed that after you start thinking about buying a certain item, suddenly you begin to notice that everyone now has one? It wasn't that everyone else suddenly went out and got the same item, your brain is just more aware of it than before.

Making the choice to set goals in your real estate investing will create a result that far outweighs the person who invests on a whim, like a lottery-ticket mentality or without any concrete path to where they are going.

A Question on Foreclosure Squatters and Real Estate Law That No One is Addressing

If someone owns a piece of property and allows unabated trespassing across the property for long periods of time, and then arbitrarily starts enforcing their property rights, real estate law tells them they may not have the rights to do this, even if they own the property. Currently, we have a new type of trespassing that is absolutely out of control - Foreclosure Squatting.

This is where someone, could even be a homeless person moves into an empty property and just starts living there. After the subprime lending debacle the number of foreclosed homes has risen by nearly 3500%. With all these home vacated, it is prime pickings for someone moving in. Worse, many of the banks that own these properties have let them go, and have not even been out to see if anyone has moved in illegally.

Even if they do inspect the property, getting a squatter to leave is not as easy as it seems. Now many enforcement agencies will not even serve foreclosure demands to remove people from a property. Worse, the note holders who've bought the mortgages and own the homes may not even be in the United States.

If a foreclosed empty home becomes a de facto residence for the homeless, a habitat for wildlife, an alternative parking lot for the neighborhood, a short-cut to the next block or community center for the locals, then once it's sold these groups could indeed sue to maintain their new rights. Especially after many years of unabated activity in the empty homes. Think on this.

Unclaimed Overages - A Gold Mine For Those Seeking a Home-Based Real Estate Career

If you're looking for a real estate career that not many other people have discovered yet, unclaimed overages are where you should start. Unclaimed overages are funds being held by the government that belong to private citizens. These people, for whatever reason, have lost track of these funds and stand to lose them if they aren't collected in time.

If you decide to become a "found money" professional, you may be tempted to start with state-held funds. These are the funds you can find on states' "treasure hunt" websites, and usually come from things like stock dividends and utility deposits (i.e., aren't for very much money). Unfortunately, you'll never make much with these unclaimed overages. They are too visible, and too small in amount to make much money - these funds are capped out by state law at a 10% finder's fee.

The unclaimed overages you need to focus on are those created by real estate - tax sale overages, mortgage foreclosure overages and the like. These funds run into the tens of thousands of dollars, and due to a loophole almost no one has yet discovered, are NOT subject to the same finder fee limit laws that state-held funds are. That means 30-50% finder's fees. On many thousands of dollars, that's a hefty paycheck. They also aren't advertised online... so people you contact will not be able to check and find the money on their own.

Something else you'll probably like about unclaimed overages is that collecting them can be done entirely from your home office - online and through the mail. You can find records, find owners, contact owners and process claims all from your desk - whether it's in New York or New Zealand.

Will Real Estate Ever Rebound?

The market is falling, the prices of homes are dropping and people are losing thousands and hundreds of thousands of dollars each and every day in stocks and bonds. Will the real estate market ever rebound?

The simple answer is yes, but the when is the more difficult question to answer. The financial state of the economy is leading people into thoughts of recession and the pending Greater Depression. While some states and real estate areas are not affected as strongly by the fall of the financial sector, others are floundering and in need of great help.

The Presidential candidates both have differing views on how to deal with the real estate crisis. No matter their personal views, the November 4th election results will be the hinge to the future rise or fall of the real estate world. If the right candidate is elected, the DOW will rise and the economy will slowly work its way out of the hole. If the wrong candidate is chosen, the opposite will happen and the Greater Depression will be a reality.

Unfortunately for real estate agents, the right or wrong candidate is not in our hands. The majority will elect who they feel is right or wrong and as long as that person is placed in office, the world will inevitably rebound. However, if there is a close race, the financial, and thus real estate, markets will rebound much more slowly.

What Can a Real Estate Agent Do to Help?

Nothing. The economical world is falling fast and patience is the only solution. Until the new Presidential official is elected, the world will have to sit on the whims of fate and see where the DOW drops today.