Real Estate Opportunity(1)


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Real Estate Opportunity 2010...Outlines the current economic situation and what 2010 may bring for the real estate market. SRM's research shows that iIn select markets there will be many options for creative investors.

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Real Estate Opportunity(1)

  1. 1. Real Estate Opportunity<br />December 2009<br />
  2. 2. Current Situation<br /><ul><li> Financial crisis of 2008 and 2009 has led to a recession, shaky financial market, and uncertainty in long-term investment options
  3. 3. Due to the collapse lending criteria has changed to prevent lower income individuals from getting a mortgage.
  4. 4. Global concerns have led to uncertainty in international markets, currency, and future financial stability.
  5. 5. Investors are looking to commodities and tangible assets with REAL value in this time economic uncertainty.</li></li></ul><li>Current Situation<br />What has this global financial crisis caused??<br />-Devaluation of the US dollar (Down significantly in the past 10 years)<br />-Gold is increasing to record levels due to the uncertainty of the global economy. ($1100/ounce as of Dec 2009)<br />-Oil currency changes (May no longer be traded in US dollars but a mix of global currencies – this means the potential of further devaluation of the currency)<br />
  6. 6. Current Situation<br />Stock Market – Currently back to a stable level in December but much of the value is derived from 2009 earnings reports. These earnings have been created or maintained through cost cutting and record layoffs. (10.2% unemployment) <br />Bond Market – The bond market is not offering significant returns unless you purchase long term bonds. In this uncertain environment there is not much potential for Treasury or corporate bonds to appreciate in value like stocks, commodities, or real estate.<br />
  7. 7. Current Situation<br />Interest Rates – Still holding at record lows but with an increased money supply there is no way these levels can stay long-term. Locking in low rates over the next few years offers a huge advantage before the obvious uptick in interest. <br />Real Estate Bubble – Many properties have been purchased and overvalued through the bubble. Now many homeowners are upside-down in terms of asset/debt ratio. <br />
  8. 8. Current Situation<br /><ul><li> In inflationary times, investments in houses can protect from the tremendous loss in purchasing power.
  9. 9. Inflation will drive up prices of all commodities, including land and housing.
  10. 10. Inflation hurts the investor with cash or fixed-income investments.</li></ul>Cycles in the economy change and we are in a period of slow recovery and dramatic inflation. *Money in the bank or low-yield bonds will earn little under the current circumstances.<br />
  11. 11. So what does the average investor’s portfolio look like?<br />
  12. 12. Proposed Portfolio<br />
  13. 13. Why Real Estate…Why Now?<br /><ul><li> Historically low interest rates offer excellent financing at low fixed rates
  14. 14. Depressed housing market gives the ability to purchase homes at a market discount and from desperate sellers. 2010 will also bring the rise of increased commercial loan defaults and the devaluation of commercial properties.
  15. 15. Tighter lending requirements and rising interest rates in the coming years will lead to a larger rental clientele
  16. 16. Inflationary concerns for 2010 and beyond give you the opportunity to hold rental property; rent increases, property value increases, and loan payments remain fixed.</li></li></ul><li>Why Real Estate…Why Now?<br /><ul><li> While home sales have improved, housing prices in many markets are projected to decline significantly through 2010. Overall, prices are projected to drop 5-10% nationwide and even more in select markets. (
  17. 17. Currently 2 million housing units in the US are in foreclosure or bank owned. In 2010 it is estimated that well over 2 million more homes will enter foreclosure. (
  18. 18. Government incentives like the first-time-homebuyer tax credit, subsidized mortgage adjustment, and the Fed’s purchase of mortgage-backed securities are set to expire in March 2010.
  19. 19. Inflated prices will been forced down throughout 2010 and in specific markets banks will aggressively promote short sales and the sale of foreclosure properties.</li></li></ul><li>Why Real Estate is Safe…<br /><ul><li>Leverage - based on the asset itself and you can get a loan up to 90 percent, and sometimes even 95 to 100 percent, of the total asset value. No investment where the application of leverage is more powerful than in real estate.
  20. 20. Equity - this equity buildup is a significant income amount. Although you cannot spend it each month, when the time comes to sell your property, you owe less on the mortgage, so you will receive more money at closing. It’s like putting money in the bank each month.
  21. 21. Inflation - real estate ownership protects your investment through inflationary times with comparable appreciation. Significant inflationary concerns can be eliminated with real estate.
  22. 22. Residential properties historically appreciate at 5% per year…If you can own real estate and utilize them as rental properties you can gain monthly cash flows and operating income.</li></li></ul><li>Why Residential Property?<br /><ul><li>Houses and condos can be acquired for small down payments
  23. 23. Houses rent faster and have fewer vacancies than apartments…historically rents increase as interest rates increase.
  24. 24. With a house or a condo, you have more potential buyers when you sell than with commercial property…this gives you an easy exit strategy when the market rebounds and the time comes to really cash in.
  25. 25. In the current market there will be a great demand for basic rental property as credit tightens on potential home buyers. </li></li></ul><li>Investment Options<br />Index Funds – Diversified way to be in several diversified markets and securities.<br />Stocks – Offers the potential to ride the stock market through a period of economic recovery.<br />Bonds – Secure and predictable way to save…currently they yield historically low rates.<br />Commodities – Precious metals and other global goods can help to diversify a portfolio.<br />Venture Capital Investment – Higher risk opportunities to grow business and gamble on individual companies.<br />Real Estate – The timing is right for investing in these real assets at historically low interest rates.<br />
  26. 26. 5% Appreciation can make you rich<br />Rule of 72 and doing better than that!<br />Examples: <br />5% annual return it will take you approximately 14 years to double your investment (72/5 = 14.4 years)<br />10% annual returns would take you approximately 7 years to double you investment (72/10 = 7.2 years)<br />20% annual returns would take you approximately 3 and ½ years to double your investment (72/20 = 3.6 years)<br />
  27. 27. 5% Appreciation can make you rich<br />The goals….<br />----Find the Right Houses (extensive market research to discover unbelievable opportunities)<br />----Buy Below Retail (Working in markets and with buyer or bank who need us to buy their property, even at a significant discount)<br />----Speed and Flexibility in Lending and Investment (access to capital so we can make things happen quickly for the sellers and our investors)<br />
  28. 28. What we do…<br />SRM Investment Process<br />1. Market Research<br />2. Select a Location<br />3. Discover an Opportunity<br />4. Financial Analysis<br /> -Property Valuation<br /> -Cash Flow Analysis<br /> -Appreciation Potential<br /> -Financing Options<br /> -Establish ROI<br />5. Determine Investment Details<br />6. Purchase Property<br />
  29. 29. Return on Investment<br />Market Value $150,000<br />Purchase Price $135,000 (10% below value)<br />10 % Down Payment $13,500<br />Mortgage $122,500 (30 year 7% fixed)<br />Loan payment $810<br />Monthly rent $1200<br />Monthly expenses -$360 (maintenance, etc)<br />Net income $840<br />House payment -$810<br />
  30. 30. Calculate the Return<br /> Monthly Annual<br />Cash flow $30 $360<br />Hold the house until it has doubled in value…$300k<br />Let’s say 10 years<br />Sale price $300,000<br />Loan balance $105,000 ??<br />Net Income $195,000 over 10 years <br />(this amount does not include any cash flow, tax benefits, or capital improvements)<br />Source: John W. Schaub<br />
  31. 31. Investment Options<br />SRM Consultants offers several investment options for all types of real estate investors. More details can be determined once we have established the personal goals you would like to achieve.<br />Short Term – Issued a 5 Year Note Payable by SRM <br />Intermediate Term – This involves joint ownership of a property with SRM <br />Long Term – For those who would like to own investment property, SRM can work to find valuable purchase options and management solutions to meet your investment needs.<br />
  32. 32. More information…<br />Contact SRM Consultants with any questions regarding real estate investing or market development. <br />Whether you are a seasoned investor or a potential property buyer we can help you navigate the market and create a profitable investment opportunity. <br /><br /> <br /> <br />
  33. 33. References<br />Moody’s -<br />Realty Trac -<br />Schaub, John. Building Wealth One House at a Time, 2005 McGraw-Hill<br />