All Forum Posts by: William Whitley

Hello Sam, 

Technically you can buy air rights, and buy and sell air rights. You have to understand that there are a bundle of rights in real property, and you can lease and/or sell a portion of these rights or all of these rights in various situations.

Let’s talk air rights. There is something called an avigation easement. Properties that are near an airport where a desired flight path is over one’s property could sell an avigation easement to a government or other entity that could restrict certain uses of that property in exchange for compensation. These easements could also completely sever the air rights from the property, eliminating the right to construct any structure on the property. Now I’m not referring to the right of airplanes to fly over the property at 30,000 feet. I’m referring to takeoff and approach routes. While many of these types of routes already have established avigation easements, there are still situations where additional acquisitions are necessary.

Another potential scenario is that of a development in an urban area, where air rights could be traded in the real estate market to enable the construction of taller buildings or to preserve desirable views.

So yes, air rights can be transferred to others while maintaining ownership of the land, but these agreements and the valuation of these rights can be quite complex.

Equally as complex are ways to earn a profit from these air rights from an investor’s perspective. Just like any of the other bundle of rights, there needs to be both supply and demand for these rights to realize any value. 

Hello Kyle,

One of the benefits can be that you are able to get a property under contract and close on it  quicker. Depending on the situation and your goal in the acquisition, this could be very beneficial. For example, let’s say you are looking either to wholesale the property or renovate and resell (flip). The sooner you can acquire the property, the sooner you can either wholesale it or flip it. Furthermore, you may be able to buy more properties in a shorter time period if you have a system set up to buy and sell multiple properties using owner financing. 

Another advantage might be less up front out of pocket costs, depending on what is negotiated with the seller.

Now if you are not flipping and wholesaling, owner financing still may be beneficial. Let’s say you are buying properties for the purpose of holding it as a long term rental, but the property needs renovations in order to rent. You could potentially use owner financing to acquire the property, and then renovate it, assuming you have funding set aside for the renovation project. Then, once it is renovated and rented, you may be able to do a cash out refinance to pay off the owner financed loan and reimburse yourself for the renovation costs.

These are just a couple examples of the benefits of using owner financing in acquisition. There are many more potential advantages that could be listed here. However, owner financing can also be detrimental if the terms are only favorable to the seller. 

So you really need to make sure the benefits of owner financing are commensurate with the cost. It’s better to walk away from a bad deal than to move forward and either lose money or perhaps only break even. Sometimes that does happen even if you are diligent in the acquisition process; however, ideally those deals should be few and far between. 

Good evening, Dan,

This is an interesting situation. Since you have a board and an operating agreement that appears to address this issue, it seems to me that the method for determining compensation should come up as an agenda item at the next board meeting. Someone on board would typically make a motion about compensation of the chairman and the various board members, and there would be discussion. Subsequently it would be voted on by the members of the board. After all, the purpose of the board in part is to make these decisions, not on feelings, but on what is in the best interests of the company.

I hope that helps. 

Yes, Jay. These principals also apply to flipping houses, or just selling houses in general. For buying and selling houses you are looking at absorption rates and similar properties currently listed for sale.

In order to get an idea of a trend, you need to look at recent historical data as well as what is currently on the market. For example, let's say over the last 12 months, 120 similar units were rented in the competitive market. That suggests the absorption rate is 10 units per month. If you have 20 similar units currently for lease, you have 2 months of inventory, assuming nothing else changes. So if you are buying a vacant one unit property, you can estimate 2 months of vacancy. Of course it could be more or less than 2 months. 

Another trend you could look at is the rental rate trend. Are rents increasing, decreasing, or stable? If they are increasing, at what rate? Monthly increases or quarterly, etc. The speed of the increases can help estimate where supply and demand is. The converse can true as well, if rental rates are declining. 

You really want to be as familiar as possible with the market you are investing into, because the more informed you are, the better decisions you can make. 

Great post, Colin,

While managing expenses is important, and investors should do as much as that as possible, there’s only so much an investor can do to reduce costs.

I think that what investors sometimes overlook is what is oftentimes staring them in the face, and that is the market the property sits in. Just like any other business, rental property competes against other rental property. An important thing to look at is how many available units are on the market and what is the absorption rate of comparable units. The other thing to look at is whether or not the property is poised to capture its market share. If there is more supply on the market than demand will accommodate, then the possibility of longer vacancy should be considered. There are ways to adjust to this by pricing rent slightly below competitive units, but you don’t want to price it so low that you leave too much money on the table. As markets are cyclical, it’s important to be in tune with the market cycle and adjust accordingly. 

Bill

Good afternoon, 

There are pros and cons to condominiums and renting apartments. The challenge with condo fees are they can go up regularly, and oftentimes the property owners have minimal control over it. Then there are special assessments that can be added above and beyond the condo fees, and again property owners have minimal control over it. As such you really need to consider not just mortgage payments and escrow, but also current and anticipated condo fees. You might also ask if there are any current or anticipated special assessments coming up.

All the best!

Bill 

Good morning, Tracie,

My best advice would be to consult with an attorney to make sure you are protected. It is better to be glad you did than wish you had in this situation.

I hope that helps. 

Good morning, Jenna,

When dealing with rental properties and tenants, it’s best to have a solid lease that protects you and covers everything pertinent. As such, it may be a good idea to have an attorney draft up a lease agreement, unless you have a relationship with a knowledgeable real estate agent that can provide that to you. Since this is your first one, you might consider having a property manager handle it initially until you feel confident you can self manage it, as that can help alleviate anxiety and potentially avoid problems down the road, especially if you get into a situation where you need to evict a tenant. If you go the property manager route, you have time to learn about self management, and perhaps through conversations with your PM, you can learn what you need to eventually do it on your own. 

Just like with anything, you need to do a cost/benefit analysis to determine if the benefits (in this situation hiring a PM) are worth the cost. Sure you can save money through self-management, but if you have not yet learned what is necessary to self-manage rental property, then perhaps temporarily you can use the services of a PM until you gain the required knowledge.

I hope that helps. 

Good morning, Antonio,

I think you answered your own question with that last statement. They can’t be that motivated if they are asking for a sale price that is above value. Furthermore, it’s usually a good idea to pass on a bad deal, rather than having buyer’s remorse. On top of that, you don’t seem to want to inherit a tenant. Nothing in your comments seen to indicate you should make a deal, but everything in your comments seem to suggest walking away from this one. It’s best to let bad deals go, and be on the lookout for ones that make sense.

All the best!

Bill