Memphis is near the top of the list when it comes to U.S. housing markets most conducive to turning a profit on a ‘flipped’ home. New data from real estate market researcher RealtyTrac named Memphis No. 5 on its list of the top 25 most profitable markets for flipping homes. The final list was winnowed down from more than 600 metropolitan areas across the country; a 13 percent increase in home values from first quarter 2012 to first quarter 2013 helped the Bluff City get in near the top of the list.

According to RealtyTrac research, there were 1,331 single-family flips — defined as a home selling within six months of the same property being sold previously — in Memphis. The list ranked markets based gross profit as a percentage of the original purchase price. In Memphis, that percentage was 42 percent, or an average gross profit of $28,552 above the average initial purchase price. Nashville appeared on the list at No. 8. The No. 1 market was Orlando, Fla., with flippers making an average profit of 63 percent, followed by Las Vegas, Phoenix and Tampa.

The key to real estate investment is to invest in one, and not diversify the focus. It is often about following one path till you find success in it. You need to find a way through which you can reap maximum benefits. Some of the reasons for investing in real estate might help you in making this decision.

The first reason is income that is received from the property that you invest in. You can make good use of this cash flow by investing in other real estates. You can also keep this money safe for any emergency situations. You need to learn to make money from money.

The value of every single property keeps on increasing over a period of time but the investor is not taxed on the increase unless and until he decides to sell it. You might consider this just like the tax treatment of mutual funds and bonds.  If the prices of properties around yours start increasing then there will be an obvious increase in the value of your property.

You can also increase the value yourself by upgrading and renovating you property. You can add rooms or enhance the landscape. Refinancing your property might be done by cashing out at a higher rate as you are not supposed to pay any tax on this earning.

Another reason for investing in real estate is that you are able to borrow cash against the equity held by you in other leases and makes use of that money as the deposit for another investment. By doing so you are rendering the costs of your interest liable for taxes.

This strategy is known as leverage and is used as one of the techniques to build up on your income. Through efficient use of leverage, an investor is able to uphold his capital and achieve profits as well.

It is also possible for an investor to exchange the property he has invested in for another similar property and postpone the tax payment on it. Considering the complications involved in tax laws after some consultation with an expert adviser you can figure out a way.

If you move back into your rental house and occupy it as your home for at least two out of five years before you decide to sell it, then there would be no need for you to pay the taxes on its sale. The only tax that you are supposed to pay will be on your previous wear and tear entailment claims. The rest of the money goes back into your hands.

As an investor you are entitled to demand further reduction in the gross amount on which a tax is calculated depending on the value of your property minus the cost of the land on which it stands over a certain time period. The current duration is set at 27 years. Depreciation is possible in case of furniture, carpet and the appliances in your house over a time period of 5 years.

The depreciation period for driveways, exterior fences and planters as well as trees is 15 years. When you choose to sell a property, taxes need to be paid for all previous depreciations.

Finding the real estate with the best cash flow for investors is one of the most important aspects of real estate investing. You have to know the truth and take action when the real estate investment is right.

I talk to investors every day and they always want true answers about real estate investing but in the famous words of Jack Nicholson in a Few Good Men, “You can’t handle the truth!”

Many do not like to hear the truth so they tune it out.

In the real estate arena, many people have been following the activity of the real estate investors for so long that they fail to recognize or accept the fact that like all investments, real estate investments are indeed a moving target.

By the time most people get on board to a concept or a belief and are willing to finally invest, the real estate investment wave has moved, relocated, changed or been exhausted.

There are a few truths that investors must embrace in order to get the best cash flow closing out 2012 and into 2013.

Wall Street is a huge competitor in the real estate investment arena and a threat to real estate investors as a whole. In many markets, the window of opportunity is being narrowed and by the second half of 2013 the best cash flow opportunities will be squeezed to tight cash flow returns.

Real estate is more about location to the investor than any other real estate buying class. Markets exist throughout the country and the world that are positioned as better and best markets. Knowing how and where to find the best locations should be your number one objective in pursuit of real estate investments.

Within the best locations is the need to find the sweet spot… which direction of town is in the path of progress, which price point property offers the best cash flow with ability for good capital growth.

Sustainable cash flow is BY FAR much more important than cash flow returns. Realistic returns averaging 10% are realistic for long term real estate investments. Investments promising returns in the 20% category are not sustainable and rapidly give way to mechanical break downs and tenant turn over as the properties are older, tired out and in lower economic environments consisting of high densities of rental properties.

8 out of 10 people reading this will fail to take action in time, if at all. By the time they take action, the cream will have been skimmed off the top or worse yet, they will read articles in 5 or 10 years about all the wealth created by those who did take action.

There you have it. The truth. Back to Jack, “You can’t handle the truth!” or can you? I was feeling a little snarky and recently watched the movie a “FEW GOOD MEN” so I thought it would illustrate the things I see every day.

There are hundreds of real estate investors looking to capitalize on the real estate investment opportunities and many are getting educated (getting educated is great and advisable). The next important and most often missed step is taking action.

The best cash flow comes to those who are purposeful and take action and who can handle the truth.

Sales of previously owned homes were stronger than expected in October, putting them on track to hit their highest annual level since 2007.

Existing homes sold at a seasonally adjusted annual rate of 4.79 million units in October, the second-highest level of the year and up 2.1% from September, the National Association of Realtors said Monday. October’s level represented a 10.9% gain from a year earlier and was the 16th consecutive month of year-over-year home-sales gains.

Prices are rising amid sharp declines in the number of homes listed for sale. Just 2.14 million homes were for sale at the end of October, down 22% from one year ago to the lowest level in a decade, according to NAR estimates.

With more buyers chasing dwindling inventories of homes—and, in particular, fewer foreclosed properties that sell at steeper discounts—prices are beginning to rise in more markets. The national median home price rose by 11.1% from one year ago in October to $178,600, according to the NAR.

“We are clearly in recovery,” said John Burns, chief executive of John Burns Real Estate Consulting in Irvine, Calif.

At October’s sales pace, there were just 5.4 months of supply. That was the lowest level since February 2006, which was before housing markets began their prolonged decline. One-third of homes sold in October had been on the market for less than a month, according to the Realtors’ group.

According to The Wall Street Journal’s quarterly survey of housing-market conditions, inventory levels of homes for sale have fallen in all 28 metropolitan areas tracked in the survey.

At the current pace of sales, there was just one month of supply in Sacramento, Calif., where inventory fell by 56% from one year ago. The months’ supply stood at 2.4 in Phoenix, 2.8 in California’s Orange County, 3.2 in San Diego and San Francisco, and 3.6 in Los Angeles.

Housing demand began gaining pace a year ago as prices in many hard-hit markets had fallen so far that investors began scooping up homes at substantial discounts. Rising rents have encouraged many such investors to rent out the houses, rather than putting them on the market and trying to flip them for a profit.

More recently, demand among traditional buyers has jumped amid continued declines in interest rates that have made homes, based on monthly mortgage payments, more affordable than at any time in at least 15 years. The Mortgage Bankers Association said loan applications for home purchases rose 22% in the first week of November from one year earlier.

Median home prices have now risen for eight consecutive months, which last occurred in early 2006, just before the housing bubble burst. In part, that reflects an increase in sales of more-expensive homes. Sales of homes priced below $100,000 fell by 0.6% from one year ago in October, while sales of homes priced between $750,000 and $1 million rose by 53%.

Craig Moll, of Clearwater, Fla., said his biggest hurdle in buying a home was that there “weren’t many to choose from.” Mr. Moll sold a townhouse in 2009, as the housing market deteriorated. “Over the course of about a month, the entire opposite side of the street turned into rentals as the market started to crash,” he said.

Now, with mortgage rates at historic lows and home prices “creeping back up, it felt like our time to buy something,” he said. This summer, he paid $340,000 with a 10% down payment for a four-bedroom home with a swimming pool in Clearwater. “It wasn’t a great deal. It was a good deal,” he said.

Still, housing markets face headwinds, including stringent mortgage-lending standards. Mr. Moll, who is self-employed and advises insurance companies on weather-related car damages, said getting approved for a mortgage was “very, very difficult.”

The Realtors’ group also warned that November’s home sales could drop due to Sandy, the superstorm that battered the Atlantic coast from southern New Jersey to New York’s Long Island and Connecticut, at the end of October.

Some buyers already have pulled out of sales agreements while other homes that were under contract must be re-inspected or repaired before banks will finance loans. Compared with September, home sales fell by 1.7% on a seasonally adjusted basis in the Northeast; that contrasts with gains of 4.4% in the West, 2.1% in the South and 1.8% in the Midwest.

Another wildcard: Whether Congress avoids the “fiscal cliff,” a series of tax increases and spending cuts set to kick in at year-end, which some real-estate agents worry could undercut consumer confidence, potentially deferring some sales.

Write to Nick Timiraos at nick.timiraos@wsj.com

After seeing the stock market and real estate market decline so significantly the past few years, many investors are wondering whether now is a better time to buy stocks or invest in real estate and which would be a better investment?

Real Estate Investing vs. Stock Market Investing

Consider the following facts about a recent rental house purchase which was purchased a few weeks ago. The house in question was purchased in Port St Lucie, Florida and was a bank owned REO property which was purchased directly from the bank.

Purchase Price _________________$47,500
Monthly Rental _________________$800

Annual Rental Income____________$9,600
Less Annual Insurance___________$1,045
Less Property Taxes_____________$1,300
Less Vacancies_________________$800
Less Repairs __________________$800

Net Annual Income (NOI)_______$5,655

Cash on Cash Return__________$11.9%

If we assume that the property is vacant 1 month out of every twelve and that we spend another 1 months rent on repairs, we would still net a very healthy 11.9% return. Where else can you get almost 12% on your money with very little risk? This house previously sold for almost $200,000 and buying it at less than 1/4 of that price has obviously significantly reduced the downside risk.

The Real Value of Your Rental Property

The current market value of this property is around $77,000. So while this investment yields a current yield of 11.9% I have the added luxury of knowing that there is around $30,000 worth of equity in this property. And considering that historically most rental property in Florida sells at around 140 times rent (this number changes based on market conditions), the fair market value for this property could be somewhere around $112,000. That is how much I would sell this property for if I were to sell it to a Rent to Own Buyer with an FHA mortgage.

Zillow estimates the value of the property at $124,000. The insurance company has the property estimated at $125 per square foot replacement cost. Since the property is 1,176 square feet that puts the valuation at $147,000. I think the property is worth around $77,000. The fact that properties are selling at such a discount to replacement cost should be a huge red flag. That is the builder’s way of letting you know that you should be buying real estate now.

The real replacement cost is around $75 per square foot which would put the properties value at $88,200 which is probably fairly accurate. However this is the value if the house was constructed new and without the land. The lot is worth $25,000 so the house built new would cost around $113,200 to build. Existing homes need to be depreciated since obviously they are worth less than new homes so the $77,000 to $88,000 is probably a healthy range for what the house is really worth. If we are conservative and assume $77,000 that is still a definite $30,000 in equity.

Return on Investment For Rentals

At a purchase price of $47,000 that represents 63.82% return on my money when I purchase ($30,000/$47,000). In addition to this $30,000 in instant equity I also receive almost 12% annually as mentioned previously. And this is all without utilizing any leverage whatsoever.

Imagine what the return would be if I borrowed 90% of the purchase price ($42,750) at 7% on a 30 year fixed mortgage. My monthly payment would then be $281.09 for both principal and interest which adds up to a total of $3,373.08 for the year.

If I deduct this $3,373.08 from the $5,655 net operating income above then I would be left with a net annual income of $2,281.92. Consider that if you put down 10% ($4,750) that would work out to be a “cash on cash” return of 48%. Where else can you get this kind of return?

Less Risk Investing In Rentals

There is no other investment that can do this with any certainty. Keep in mind that in these calculations I am still factoring in all the expenses of owning property including vacancies, maintenance, taxes, insurance and repairs. I have not factored in the “headache” factor which is basically the headache that comes along with being a landlord.

The “headache” factor is without a doubt the biggest downside to being a landlord. Being a landlord is a lot more hands on that looking at your monthly mutual fund statement. In my opinion that is the biggest issue that a potential landlord should consider before investing in rental properties.

Going back to the example of the $47,000 house, investing this same $47,000 into stocks would be a much less secure way to invest your retirement money. I should know. I spent fifteen years as a stockbroker and money manager before becoming a distressed real estate investor. And I am here to tell you what many other real estate investors and landlords like me already know. The best place to invest your money is in single family rental properties.

Why Investing In Rental Properties Beats Stocks?

That is what I do with my money and I highly recommend that you do the same with yours. Now it is not all a bed of roses. Any landlord will tell you that being a landlord can be a headache too. Chasing after dead beat tenants, lost rent, damage to properties, maintenance and repairs are all part of being a landlord so you need to make sure that you have the time, desire, inclination and patience to become a landlord. But if you do and you hold for the long term you will be rewarded very well.

Unless your name ends in Buffet or Soros you are probably much better off investing in single family rental properties than you are investing in the stock market. Investing is about getting as much cash flow or yield as possible, without risking your nest egg and doing so in the most secure way.

Anything else is not investing. It is speculating. And speculating is anyone’s guess. If you are looking for a sure thing then you should go out and find a single family rental house that is way below current market value and you should buy it, fix it up and rent it out. If you hold that house until the mortgage is paid off you will have a good investment.

Home buyers and -sellers alike often bristle with anticipatory irritation at the mere thought of all the paperwork they expect they’ll have to come up with to do their transaction, above and beyond the basic loan application, contract, disclosures and closing docs. And these worries start way in advance; it’s as though, before they even start visiting open houses, buyers begin to visualize – and dread – spending hours upon hours in the dank catacombs of the Vatican (à la Da Vinci Code) combing through ancient files, seeking some rare and precious artifact documenting their childhood dental history or genealogy.

In some respects, this vision of the experience of obtaining a home loan might not be far off – there are oodles of hoops through which to jump and, occasionally, the loan underwriter requests something sort of bizarre. But more commonly, there’s a pretty finite universe of documents you’ll really need to scrounge up to get your home bought – or sold. Here they are:

1. ID (e.g., driver’s license, state-issued ID, passport). Who must produce it? Buyers and sellers. Why? Uh, hello!?! Lender wants to know that you are who you say you are, buyers, and the title insurance company wants to make sure, sellers, that you actually have the right to sell the home. Funny enough, this commonly goes unrequested until you get to the closing table, when the notary requests to see it before signing, but some mortgage brokers and even some real estate brokers and agents may ask to see it earlier on.
2. Paycheck Stubs. Who must produce it? Any buyer financing their purchase with a mortgage. Sellers, usually only in the case of a short sale. Why? Buyers’ purchase price ranges are determined, in part, by their income. And short sellers have to prove an economic hardship.
3. Two months’ bank account statements. Who must produce it? Buyers getting financing; sellers selling short. Why? Buyers’ lenders now require proof of regular income and proof that the down payment money is your own. Short sellers? It’s all about the hardship.
4. Two years’ W-2 forms or tax returns. Who must produce it? Mortgage-seeking buyers and short selling sellers. Why? Banks want to see a stable, long-term income. They also limit you to claiming as income the amount on which you pay taxes (attn: all business owners!). And in short sales, again, they want documentation of every single facet of your finances.
5. Updated everything. Who must produce it? Buyer/mortgage applicants. Why? Because things change, and because the time period between the first loan application and closing can be many months – even years! – on today’s market. During the time between contract and closing it’s not at all unusual for underwriters to demand buyers produce updated mortgage statements, checks stubs, and such – and its quite common for them to call your office the day before closing to request a last minute verification of employment!
6. Quitclaim deed. Who must produce it? Married buyers purchasing homes they plan to own as separate property. Married sellers selling homes that they own separately, or joint owners selling their interests separately. Why? With the Quitclaim Deed, the other spouse or owner signs any and all interests they even might have had in the property over the the selling owner, making it possible for the title insurer to guarantee clear, undisputed title is being transferred in the sale.
7. Divorce decree. Who must produce it? Buyers and sellers who need to document their solo status or the property-splitting terms of their divorce. Why? Again, to ensure that the seller has the right to sell. Recently single buyers might need to prove that they shouldn’t be held to account for their ex’s separate debts or credit report dings.
8. Gift letters. Who must produce it? Buyers using gift money toward their down payment. Why? The bank wants to be sure the gift came from a relative, and is their own money to give. They also want the relative to confirm in writing that it’s a gift, not a loan – a loan would need to be factored into your debt load.
9. Compliance certificates. Who must produce it? Usually sellers, but sometimes buyers, by contract. Why?Some local governments require various condition requirements be met before the property is transferred, like some cities which require a sewer line be video scoped and repaired, cities which require a checklist of items be met before a certificate of occupancy be issued (usually relevant to brand new and really old homes, the latter of which are often subject to lead paint concerns) and energy conservation ordinances which require low-flow toilets and shower heads to be installed. Ask your real estate pro for advice about which, if any, such ordinances apply in your area.
10. Mortgage statements. Who must produce it? Any seller with a mortgage. Why? the escrow holder or title company will need to use them to order payoff demands from any mortgage holder who has to get paid before the property’s title can be transferred.

By no means is this an exhaustive list. For more information on the beginning process of Memphis home buying or Memphis home selling, contact us today at 901-592-5692.