What the heck is a short sale? You hear it a lot but have no idea as to what it is. A short sale is when the property has yet to be foreclosed on, but the bank has agreed to take less money than is owed on the loan to get a payoff on the balance owed. Usually, at this point, the owner of the property has been doing the best they can to keep the
building up and running. There are minimal, if any, vacancies, but the owner is still losing money for some reason. Banks will realize that if they go ahead and sell the house at a reduced price now, they can avoid having to go through the foreclosure process.
In a short sale you will still deal with the owner of the property. Of course this is done with the bank or lender’s permission. Usually it will be pretty easy negotiating with the current owner since they know it will be foreclosed on anyway. As I have mentioned several times, do your homework, and give the owner and lender a nice “sales pitch” as to why you should be the new owner of the property. Do this along with other information such as a purchase contract and list of inspections that have been done on your potential investment property.
This is another time when your team of real estate professionals can help you a great deal. Your agent can help you get all your numbers and inspections in order to present to the lender and owner.
Thursday
Real Estate Investing | Investing In Foreclosures
The past couple of years has seen a tremendous increase in foreclosures. Banks have had to take back more and more properties. Banks don’t want properties on their books, so the past couple of years has been a headache for some of them.
You have to be careful when investing in foreclosures. You have to wonder why someone just decided to stop paying on a house and leave. So you, as an investor, have no idea why they left the property. Was it something on the property that caused the problem? Was there a problem with the house itself? If it was an investment, was the investor having to put too much money into the property? You have no idea. That is why investing in bank owned properties can be tricky.
The banks don’t have to tell you why they took the property bank, making it even more difficult to figure out. Oftentimes the properties are sold as is, so you don’t know what you are getting. The banks want to make money too, so if you see a bank owned property that is dirt cheap, you may want to think twice.
It will be more difficult to obtain financing for bank owned properties, especially if they are discounted properties. Plus, since you are investor, banks will be even less inclined to loan you the money. That is what got them into trouble in the first place! Odds are a big down payment would have to be made to purchase the property.
Also make sure that you have a good inspection done before buying the property. Do as much research and try to get as much information as you can on your own. As I mentioned, banks don’t have to give you any information about the condition of the property.
Be prepared to put in a lot of money and do a lot of work to get your investment property up to par and get tenants in it, or sell it. It is better to overestimate the costs and length of time needed to get the property back into good condition.
You have to be careful when investing in foreclosures. You have to wonder why someone just decided to stop paying on a house and leave. So you, as an investor, have no idea why they left the property. Was it something on the property that caused the problem? Was there a problem with the house itself? If it was an investment, was the investor having to put too much money into the property? You have no idea. That is why investing in bank owned properties can be tricky.
The banks don’t have to tell you why they took the property bank, making it even more difficult to figure out. Oftentimes the properties are sold as is, so you don’t know what you are getting. The banks want to make money too, so if you see a bank owned property that is dirt cheap, you may want to think twice.
It will be more difficult to obtain financing for bank owned properties, especially if they are discounted properties. Plus, since you are investor, banks will be even less inclined to loan you the money. That is what got them into trouble in the first place! Odds are a big down payment would have to be made to purchase the property.
Also make sure that you have a good inspection done before buying the property. Do as much research and try to get as much information as you can on your own. As I mentioned, banks don’t have to give you any information about the condition of the property.
Be prepared to put in a lot of money and do a lot of work to get your investment property up to par and get tenants in it, or sell it. It is better to overestimate the costs and length of time needed to get the property back into good condition.
Real Estate Investing | Finding Mismanaged Investment Properties
Another way experienced property investors make good money is that they search for and find properties that are not well taken care of financially. Sometimes an investor has a good property, but it is mismanaged and they are either losing or not making as much money as they should.
You see this in really large apartment complexes. If they are under bad management, they investors are probably losing money because of low rent amounts or because the manager does nothing about late or non existent rent payments. Some tenants will take advantage of you in a second if you let them. You give them an inch, they take a mile. You must nip things like this in the bud.
So what can you look for to find this type of property? As mentioned earlier, checking the rent amounts will be a good indicator, you don’t want them too low. Also if the owner has maintenance problems, or needs money, or they have high vacancy rates. These are all good signs that the property is being mismanaged.
If you can find this type of property I say jump on it. Generally you can get great terms and you should get a great return on your real estate investment.
Of course you should look at the numbers seeing what potential is there and what is needed to realize that potential. Only get into the investment property if you can see on paper that you will be making enough money to justify the investment. Look at the condition of the property and see how long the spaces have been vacant. The longer a space has been vacant the more poorly it has been managed.
Some of the other things would be easy to notice. The cleanliness of the vacant apartments, how much are they promoting the available spaces, things like that.
You see this in really large apartment complexes. If they are under bad management, they investors are probably losing money because of low rent amounts or because the manager does nothing about late or non existent rent payments. Some tenants will take advantage of you in a second if you let them. You give them an inch, they take a mile. You must nip things like this in the bud.
So what can you look for to find this type of property? As mentioned earlier, checking the rent amounts will be a good indicator, you don’t want them too low. Also if the owner has maintenance problems, or needs money, or they have high vacancy rates. These are all good signs that the property is being mismanaged.
If you can find this type of property I say jump on it. Generally you can get great terms and you should get a great return on your real estate investment.
Of course you should look at the numbers seeing what potential is there and what is needed to realize that potential. Only get into the investment property if you can see on paper that you will be making enough money to justify the investment. Look at the condition of the property and see how long the spaces have been vacant. The longer a space has been vacant the more poorly it has been managed.
Some of the other things would be easy to notice. The cleanliness of the vacant apartments, how much are they promoting the available spaces, things like that.
Monday
Investing In Vacation Homes
On just about every vacation that I go, there will be a time when I say that I would love to have a vacation home there. Most people would if they could. There are pros and cons associated with owning a vacation home.
The biggest benefit is that you have somewhere to stay when you go on vacation. You don’t have to worry bout condos or hotel rooms. The property is yours and you can go whenever you want and stay as long as you want.
You can treat them as investment properties. Many people do. Many people went rent the vacation home throughout the year to help pay for the mortgage and maybe even make some cash. You won’t be staying there all the time, so why not rent it out to make some money and pay the bills. If you stay in the home quite often, you will not be able to deduct depreciation to shelter the profit that you have made. If I remember correctly, this applies if you stay in the property longer than 10% of total days rented. I do know of investors that use the benefits of the 1031 exchange. The idea is that you will sell the home when you no longer need it. That way taxes are not a problem. What you can do is just trade one vacation home for another, no problem with taxes. This is also a great time when your accountant can give you all the details on how to do everything properly and avoid any penalties.
The biggest benefit is that you have somewhere to stay when you go on vacation. You don’t have to worry bout condos or hotel rooms. The property is yours and you can go whenever you want and stay as long as you want.
You can treat them as investment properties. Many people do. Many people went rent the vacation home throughout the year to help pay for the mortgage and maybe even make some cash. You won’t be staying there all the time, so why not rent it out to make some money and pay the bills. If you stay in the home quite often, you will not be able to deduct depreciation to shelter the profit that you have made. If I remember correctly, this applies if you stay in the property longer than 10% of total days rented. I do know of investors that use the benefits of the 1031 exchange. The idea is that you will sell the home when you no longer need it. That way taxes are not a problem. What you can do is just trade one vacation home for another, no problem with taxes. This is also a great time when your accountant can give you all the details on how to do everything properly and avoid any penalties.
Single Family Homes As Rental Properties
Many real estate investors prefer to be buy and hold investors instead of those looking to flip properties. Having rental properties have pros and cons, just like any other type of real estate investing.
Generally, the expenses associated with renting single family homes is minimal. Sometimes you will run into issues that cost you a little more than normal, but that is just the nature of the beast. It is easier than apartment buildings because you have one person, or one family that you have to deal with. You can make the tenant responsible for most of the expenses such as utility bills, broken appliances, and things like that. The idea is to have the person or family renting it feel like the owners. Making the investment as passive as possible.
The biggest con with renting a single family home is the profit is lower. Apartments can give you more bang for your buck as far as profit just from the sheer volume. Acutally, with all else being equal, the biggest factor in your profit potential will be location. The best locations bring you the most profit. People want to live in the best communities and will pay more to do it. Another factor is of course how many people you have on the property. Again, that goes back to volume.
In pretty much all cases, multi unit complexes will give you more return that a single family home. That is just common sense.
Another big disadvantage is that if your single family investment property is vacant you have no income, no cash flow. If you own a multi unit complex and have a vacancy or two you still have some cash flow.
Generally, the expenses associated with renting single family homes is minimal. Sometimes you will run into issues that cost you a little more than normal, but that is just the nature of the beast. It is easier than apartment buildings because you have one person, or one family that you have to deal with. You can make the tenant responsible for most of the expenses such as utility bills, broken appliances, and things like that. The idea is to have the person or family renting it feel like the owners. Making the investment as passive as possible.
The biggest con with renting a single family home is the profit is lower. Apartments can give you more bang for your buck as far as profit just from the sheer volume. Acutally, with all else being equal, the biggest factor in your profit potential will be location. The best locations bring you the most profit. People want to live in the best communities and will pay more to do it. Another factor is of course how many people you have on the property. Again, that goes back to volume.
In pretty much all cases, multi unit complexes will give you more return that a single family home. That is just common sense.
Another big disadvantage is that if your single family investment property is vacant you have no income, no cash flow. If you own a multi unit complex and have a vacancy or two you still have some cash flow.
Real Estate | Investing In Single Family Homes
Investing in single family homes is where most real estate investors get their start. Single family residential investment property is where I got my feet wet as well. You won’t get rich with one investment property, but it will give you valuable experience which will help you in the long run. There are simple things you can do with your first residential investment property to increase its value. Painting is something simple and cost effective that will increase your investment property’s vaule. Adding shutters, landscaping, new appliances, things like this can add tremendous value with little work and cost.
That is the beauty of buying a single family home for investment purposes, unlike condos, you don’t have any restrictions to make changes to the property. If you are in a PUD or planned community there will be restrictions on what you can do to the property, so keep that in mind.
Researching
When making the decision to buy a single family home, it is important to do lots of research to make the best investment. Check the market and see what areas are of high demand. Also look for diamonds in the rough. If you can find a property that needs a little TLC and it is in a nice neighborhood. I would strongly suggest making a go at that property. If you put a little money into your investment, you can let the neighborhood sell the property for you. There are times when neighbors will be excited that you are buying a property that needs some help. It will increase the beauty of their neighborhood and increase the value of their home.
Usually the thorn in most property investor’s sides will be permits. You have to have permits before you can begin working on your investment property. In some areas it will be more frustrating to get permits than others. It will be ideal if you were to find an area where getting permits are easy and not very expensive. Some property investors include this factor in their decision of whether to buy an investment property in a particular area or not.
Finding good deals
When you are trying to find a good deal there are a few things to look for.
Find out why the seller wants to sell the house. They may be open to more creative financing or a lower price to get rid of the property.
Find out the price per square foot. Then compare this with your comps in the area to see if it is a good value or not.
How many bedrooms does it have? Generally, the more bedrooms a house has, the easier it will be to sell.
How long has the property been on the market? Often times if the property has been on the market for a long time, sellers will do just about anything to get the property off their hands. This is great for the investor.
The other great thing about beginning real estate investing by buying single family properties is that you can live in the property yourself for a couple of years. After that two year period you can avoid capital gains taxes. You could start the process all over again if you wanted. You MUST live at the property for AT LEAST 2 years to avoid these taxes. Otherwise you will have to pay them unless you do the ‘ol 1031 exchange.
This is a great way to get started for the many benefits described above. You can also think about it this way. If you have done your research and you buy the investment property in a good area, after a couple of years, you could potentially have made enough money to purchase 2 homes. You could live in one, again and use the other property as a rental investment property. Your investments can build upon themselves, increasing your wealth at a much faster rate.
That is the beauty of buying a single family home for investment purposes, unlike condos, you don’t have any restrictions to make changes to the property. If you are in a PUD or planned community there will be restrictions on what you can do to the property, so keep that in mind.
Researching
When making the decision to buy a single family home, it is important to do lots of research to make the best investment. Check the market and see what areas are of high demand. Also look for diamonds in the rough. If you can find a property that needs a little TLC and it is in a nice neighborhood. I would strongly suggest making a go at that property. If you put a little money into your investment, you can let the neighborhood sell the property for you. There are times when neighbors will be excited that you are buying a property that needs some help. It will increase the beauty of their neighborhood and increase the value of their home.
Usually the thorn in most property investor’s sides will be permits. You have to have permits before you can begin working on your investment property. In some areas it will be more frustrating to get permits than others. It will be ideal if you were to find an area where getting permits are easy and not very expensive. Some property investors include this factor in their decision of whether to buy an investment property in a particular area or not.
Finding good deals
When you are trying to find a good deal there are a few things to look for.
Find out why the seller wants to sell the house. They may be open to more creative financing or a lower price to get rid of the property.
Find out the price per square foot. Then compare this with your comps in the area to see if it is a good value or not.
How many bedrooms does it have? Generally, the more bedrooms a house has, the easier it will be to sell.
How long has the property been on the market? Often times if the property has been on the market for a long time, sellers will do just about anything to get the property off their hands. This is great for the investor.
The other great thing about beginning real estate investing by buying single family properties is that you can live in the property yourself for a couple of years. After that two year period you can avoid capital gains taxes. You could start the process all over again if you wanted. You MUST live at the property for AT LEAST 2 years to avoid these taxes. Otherwise you will have to pay them unless you do the ‘ol 1031 exchange.
This is a great way to get started for the many benefits described above. You can also think about it this way. If you have done your research and you buy the investment property in a good area, after a couple of years, you could potentially have made enough money to purchase 2 homes. You could live in one, again and use the other property as a rental investment property. Your investments can build upon themselves, increasing your wealth at a much faster rate.
Real Estate | Investing in Condos
Many people live in condos. You see a lot of people having condos as their first home. You get the benefit of owing your living space, plus you get the benefits of other amenities like pools, fitness centers, things you cannot afford to have at your own home.
I have never bought a condo. I have a few reservations about investing in condominiums. A few people that I trust in the real estate business have told me in the past that selling condos can be difficult. A lot of people don’t like to own their own living space, but have to answer to someone else, when it comes to how my living space looks, or what I want to do to improve the living space.
If you live in a group of condos, you must have permission to do anything to your space, also, if the condo association decides to do something, you don’t have choice.
You can see why I hesitate. Why would I buy a condo to try and change in increase the value in, only to have an association tell me I cannot do it?
I feel that the only way that I would invest in a condo would be if I can get a great deal, maybe someone that is desperately trying to get out of the condo. That would be pretty much it. I think you are better served investing in single family homes or properties like duplexes.
I have never bought a condo. I have a few reservations about investing in condominiums. A few people that I trust in the real estate business have told me in the past that selling condos can be difficult. A lot of people don’t like to own their own living space, but have to answer to someone else, when it comes to how my living space looks, or what I want to do to improve the living space.
If you live in a group of condos, you must have permission to do anything to your space, also, if the condo association decides to do something, you don’t have choice.
You can see why I hesitate. Why would I buy a condo to try and change in increase the value in, only to have an association tell me I cannot do it?
I feel that the only way that I would invest in a condo would be if I can get a great deal, maybe someone that is desperately trying to get out of the condo. That would be pretty much it. I think you are better served investing in single family homes or properties like duplexes.
Real Estate Investing | Investing In Land
There are all types of property to invest in. You can have a narrow focus and just invest in one or two types of real estate, or you can try a little of everything. You can try commercial properties, condos, apartment complexes, duplexes, and that is just scratching the surface.
Be open to investing in other areas of real estate. You may end up enjoying the change of pace. It may be something you decide you want to explore further. I like this because I get bored easily. Trying to invest in investment property that I am not used to investing in is a new challenge for me. It keeps things fresh and it makes getting ready for the day easier because it is always something new.
Buying land
Not many people look at plain ‘ol land as a real estate investment opportunity. There are several uses for this type of land. Usually the people that make the most of buying land or having land for a while and then selling it, have it purchased by commercial buyers. You see it all the time. A large shopping center goes up, then all the land around it goes up for sale. This is done to capitalize in the increased demand….time to make some money!
Usually vacant land is something you want to buy and hold on to. It is not something you can buy and flip for a profit a few months later. There are ways you can help yourself make a little extra money sooner. If you have done your proper research then you may be able to find out what areas will be growing the in next few years. You could then try and find some good deals on land in those areas, buy them, then hold on to them for awhile to see what happens.
Most people stay away from land just because it is not worth the hassle. You have to build roads, install septic systems, and all the other things you need to get installed before you even think about pouring a foundation. Again, as I have mentioned before, you must do your research to see if this is a risk that you want to take. If it is, then give it a shot.
Be open to investing in other areas of real estate. You may end up enjoying the change of pace. It may be something you decide you want to explore further. I like this because I get bored easily. Trying to invest in investment property that I am not used to investing in is a new challenge for me. It keeps things fresh and it makes getting ready for the day easier because it is always something new.
Buying land
Not many people look at plain ‘ol land as a real estate investment opportunity. There are several uses for this type of land. Usually the people that make the most of buying land or having land for a while and then selling it, have it purchased by commercial buyers. You see it all the time. A large shopping center goes up, then all the land around it goes up for sale. This is done to capitalize in the increased demand….time to make some money!
Usually vacant land is something you want to buy and hold on to. It is not something you can buy and flip for a profit a few months later. There are ways you can help yourself make a little extra money sooner. If you have done your proper research then you may be able to find out what areas will be growing the in next few years. You could then try and find some good deals on land in those areas, buy them, then hold on to them for awhile to see what happens.
Most people stay away from land just because it is not worth the hassle. You have to build roads, install septic systems, and all the other things you need to get installed before you even think about pouring a foundation. Again, as I have mentioned before, you must do your research to see if this is a risk that you want to take. If it is, then give it a shot.
Tuesday
Real Estate Investing | Getting financing
Earlier I talked about the challenges of getting started in real estate investing. Another big problem for some people is finding the money for real estate investments. It can be scary to go to banks looking for property investment loans. I don’t know many people that have lots of cash in their savings or checking accounts to buy a lots of real estate. So what do people do? They don’t have a choice but to go to lenders for the money to invest in property. This is good because when you get the investment loan you have leverage, which is good for us investors.
There are questions to consider when you are applying for a loan. What kind of loan should you get? Will you be able to qualify? Can you get a good loan with bad credit? All these questions could give you a headache. Hopefully I can help with this.
Searching for a loan
The costs for getting a loan vary. Unfortunately there is no universal number that lenders have. Everyone is different. Government loans are different than conventional lenders and so on. You really have to consider who the lender is and they type of loan you are getting.
There are several factors. Factors too numerous to mention in this post. Again, this is where your team of real estate professionals will help you. Lean on them to give you the best advice and to help you find the best deal you can get to make yourself some money!
There are laws to help you too. Lenders have to tell you what all their fees will amount to. They can’t just spring it on you and tell you after the fact. They have to be upfront with you.
Points
With loans come points. 1 point equals 1 percent of the loan. This is how lenders can make money off you. They have to or they can’t stay in business. This is their fee to ensure they will make some money in the deal. A $300k loan will amount to $3,000 in points fees. You can try and negotiate the point fees if you are in the position to do so. Rarely do they have these numbers fixed and non-negotiable.
Locating a lender
When you are looking for a lender there are a few main places to find them. You have the government, banks, and other private lenders.
The Federal Housing Administration (FHA)
I have mentioned the FHA before. Lots of people, including property investors use the FHA to try and get a lower interest, lower down payment loan. The FHA don’t give you the money, they are basically the insurers of the loan. The banks and private lenders give you the money, the FHA insures it.
As I have mentioned before. Those interested in buying their first home usually try and go with an FHA loan. The interest rates and down payments are lower than a standard loan.
The down payment required is just 3% which is great for young couples looking for their first home, or the beginning real estate investor looking to get his feet wet.
This is all great, but remember as an investor you actually have to live in the home for at least a year. The FHA requires that. I don’t know of anyone that was actually checked on to see if they are in the house long enough to meet the requirements, but you never know when the might check.
I believe the FHA does have housing requirements before you can qualify for the loan. The potential investment property must meet their guidelines and must pass their “tests” via appraisals. If it passes they will give the green light.
VA loans
I have also talked about VA loans before. These are similar to the FHA loans. The difference is that you must be a veteran of the armed forces to qualify. The VA does the same thing as the FHA. They guarantee the loans
The big difference between the two is that they can be made with no down payment. They also get good rates and they don’t have insurance to pay on their mortgages.
First time buyer
There used to be a lot of programs like this. With the fall of the various mortgage lenders, I don’t know if they are as prevalent today. Most of these programs are similar to the 2 mentioned above. The terms are good and the down payments are lower. I do believe you also must live in the property for awhile in order to meet the requirements of the loan.
Conventional loans
You can get conventional loans at any bank or financial institution. There for a few months it was kind of difficult to get a loan, especially if you are a real estate investor. Most banks would require large down payments to feel safe in lending the money. The type of loan you get will be based on what type of investment property you are trying to acquire. If it is a duplex or single family home, you can get your normal residential loan. If you are trying to buy several units at once, like a small group of apartments, then you would apply for a commercial type loan. I want to say it is more than 4 units. I will have to check on that for you.
I believe that it is easier to get a residential loan compared to the bigger commercial loans. Not all banks will lend huge sums of money to an investor. There are tons of options with residential loans too. They are too numerous for me to mention. I would suggest stopping by your bank and talking to someone just to see everything that is offered.
A quick reminder that if you pay less than 20% down have to pay private mortgage insurance (PMI). This is paid so that the lender won’t lose a lot of money on the loan if the property goes into foreclosure.
How do you qualify for these loans?
The biggest factor is your credit score or your FICO score. If you have bad credit, it will be difficult for you to get a good rate on a loan. If the credit score is really low, you may not be able to get a loan, period. Lenders take a look at your score from all 3 credit agencies.
How do you get a good FICO score?
Well keep you credit in check. Don’t have too many open lines of credit. Have lines of credit that have been open for a long time. Few, if any, delinquencies are also factors in your FICO score. I have had lenders tell me that too many inquiries for your credit reports will have an effect on your FICO score.
Debt to income ratio
You also need to look at your debt to income ratio. Basically this is just your income divided by all of your debt. It is obvious that you want to have more than enough income to cover all of your debts and then some. If not, the chances if you getting a loan for your potential investment property is slim.
The key with all of this is to try and get your credit scores up as high as you can….and keep them there. It can be tough at times, especially if you are carrying a lot of debt, but you can get there. This will make a big difference in your bottom line.
Getting commercial loans
If you are making good money in real estate investing, eventually you may want to tackle bigger property investments. You may take a shot at buying apartment complexes or multiple duplexes. If you are going to try this you will have to get a commercial loan. I believe the down payments are larger than conventional loans. Probably because of the large sums of money the lenders will be handing you. Usually you won’t find a beginning real estate investor going after these just because they don’t have the money available to make the big down payments.
From what I recall, you will need to go into more detail with your cash flow to get the property. Lenders need to see a higher cash flow to feel comfortable giving you the money for the investment property. These loans usually take a while to finalize due to all the processes that need to be completed. Lenders will do extensive appraisals also to ensure their money will be going into a good investment. They need to make money too!
Other mortgages
You have even more types of mortgages to choose from. You have fixed rate and adjustable rate mortgages or ARMs. Generally fixed rate mortgages are the way to go for most people. ARMs have fallen out of favor in recent years. Real estate investors have to look at things differently. Sometimes the fixed rate mortgages can be costly for an investor. The rates, especially for multiple units, can be higher. Adjustable rates may offer the investor more flexibility. You have to do your research on what type of loan would fit you best.
Don’t be afraid to shop around for a lender. Also feel free to negotiate with them. If you find a lender that is giving you a better deal, bring it up to other lenders as you shop around to see if you can get an even better deal. If they want your business bad enough, they will work with you.
Assumable loans
I should mention assumable loans. Assumable loans are simply loans that already exist on a property and can be take over by someone else. If you find a house you want to flip, and the owner has a current mortgage on the investment property that is an assumable loan, you can assume the payments on the current loan instead of trying to find lenders for a new loan. The seller will be happy to tell if you if the loan they have is assumable. If they don’t your real estate agent can find out for you.
Private lending or owner financing
Many investors like to get their financing through private lenders. Owner financing can be a great way to go if you are having trouble finding traditional financing from banks. You don’t have to worry about the various fees that you would have to pay with traditional lenders. Oftentimes you can negotiate great terms that can help you improve your cash flow and make you more money. You can even negotiate the down payment you would be making. That is what’s great about the owner financing option. It can actually be tailored to the needs of both the current owner and the real estate investor. You can be really creative with this type of financing. There is no limit to what you and the owner of the property can do. This flexibility is great for investors.
Hard money
What is a hard money loan? Basically a hard money loan is when a third person or party makes the loan on an investment property, or any property for that matter. When investors can’t get financing for an investment project because of bad credit, or damaged property, they may have to try and get financing through hard lenders. Hard money loans are more expensive for the investor, but if you have done the proper research on your property and have enough cash flow to cover it, then by all means, go for it.
This is just an overview of the types of lending that is available or real estate investors. There is something for everyone, regardless of the situation. Just like everything else, do your research and try and make the best decision possible. Remember, the bottom line is that you want to make money, if the rates are higher than you wanted, but you are making money, then that is fine. You are still making money after all.
There are questions to consider when you are applying for a loan. What kind of loan should you get? Will you be able to qualify? Can you get a good loan with bad credit? All these questions could give you a headache. Hopefully I can help with this.
Searching for a loan
The costs for getting a loan vary. Unfortunately there is no universal number that lenders have. Everyone is different. Government loans are different than conventional lenders and so on. You really have to consider who the lender is and they type of loan you are getting.
There are several factors. Factors too numerous to mention in this post. Again, this is where your team of real estate professionals will help you. Lean on them to give you the best advice and to help you find the best deal you can get to make yourself some money!
There are laws to help you too. Lenders have to tell you what all their fees will amount to. They can’t just spring it on you and tell you after the fact. They have to be upfront with you.
Points
With loans come points. 1 point equals 1 percent of the loan. This is how lenders can make money off you. They have to or they can’t stay in business. This is their fee to ensure they will make some money in the deal. A $300k loan will amount to $3,000 in points fees. You can try and negotiate the point fees if you are in the position to do so. Rarely do they have these numbers fixed and non-negotiable.
Locating a lender
When you are looking for a lender there are a few main places to find them. You have the government, banks, and other private lenders.
The Federal Housing Administration (FHA)
I have mentioned the FHA before. Lots of people, including property investors use the FHA to try and get a lower interest, lower down payment loan. The FHA don’t give you the money, they are basically the insurers of the loan. The banks and private lenders give you the money, the FHA insures it.
As I have mentioned before. Those interested in buying their first home usually try and go with an FHA loan. The interest rates and down payments are lower than a standard loan.
The down payment required is just 3% which is great for young couples looking for their first home, or the beginning real estate investor looking to get his feet wet.
This is all great, but remember as an investor you actually have to live in the home for at least a year. The FHA requires that. I don’t know of anyone that was actually checked on to see if they are in the house long enough to meet the requirements, but you never know when the might check.
I believe the FHA does have housing requirements before you can qualify for the loan. The potential investment property must meet their guidelines and must pass their “tests” via appraisals. If it passes they will give the green light.
VA loans
I have also talked about VA loans before. These are similar to the FHA loans. The difference is that you must be a veteran of the armed forces to qualify. The VA does the same thing as the FHA. They guarantee the loans
The big difference between the two is that they can be made with no down payment. They also get good rates and they don’t have insurance to pay on their mortgages.
First time buyer
There used to be a lot of programs like this. With the fall of the various mortgage lenders, I don’t know if they are as prevalent today. Most of these programs are similar to the 2 mentioned above. The terms are good and the down payments are lower. I do believe you also must live in the property for awhile in order to meet the requirements of the loan.
Conventional loans
You can get conventional loans at any bank or financial institution. There for a few months it was kind of difficult to get a loan, especially if you are a real estate investor. Most banks would require large down payments to feel safe in lending the money. The type of loan you get will be based on what type of investment property you are trying to acquire. If it is a duplex or single family home, you can get your normal residential loan. If you are trying to buy several units at once, like a small group of apartments, then you would apply for a commercial type loan. I want to say it is more than 4 units. I will have to check on that for you.
I believe that it is easier to get a residential loan compared to the bigger commercial loans. Not all banks will lend huge sums of money to an investor. There are tons of options with residential loans too. They are too numerous for me to mention. I would suggest stopping by your bank and talking to someone just to see everything that is offered.
A quick reminder that if you pay less than 20% down have to pay private mortgage insurance (PMI). This is paid so that the lender won’t lose a lot of money on the loan if the property goes into foreclosure.
How do you qualify for these loans?
The biggest factor is your credit score or your FICO score. If you have bad credit, it will be difficult for you to get a good rate on a loan. If the credit score is really low, you may not be able to get a loan, period. Lenders take a look at your score from all 3 credit agencies.
How do you get a good FICO score?
Well keep you credit in check. Don’t have too many open lines of credit. Have lines of credit that have been open for a long time. Few, if any, delinquencies are also factors in your FICO score. I have had lenders tell me that too many inquiries for your credit reports will have an effect on your FICO score.
Debt to income ratio
You also need to look at your debt to income ratio. Basically this is just your income divided by all of your debt. It is obvious that you want to have more than enough income to cover all of your debts and then some. If not, the chances if you getting a loan for your potential investment property is slim.
The key with all of this is to try and get your credit scores up as high as you can….and keep them there. It can be tough at times, especially if you are carrying a lot of debt, but you can get there. This will make a big difference in your bottom line.
Getting commercial loans
If you are making good money in real estate investing, eventually you may want to tackle bigger property investments. You may take a shot at buying apartment complexes or multiple duplexes. If you are going to try this you will have to get a commercial loan. I believe the down payments are larger than conventional loans. Probably because of the large sums of money the lenders will be handing you. Usually you won’t find a beginning real estate investor going after these just because they don’t have the money available to make the big down payments.
From what I recall, you will need to go into more detail with your cash flow to get the property. Lenders need to see a higher cash flow to feel comfortable giving you the money for the investment property. These loans usually take a while to finalize due to all the processes that need to be completed. Lenders will do extensive appraisals also to ensure their money will be going into a good investment. They need to make money too!
Other mortgages
You have even more types of mortgages to choose from. You have fixed rate and adjustable rate mortgages or ARMs. Generally fixed rate mortgages are the way to go for most people. ARMs have fallen out of favor in recent years. Real estate investors have to look at things differently. Sometimes the fixed rate mortgages can be costly for an investor. The rates, especially for multiple units, can be higher. Adjustable rates may offer the investor more flexibility. You have to do your research on what type of loan would fit you best.
Don’t be afraid to shop around for a lender. Also feel free to negotiate with them. If you find a lender that is giving you a better deal, bring it up to other lenders as you shop around to see if you can get an even better deal. If they want your business bad enough, they will work with you.
Assumable loans
I should mention assumable loans. Assumable loans are simply loans that already exist on a property and can be take over by someone else. If you find a house you want to flip, and the owner has a current mortgage on the investment property that is an assumable loan, you can assume the payments on the current loan instead of trying to find lenders for a new loan. The seller will be happy to tell if you if the loan they have is assumable. If they don’t your real estate agent can find out for you.
Private lending or owner financing
Many investors like to get their financing through private lenders. Owner financing can be a great way to go if you are having trouble finding traditional financing from banks. You don’t have to worry about the various fees that you would have to pay with traditional lenders. Oftentimes you can negotiate great terms that can help you improve your cash flow and make you more money. You can even negotiate the down payment you would be making. That is what’s great about the owner financing option. It can actually be tailored to the needs of both the current owner and the real estate investor. You can be really creative with this type of financing. There is no limit to what you and the owner of the property can do. This flexibility is great for investors.
Hard money
What is a hard money loan? Basically a hard money loan is when a third person or party makes the loan on an investment property, or any property for that matter. When investors can’t get financing for an investment project because of bad credit, or damaged property, they may have to try and get financing through hard lenders. Hard money loans are more expensive for the investor, but if you have done the proper research on your property and have enough cash flow to cover it, then by all means, go for it.
This is just an overview of the types of lending that is available or real estate investors. There is something for everyone, regardless of the situation. Just like everything else, do your research and try and make the best decision possible. Remember, the bottom line is that you want to make money, if the rates are higher than you wanted, but you are making money, then that is fine. You are still making money after all.
Assessing Value In Potential Investment Properties
Ill tell you. Getting started in real estate investing can be scary, very scary. It has been one of the scariest things I have encountered. It was hard for me to step out of my comfort zone to make something happen. That is key. You have to step out of your comfort zone and do it. Don’t worry about the bad things that might happen. I had to think about the positive things that would happen. More money. More money makes life easier. It was always something that I worried about, making sure I had enough money to take care of my family.
If you can think more about the positive than the negative, it makes the transition to being a real estate investor easier. After a few deals it becomes normal and you start kicking yourself that you didn’t jump out and do it sooner.
Also, preparation will help as well. Get your team of professionals together. Get your real estate expert with you, get your attorney. Once you have your support system set up, things get easier.
Look at as many financial situations as you can. Think about problems that might occur when buying investment property. Be extremely conservative in your budgeting initially. All of these things can help you get starting in property investment.
Finding the property value
As a real estate investor, your ultimate goal is to make money. that’s simple. You want to learn how to buy property at the right price. You don’t want to overpay. You cannot guarantee that this won’t happen. But you can try.
Appraisals
Appraisals are keys to this. Real estate appraisals are not set in stone. They are basically an educated guess. They do give you a good idea on the true value or fair market value of your potential investment property is worth.
There are different types of appraisals. You have a comparative market analysis, reproduction cost and capitilization of income approaches.
Comparative market analysis
Comparative market analysis is probably the most well known appraisal approach. Most people just call them “comps”. basically you look at similar properties in the same area to see what their prices were at the point of sale. There are lots of factors to consider however. Factors such as the age of the property, the square footage, how long ago the property sold, and others. If you can find a property that closely resembles yours, then you have a good idea of how much you should be paying for that investment property.
I have used this approach many times. Most investors do. This is probably the preferred appraisal approach.
Reproduction cost appraisal
I am no expert on the reproduction cost approach. Basically this is appraisal is based on what it would cost to build the property at today’s prices. You try to figure out the value of the land by checking in the same area for lots that are for sale and using those prices. This part is kind of like the comp analysis I mentioned above. You then have to figure out square footage of the home or building and the costs of materials to produce a building of that size. It is more complicated than I have explained it. This approach is more detailed than a comp analysis.
Capitalization of income appraisal
I don’t know a lot about capitalization of income either. This approach deals more with how much money you will make on the property. I don’t know many investors that use this type of appraisal. There are equations involved here, dealing with capitalization rates. Capitalization rates tell you how much money you would make if you paid cash for it. It sounds complicated and I will try and go into more detail later.
Which method of appraisal should I use?
Well that is up to you. All of them have their pros and their cons. Choose what you are most comfortable with. It never hurts to discuss this with your real estate investment team.
Use these appraisal methods to help you make your offer on the property. Use these methods as reasons for your offer. If you give the seller your reason as to why your offer was lower than what they want, they are less likely to be offended and will do more to consider your offer.
If you can think more about the positive than the negative, it makes the transition to being a real estate investor easier. After a few deals it becomes normal and you start kicking yourself that you didn’t jump out and do it sooner.
Also, preparation will help as well. Get your team of professionals together. Get your real estate expert with you, get your attorney. Once you have your support system set up, things get easier.
Look at as many financial situations as you can. Think about problems that might occur when buying investment property. Be extremely conservative in your budgeting initially. All of these things can help you get starting in property investment.
Finding the property value
As a real estate investor, your ultimate goal is to make money. that’s simple. You want to learn how to buy property at the right price. You don’t want to overpay. You cannot guarantee that this won’t happen. But you can try.
Appraisals
Appraisals are keys to this. Real estate appraisals are not set in stone. They are basically an educated guess. They do give you a good idea on the true value or fair market value of your potential investment property is worth.
There are different types of appraisals. You have a comparative market analysis, reproduction cost and capitilization of income approaches.
Comparative market analysis
Comparative market analysis is probably the most well known appraisal approach. Most people just call them “comps”. basically you look at similar properties in the same area to see what their prices were at the point of sale. There are lots of factors to consider however. Factors such as the age of the property, the square footage, how long ago the property sold, and others. If you can find a property that closely resembles yours, then you have a good idea of how much you should be paying for that investment property.
I have used this approach many times. Most investors do. This is probably the preferred appraisal approach.
Reproduction cost appraisal
I am no expert on the reproduction cost approach. Basically this is appraisal is based on what it would cost to build the property at today’s prices. You try to figure out the value of the land by checking in the same area for lots that are for sale and using those prices. This part is kind of like the comp analysis I mentioned above. You then have to figure out square footage of the home or building and the costs of materials to produce a building of that size. It is more complicated than I have explained it. This approach is more detailed than a comp analysis.
Capitalization of income appraisal
I don’t know a lot about capitalization of income either. This approach deals more with how much money you will make on the property. I don’t know many investors that use this type of appraisal. There are equations involved here, dealing with capitalization rates. Capitalization rates tell you how much money you would make if you paid cash for it. It sounds complicated and I will try and go into more detail later.
Which method of appraisal should I use?
Well that is up to you. All of them have their pros and their cons. Choose what you are most comfortable with. It never hurts to discuss this with your real estate investment team.
Use these appraisal methods to help you make your offer on the property. Use these methods as reasons for your offer. If you give the seller your reason as to why your offer was lower than what they want, they are less likely to be offended and will do more to consider your offer.
Monday
Real Estate Investing | Where To Invest In Property
Deciding on where to invest in real estate
The best place to invest in property is one where there is a surge in growth. This could obviously be a place where new industry has moved in, creating more jobs. People will move closer to these jobs. This causes and increase in the demand for property. We are talking property of all types, houses, apartments, condos, you name it. The demand stretches across all types of properties. All of which a possibilities for investment properties.
Values will increase due to not only the demand, but also the shrinking supply of land. More land is bought and homes of all types are built. This causes a surge in the prices of real estate. This even applies to occupied land. Older homes will be torn down and replaced with newer, more expensive homes. That is just the way things work. More demand leads to higher prices.
If you have residential investment property that already exists in this area. You can expect and increase in your property’s value as well. Oftentimes you will see owners sell their property for a nice profit and move away from the high demand areas. Utilizing this supply and demand increase to make more money for them.
The increase not only applies to the houses and land themselves. This applies to construction supplies as well. The price of just about everything will go up due to the increased the demand and decreased supply. This is why it is generally more expensive to live in higher populated areas.
You should also look at local government too. This can also affect the price of investment property. Rezoning of areas could positively or negatively impact the prices of land in a given area. This should definitely be considered if you are attempting to buy real estate investments in areas that you are not familiar with.
Look for the best neighborhoods.
Without question, no matter where you go, there will be certain areas in every city where there is an increased demand. Every city will have a few areas where it is “cool” to live. It is where everyone wants to be. This is usually spurred on by new retail developments or roadways. It happens all of the time. It should not be difficult to find these areas either. A good property investor will talk to a realtor and in a matter of minutes, you should know where the newest and greatest places to live in that particular city are.
These areas will also have newer schools and reduced crime rates. It will stay this way for a long period of time before the next area of land is developed. Some areas it takes longer than others. In some areas it could take decades for a new hot market could appear.
If you are a buy and hold investor, an investor that likes to keep their properties and make money by renting, you should look at the rental rates of an area. That is another sign of an area’s popularity. The rental rates will be higher, sometimes much higher in the more popular areas.
Other investment property information that will help will be numbers. Some investors love looking at the numbers when deciding on whether they want to buy real estate for investment purposes.
You should look at the price per square foot. Which is simply the price of the property divided by the square feet of living area. If you are someone that wants to invest in apartment complexes or duplexes you should look at things like the gross rent multiplier (price/gross income of the property), price per unit (price/# of units on the property), and rental rates (rent per month/square foot). These are just a few calculations. There are other more useful things to consider, especially if you are looking into investing in multi-unit housing such as duplexes and apartment complexes. Calculations such as vacancy rates will become very important to you. This will be discussed at a later time.
So where do you go for all of this information?
Your real estate agent can help you with all of this. It would also benefit you to get to know real estate appraisers and people that work for title companies. You can also get tons of good information by stopping by the local courthouse and checking tax records and things like that. Of course, newspapers can also assist you in finding some of this information.
The internet can also be a fantastic source for investors looking for the best investment property they can find. Newspapers, local governments, and real estate professionals all have websites that you can visit to find investment property for sale
Giving the people that help you find investment property some of your business will help you tremendously. They will be happy to help you if they know they are going to get some of your business.
The best place to invest in property is one where there is a surge in growth. This could obviously be a place where new industry has moved in, creating more jobs. People will move closer to these jobs. This causes and increase in the demand for property. We are talking property of all types, houses, apartments, condos, you name it. The demand stretches across all types of properties. All of which a possibilities for investment properties.
Values will increase due to not only the demand, but also the shrinking supply of land. More land is bought and homes of all types are built. This causes a surge in the prices of real estate. This even applies to occupied land. Older homes will be torn down and replaced with newer, more expensive homes. That is just the way things work. More demand leads to higher prices.
If you have residential investment property that already exists in this area. You can expect and increase in your property’s value as well. Oftentimes you will see owners sell their property for a nice profit and move away from the high demand areas. Utilizing this supply and demand increase to make more money for them.
The increase not only applies to the houses and land themselves. This applies to construction supplies as well. The price of just about everything will go up due to the increased the demand and decreased supply. This is why it is generally more expensive to live in higher populated areas.
You should also look at local government too. This can also affect the price of investment property. Rezoning of areas could positively or negatively impact the prices of land in a given area. This should definitely be considered if you are attempting to buy real estate investments in areas that you are not familiar with.
Look for the best neighborhoods.
Without question, no matter where you go, there will be certain areas in every city where there is an increased demand. Every city will have a few areas where it is “cool” to live. It is where everyone wants to be. This is usually spurred on by new retail developments or roadways. It happens all of the time. It should not be difficult to find these areas either. A good property investor will talk to a realtor and in a matter of minutes, you should know where the newest and greatest places to live in that particular city are.
These areas will also have newer schools and reduced crime rates. It will stay this way for a long period of time before the next area of land is developed. Some areas it takes longer than others. In some areas it could take decades for a new hot market could appear.
If you are a buy and hold investor, an investor that likes to keep their properties and make money by renting, you should look at the rental rates of an area. That is another sign of an area’s popularity. The rental rates will be higher, sometimes much higher in the more popular areas.
Other investment property information that will help will be numbers. Some investors love looking at the numbers when deciding on whether they want to buy real estate for investment purposes.
You should look at the price per square foot. Which is simply the price of the property divided by the square feet of living area. If you are someone that wants to invest in apartment complexes or duplexes you should look at things like the gross rent multiplier (price/gross income of the property), price per unit (price/# of units on the property), and rental rates (rent per month/square foot). These are just a few calculations. There are other more useful things to consider, especially if you are looking into investing in multi-unit housing such as duplexes and apartment complexes. Calculations such as vacancy rates will become very important to you. This will be discussed at a later time.
So where do you go for all of this information?
Your real estate agent can help you with all of this. It would also benefit you to get to know real estate appraisers and people that work for title companies. You can also get tons of good information by stopping by the local courthouse and checking tax records and things like that. Of course, newspapers can also assist you in finding some of this information.
The internet can also be a fantastic source for investors looking for the best investment property they can find. Newspapers, local governments, and real estate professionals all have websites that you can visit to find investment property for sale
Giving the people that help you find investment property some of your business will help you tremendously. They will be happy to help you if they know they are going to get some of your business.
Thursday
Real Estate Investing | Your Expenses
As an investor you will run into all kinds of expenses when buying, selling, and renting property. There are expenses you know you will have, then there are those unexpected expenses that you do not see coming and you do not plan for…it happens all the time.
Some expenses are the normal expenses you have when you have an investment property. Property taxes, insurance, and the like are expenses that you know you will have, and are usually not a problem for you to fit into your budget. The great thing, for the most part, is that the amounts will stay the same from month to month. If the amounts do change, it will not be often.
encountered
You will have other expenses that will change often. Paying the water bills, replacing carpeting, repairing things on the property, all of these things have variable costs, so it is harder to budget for them. You will also have to think about painting, replacing appliances, or flooring which can eat up your budget, but they don’t happen as often, maybe once a year or two.
That’s why I estimate my expense % to be higher than it probably should be, to plan for the unexpected moments. That way it won’t be a big deal because the money has been built in already.
There are factors such as the age of your investment that can impact the dollar amount of your expenses. So keep that in mind when you are getting ready to make a real estate investment.
Making Loan payments
When you begin buying investment property, you won’t have much equity in the properties. The down payment for the most part will be the extent of your equity, which won’t be much. If you are a buy and hold real estate investor, what some people call a value investor, the longer you own the property the higher your equity becomes. Anyone that has a mortgage will tell you that the first few years of paying a mortgage are strictly paying for the interest. As the years go on more of your payment will go toward the principal of the loan, which increases your equity.
I like to try and make an extra payment or two per year to try and pay down that principal faster so that I have more equity faster. This should only be done if you have enough cash flow to do so.
Equity growth via appreciation
One great way you are going to make money investing in real estate is through appreciation. I have said many times before that real estate values very rarely, if ever, go down. In time the value of your property increases. This is doubly true if you own real estate in popular areas. People are willing to pay higher prices or rents in high demand areas, which can significantly increase the amount of money you will be bringing in.
The key for you over the years is to maintain the property. You don’t want any potential profits to be left on the table just because you didn’t keep the house in good shape.
Tax benefits
Real estate investors love the tax benefits that investment property brings. Every year you will have deductions available to you. You have a depreciation deduction which is basically money given to you to repair the property as it wears down. This deduction is very important to all business owners, not just real estate investors.
There are simple calculations you can make to find out your depreciation. You can use your tax bills, or appraisals, there are a few ways you can do this. I will visit that later on.
It might also be a good idea to look into software programs to help you with your records, this will be beneficial when you start to deal with the government and paying taxes.
If you want an accurate idea of the amount of return you have on your properties, the taxes and deductions will have to be included. This will give you a true return on your investment.
Some expenses are the normal expenses you have when you have an investment property. Property taxes, insurance, and the like are expenses that you know you will have, and are usually not a problem for you to fit into your budget. The great thing, for the most part, is that the amounts will stay the same from month to month. If the amounts do change, it will not be often.
encountered
You will have other expenses that will change often. Paying the water bills, replacing carpeting, repairing things on the property, all of these things have variable costs, so it is harder to budget for them. You will also have to think about painting, replacing appliances, or flooring which can eat up your budget, but they don’t happen as often, maybe once a year or two.
That’s why I estimate my expense % to be higher than it probably should be, to plan for the unexpected moments. That way it won’t be a big deal because the money has been built in already.
There are factors such as the age of your investment that can impact the dollar amount of your expenses. So keep that in mind when you are getting ready to make a real estate investment.
Making Loan payments
When you begin buying investment property, you won’t have much equity in the properties. The down payment for the most part will be the extent of your equity, which won’t be much. If you are a buy and hold real estate investor, what some people call a value investor, the longer you own the property the higher your equity becomes. Anyone that has a mortgage will tell you that the first few years of paying a mortgage are strictly paying for the interest. As the years go on more of your payment will go toward the principal of the loan, which increases your equity.
I like to try and make an extra payment or two per year to try and pay down that principal faster so that I have more equity faster. This should only be done if you have enough cash flow to do so.
Equity growth via appreciation
One great way you are going to make money investing in real estate is through appreciation. I have said many times before that real estate values very rarely, if ever, go down. In time the value of your property increases. This is doubly true if you own real estate in popular areas. People are willing to pay higher prices or rents in high demand areas, which can significantly increase the amount of money you will be bringing in.
The key for you over the years is to maintain the property. You don’t want any potential profits to be left on the table just because you didn’t keep the house in good shape.
Tax benefits
Real estate investors love the tax benefits that investment property brings. Every year you will have deductions available to you. You have a depreciation deduction which is basically money given to you to repair the property as it wears down. This deduction is very important to all business owners, not just real estate investors.
There are simple calculations you can make to find out your depreciation. You can use your tax bills, or appraisals, there are a few ways you can do this. I will visit that later on.
It might also be a good idea to look into software programs to help you with your records, this will be beneficial when you start to deal with the government and paying taxes.
If you want an accurate idea of the amount of return you have on your properties, the taxes and deductions will have to be included. This will give you a true return on your investment.
Real Estate Investing | Cash Flow
What is cash flow? Well, cash flow is the amount of money you have left over after you pay all of your bills. To get your cash flow on any property, you have to know a few things. These things are your gross income your expenses and your amount of all of your bills, or your debt.
So how do you figure your cash flow?
I have touched on this before but it is easy to remember once you get the hang of it. It looks like this:
You have a property that rents for $800 a month (gross income).
Your loan payment is $300 a month
You have other expenses totaling $160. (This is about 20% of your gross income).
Your cash flow is 800 - 300-160 = $340 cash flow each month.
Calculating your expenses can vary. I have seen figures as high as 30% per month used for this calculation. It is better to overestimate this number just so you can make sure you have positive cash flow.
You can also find out your return on your investment by dividing your annual cash flow by your down payment on the property. This will give you your % return on the property.
I don’t try and have a huge cash flow with property. I want to try and pay down my loan faster so that if I want to hold on to my property for several years, the property will bring me even more income then. I don’t want to work just as hard or harder as I get older. As you get older, you want more of your money to work for you so you can enjoy life. It will be important that you have a lot of equity at that point on your life.
So how do you figure your cash flow?
I have touched on this before but it is easy to remember once you get the hang of it. It looks like this:
You have a property that rents for $800 a month (gross income).
Your loan payment is $300 a month
You have other expenses totaling $160. (This is about 20% of your gross income).
Your cash flow is 800 - 300-160 = $340 cash flow each month.
Calculating your expenses can vary. I have seen figures as high as 30% per month used for this calculation. It is better to overestimate this number just so you can make sure you have positive cash flow.
You can also find out your return on your investment by dividing your annual cash flow by your down payment on the property. This will give you your % return on the property.
I don’t try and have a huge cash flow with property. I want to try and pay down my loan faster so that if I want to hold on to my property for several years, the property will bring me even more income then. I don’t want to work just as hard or harder as I get older. As you get older, you want more of your money to work for you so you can enjoy life. It will be important that you have a lot of equity at that point on your life.
Wednesday
Real Estate Investing | Property Management Introduction
There are 2 schools of thought when it comes to property management. You have the hands on investor, who manages his own properties and saves money. It does take a lot of his time, but he believes that the money saved is worth it.
You also have the investor that hires a property management company from the get go. This investor either doesn’t have the time due to another career, or he thinks that free time is more valuable than the money he would have saved managing the investment property himself.
You can do it either way. You would learn quite a bit from managing the properties yourself. I would say that it is good to know these things just in case. Nothing beats experience.
Personally, I prefer to have property managers. I think free time with family is worth more than managing the investments myself. If you have financed your investment properties correctly, and have comfortable positive cash flow, then the 10-15% fees are worth it.
Try both ways and see what you prefer. You may want to stay hands on and manage the properties yourself. It is totally up to you.
Another thing to remember. If you have managed properties yourself, you know what to look for in a good property management company. Otherwise use real estate professionals that you have become acquainted with and find what company fits best with what you want.
You also have the investor that hires a property management company from the get go. This investor either doesn’t have the time due to another career, or he thinks that free time is more valuable than the money he would have saved managing the investment property himself.
You can do it either way. You would learn quite a bit from managing the properties yourself. I would say that it is good to know these things just in case. Nothing beats experience.
Personally, I prefer to have property managers. I think free time with family is worth more than managing the investments myself. If you have financed your investment properties correctly, and have comfortable positive cash flow, then the 10-15% fees are worth it.
Try both ways and see what you prefer. You may want to stay hands on and manage the properties yourself. It is totally up to you.
Another thing to remember. If you have managed properties yourself, you know what to look for in a good property management company. Otherwise use real estate professionals that you have become acquainted with and find what company fits best with what you want.
Becoming a Successful Real Estate Investor
Below are ome keys to becoming a successful real estate investor
Learn as much as you can
I guess you could call it real estate investing 101. Buying investment property can be complicated. It is wise to think of real estate investing as a never ending learning experience. No property investor knows everything. You can learn something knew every single day, with every single investment property that you buy.
I think it helps if you throw yourself in and learn some new things as you go. There will always be unexpected things happen. I have found that I learn the most about investing when something new comes up and I have to search for solutions on the fly. It makes it more memorable, and of course you learn from that experience and know how to handle it if it comes up again.
At some point you will have to jump in. if you think you will wait to get started in investing in property when you have plenty of knowledge…..don’t worry about that…..just do it, and learn as you go.
What type of real esate investor do you want to be?
You need a plan when you start your real estate investing career. You need to decide what type of properties you want to invest in and what time frames you have set for all of your goals. The best investors have goals and timelines for these goals.
We all know about goal setting, how important proper goal setting is for any part of your life. Those that set goals and create plans to accomplish these goals become successful.
Don’t just say, I will buy an investment property in the next year. Give yourself a deadline and also set deadlines for your next set of goals. Be very descriptive when doing this also. This will help you stay focused on what you are supposed to be doing.
goals that have meaning.
How you should invest should be determined by the goals you have set for yourself. This should be easy if you have gained good amounts of knowledge, decided on the type of real estate investor you want to be, and set proper goals.
Learn as much as you can
I guess you could call it real estate investing 101. Buying investment property can be complicated. It is wise to think of real estate investing as a never ending learning experience. No property investor knows everything. You can learn something knew every single day, with every single investment property that you buy.
I think it helps if you throw yourself in and learn some new things as you go. There will always be unexpected things happen. I have found that I learn the most about investing when something new comes up and I have to search for solutions on the fly. It makes it more memorable, and of course you learn from that experience and know how to handle it if it comes up again.
At some point you will have to jump in. if you think you will wait to get started in investing in property when you have plenty of knowledge…..don’t worry about that…..just do it, and learn as you go.
What type of real esate investor do you want to be?
You need a plan when you start your real estate investing career. You need to decide what type of properties you want to invest in and what time frames you have set for all of your goals. The best investors have goals and timelines for these goals.
We all know about goal setting, how important proper goal setting is for any part of your life. Those that set goals and create plans to accomplish these goals become successful.
Don’t just say, I will buy an investment property in the next year. Give yourself a deadline and also set deadlines for your next set of goals. Be very descriptive when doing this also. This will help you stay focused on what you are supposed to be doing.
goals that have meaning.
How you should invest should be determined by the goals you have set for yourself. This should be easy if you have gained good amounts of knowledge, decided on the type of real estate investor you want to be, and set proper goals.
Real Estate Investing | Taking the Risk
Real estate investing: Taking the risk
The beginning is always the hardest when you are starting something new. There is an uncertainty involved in that. You are taking a risk, which can be very uncomfortable at times. To make good things happen, however, you have to do it, you have to take that leap. Investing in real estate is no different. Most wealthy people have made a large percentage of their money in real estate. The great thing is that you can start from nothing and accumulate a great amount of money. Investing in real estate can bring you a better return that stocks. Very rarely, if ever, does real estate decrease in value, unlike stocks, which can perform like a roller coaster where you end up losing money.
Buying your first investment property
Many people have noticed the value of real estate, and many have tried to become an investor. It will take a lot of patience to become successful in real estate investing. One great way to get started is to simply buy your first home. How often do people stay in the first home they ever purchase? Not often at all. Owning your own home can teach you many things that will help you in your career in investing. You manage your property, you know how much it will cost to have things repaired, you know about taxes, and you know about how great equity is.
Many people get started by buying a new home and keeping their older home as an investment property. They either keep it as a long term investment, buy and hold real estate investing, or they try their hand at flipping the house for a profit. Either way it can be a success for the investor. They either get a great sum of money by flipping the house, or they get a steady stream of income each and every month from the rental property.
The beginning is always the hardest when you are starting something new. There is an uncertainty involved in that. You are taking a risk, which can be very uncomfortable at times. To make good things happen, however, you have to do it, you have to take that leap. Investing in real estate is no different. Most wealthy people have made a large percentage of their money in real estate. The great thing is that you can start from nothing and accumulate a great amount of money. Investing in real estate can bring you a better return that stocks. Very rarely, if ever, does real estate decrease in value, unlike stocks, which can perform like a roller coaster where you end up losing money.
Buying your first investment property
Many people have noticed the value of real estate, and many have tried to become an investor. It will take a lot of patience to become successful in real estate investing. One great way to get started is to simply buy your first home. How often do people stay in the first home they ever purchase? Not often at all. Owning your own home can teach you many things that will help you in your career in investing. You manage your property, you know how much it will cost to have things repaired, you know about taxes, and you know about how great equity is.
Many people get started by buying a new home and keeping their older home as an investment property. They either keep it as a long term investment, buy and hold real estate investing, or they try their hand at flipping the house for a profit. Either way it can be a success for the investor. They either get a great sum of money by flipping the house, or they get a steady stream of income each and every month from the rental property.
Real Estate Investing | Leverage and Compound Interest
Leverage and Compound Interest
Compound interest is great. It is an opportunity to put your money to work for you. This is especially true if you are a real estate investor. I mean any type of investor…..someone flipping houses for a living, or a buy and hold real estate investor….it doesn’t matter.
There aren’t many people that would be able to buy real estate and become an investor if cash for the total purchase was required. It just wouldn’t be possible, especially if you are investing in real estate. This is where leverage comes into play. Anyone can buy a house with around 20% down payment with the rest being financed. Real estate investors want to buy as much property as they can with the least amount of money. That just makes sense doesn’t it?
Using leverage is a quick way to increase your net worth and make more profit. What would you rather do, buy $10,000 worth of stock, or put that same amount of money in an investment in a properties worth $330,000. You could do that with an FHA loan. Plus the return on your investment would be higher compared to certain stocks. The benefits to owning the property would be tremendous, especially when compared to owning stocks or bonds.
It should be said that you are taking on some risks too when you are investing in property. You are borrowing money, and you HAVE to pay it back. It can be easily done, you just have to be smart about it.
Leverage and compound interest can give you great returns on your investments in a hurry. This is just one of the many reasons real estate investing has become as popular as it is.
Compound interest is great. It is an opportunity to put your money to work for you. This is especially true if you are a real estate investor. I mean any type of investor…..someone flipping houses for a living, or a buy and hold real estate investor….it doesn’t matter.
There aren’t many people that would be able to buy real estate and become an investor if cash for the total purchase was required. It just wouldn’t be possible, especially if you are investing in real estate. This is where leverage comes into play. Anyone can buy a house with around 20% down payment with the rest being financed. Real estate investors want to buy as much property as they can with the least amount of money. That just makes sense doesn’t it?
Using leverage is a quick way to increase your net worth and make more profit. What would you rather do, buy $10,000 worth of stock, or put that same amount of money in an investment in a properties worth $330,000. You could do that with an FHA loan. Plus the return on your investment would be higher compared to certain stocks. The benefits to owning the property would be tremendous, especially when compared to owning stocks or bonds.
It should be said that you are taking on some risks too when you are investing in property. You are borrowing money, and you HAVE to pay it back. It can be easily done, you just have to be smart about it.
Leverage and compound interest can give you great returns on your investments in a hurry. This is just one of the many reasons real estate investing has become as popular as it is.
Government Programs For Real Estate Investors
When getting started in real estate investing, the biggest obstacle for most people is that they don’t have a lot of money at their disposal to buy investment properties. The U.S. government has some programs that can help you get started if you meet their qualifications. The Federal
Housing Administration (FHA) and the Veterans Administration
(VA) offer programs for beginning real estate investors.
Real estate investing and the FHA
The FHA is a government loan insurance program that is
open to any American who qualifies. These qualifications are not hard to meet, just about anyone should be able to qualify for this program. The investment properties can be up to 4 units and require a down payment of 3% of the purchase price. Of course there can be other costs involved, but the FDA will require that the seller help you with that. There are other ways to lower your costs even more at closing that I will get into later on.
Real estate investing and VA Loans
Another program the government has that can help you with beginning real estate investing is Veterans Administration (VA) loans. Of course this will only be beneficial to you if you have served in the military. Veterans can purchase a home with no money down. it’s a great program for those who qualify.
Tax Breaks from Uncle Sam
The U.S. government helps the aspiring real estate investor by giving tax breaks and incentives through the IRS. You get to deduct money that you used to maintain or upgrade the investment property as well as other benefits like the interest on mortgage payments.
1031 exchange
One more great tax break that government provides is when you sell an investment property, you can put your equity into another investment property and not have to pay any taxes on the profit that you made with the sale. Its called a tax deferred or a 1031 exchange. It is not a one time thing either, you can do this as many times as you wish, without penalty. This means even more equity for you, the real estate investor.
I should point out that you don’t get to skip paying the taxes altogether, you are just delaying paying to increase your equity and profit potential. Use the government, let it work for you.
Housing Administration (FHA) and the Veterans Administration
(VA) offer programs for beginning real estate investors.
Real estate investing and the FHA
The FHA is a government loan insurance program that is
open to any American who qualifies. These qualifications are not hard to meet, just about anyone should be able to qualify for this program. The investment properties can be up to 4 units and require a down payment of 3% of the purchase price. Of course there can be other costs involved, but the FDA will require that the seller help you with that. There are other ways to lower your costs even more at closing that I will get into later on.
Real estate investing and VA Loans
Another program the government has that can help you with beginning real estate investing is Veterans Administration (VA) loans. Of course this will only be beneficial to you if you have served in the military. Veterans can purchase a home with no money down. it’s a great program for those who qualify.
Tax Breaks from Uncle Sam
The U.S. government helps the aspiring real estate investor by giving tax breaks and incentives through the IRS. You get to deduct money that you used to maintain or upgrade the investment property as well as other benefits like the interest on mortgage payments.
1031 exchange
One more great tax break that government provides is when you sell an investment property, you can put your equity into another investment property and not have to pay any taxes on the profit that you made with the sale. Its called a tax deferred or a 1031 exchange. It is not a one time thing either, you can do this as many times as you wish, without penalty. This means even more equity for you, the real estate investor.
I should point out that you don’t get to skip paying the taxes altogether, you are just delaying paying to increase your equity and profit potential. Use the government, let it work for you.
Tuesday
Getting Started in Real Estate Investing
Real estate investing is a good way to have a nice return on your money. It is a good bet that you will not have to worry about losing money on your real estate investment, especially when you compare it to stocks. The key in real estate investing is finding opportunities that can give you a good return on your investment. You don’t want to invest in a property, then put in a lot of money and time, then go no return on it. Take your time and invest wisely.
Getting started in real estate investing
When getting started in real estate investing, don’t just jump at the first property that you come across, look at as money properties as you can and assess all your options before you make the decision on the property to buy.
Check the newspapers
Check the newspaper’s classified section. You could also go online and check it there. Many people choose to deal directly with owners as opposed to real estate agents and brokers. The investors don’t have to pay commissions to agents. So it can save them some money. I am not opposed to using agents. Actually they can be a big help, especially if you are a beginner. Doing some research in these areas can be very helpful in making decisions on what type of property you want to purchase, as well as location. The internet is a great resource when you are trying to evaluate potential investment properties.
Use an agent or broker
as mentioned earlier I am not opposed to using real estate professionals. Actually, I think those that are just getting started in real estate investing should use real estate agents. They can provide you with a wealth of information and save you from making some mistakes along the way. Every little bit will help you. If you have another career, looking for potential real estate investments can take a lot of time, and you don’t have much, so it makes sense to have someone do most of that work for you. The amount of time you can save is definitely worth the cost of a good real estate agent. Some investors, like myself, prefer to let the agents handle everything when it comes to finding good properties and then listing them. it’s a good thing to build relationships with these professionals.
Foreclosures
Foreclosures are a good way to get a great deal on an investment property. Banks don’t want real estate on their books, they want to sell it ASAP, that’s where the investor comes in. Go to some auctions and place bids on properties that you like, and maybe you can get a good deal. Just make sure you have lots of cash on hand to complete the deal. Often times a lot of cash, or short terms are required to finalize the sale of the property.
Getting started in real estate investing
When getting started in real estate investing, don’t just jump at the first property that you come across, look at as money properties as you can and assess all your options before you make the decision on the property to buy.
Check the newspapers
Check the newspaper’s classified section. You could also go online and check it there. Many people choose to deal directly with owners as opposed to real estate agents and brokers. The investors don’t have to pay commissions to agents. So it can save them some money. I am not opposed to using agents. Actually they can be a big help, especially if you are a beginner. Doing some research in these areas can be very helpful in making decisions on what type of property you want to purchase, as well as location. The internet is a great resource when you are trying to evaluate potential investment properties.
Use an agent or broker
as mentioned earlier I am not opposed to using real estate professionals. Actually, I think those that are just getting started in real estate investing should use real estate agents. They can provide you with a wealth of information and save you from making some mistakes along the way. Every little bit will help you. If you have another career, looking for potential real estate investments can take a lot of time, and you don’t have much, so it makes sense to have someone do most of that work for you. The amount of time you can save is definitely worth the cost of a good real estate agent. Some investors, like myself, prefer to let the agents handle everything when it comes to finding good properties and then listing them. it’s a good thing to build relationships with these professionals.
Foreclosures
Foreclosures are a good way to get a great deal on an investment property. Banks don’t want real estate on their books, they want to sell it ASAP, that’s where the investor comes in. Go to some auctions and place bids on properties that you like, and maybe you can get a good deal. Just make sure you have lots of cash on hand to complete the deal. Often times a lot of cash, or short terms are required to finalize the sale of the property.
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If you wish to opt out of Advertising companies tracking and tailoring advertisements to your surfing patterns you may do so at Network Advertising Initiative.
Google uses the Doubleclick DART cookie to serve ads across it's Adsense network and you can get further information regarding the DART cookie at Doubleclick as well as opt out options at Google's Privacy Center
Privacy
I respect your privacy and I am committed to safeguarding your privacy while online at this site http://beginning-real-estate-investing.blogspot.com/.The following discloses how I gather and disseminate information for this Blog.
RSS Feeds and Email Updates
If a user wishes to subscribe to my RSS Feeds or Email Updates (powered by Feedburner), I ask for contact information such as name and email address. Users may opt-out of these communications at any time. Your personal information will never be sold or given to a third party. (You will never be spammed by me - ever)
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Like most blogging platforms I use log files, in this case Statcounter. This stores information such as internet protocol (IP) addresses, browser type, internet service provider (ISP), referring, exit and visited pages, platform used, date/time stamp, track user’s movement in the whole, and gather broad demographic information for aggregate use. IP addresses etc. are not linked to personally identifiable information.
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