Sticky

Choose The Right Apartment

It reminds me of the old Miller Lite commercials; “Less Filling!” “Tastes great!,” the constant debate on what is a better investment, multifamily/small apartments or single family homes. So where is the best place to put your hard earned profits? I often think about where to put profits, and it is a big variable when analyzing when to sell an asset. I can get offered more than a property is worth and turn it down if I don’t have a good place to put the money. Knowing what you are going to do with your excess cash is essential to your overall objective. The way I process this is to compare alternatives against each other. Typically it is specific opportunities, but that all starts with a much broader view. I actually don’t land on one side or the other in the debate. I am usually the one asking questions that get the conversation going or gets people thinking. I think both are good, so let’s take a look at the positive aspects of each one when you compare to the other.

SMALL APARTMENTS

I am lumping all residential property that is more than one unit into this category. What is not included would be extended stay hotels or short term lease units. I have a handful of small apartments in my portfolio and here is why I like them.

One Roof: I use one roof only as an example. Multiple units offer economies of scale. Let’s assume we have a 20 unit building. If I replace one roof, I replaced the roof on 20 units at one time. Same will go for painting or any number of other maintenance or improvement items. When you do the math, the price per unit is significantly lower than that of single family homes.

Economies of scale are not limited to maintenance. You will get other savings as well, like marketing expense when you have a unit or two go vacant. You can create a prospect tenant list that you can tap into whenever a unit becomes available. In larger buildings, you will have units coming available each month so you can have a steady marketing campaign constantly running, saving you time and money. It is also likely you will get referrals from other tenants if a unit goes vacant. Insurance is another example of some cost savings per unit.

Easier to Manage: This is not always the case as we will discuss below, but at certain times small apartments can be easier to manage. Sometimes you will have onsite management which will put someone there all the time. They will keep the place clean and take the initial impact of any tenant problems. Even without an onsite manager, multifamily can be easier to manage because all the units are in one location so you are not driving all over town.

Better to Finance: Financing is always an important component when you are a real estate investor, and it becomes more challenging as you get more rentals. One easy way to accumulate more rentals without getting cutoff with your loans is to buy multiple units with one loan. Also, most multi-family loans are considered commercial loans, so there could be more flexibility with the number of loans you have, making it easier for some investors to finance. Commercial loans often times do not get reported to your personal credit, even if you personally guarantee them, which has its own benefits. As mentioned, the big benefit to financing multifamily is you can buy a lot more units. The downside is the loans have shorter terms (you cannot lock them in for 30 years very often) and they have higher interest rates.

Cash Flow: This is not always the case, but from the properties I have reviewed or purchased the cash flow is higher on small apartments, which is a big benefit.

SINGLE FAMILY HOMES

I am considering single family homes as anything where it is just one unit owned. This could be single family detached or attached. Although I am including them in this discussion, condos and town homes sometimes come with their own unique set of advantage and disadvantages.

Less Maintenance: It has been my experience that tenants that live in apartments are much harder on the property than those that live in houses. Often times the lower rent levels attract tenants that care less. There is also common space with small apartments that no one wants to take care of, so that will be additional maintenance for the manager.

No Tenant Fights: The problem I have run into with all of my small apartments is that eventually the tenants won’t get along. One might be loud or messy or not be courteous. When this happens it is common for the landlord to get a call complaining about the other tenant. The problem is… it is not the landlord’s problem. There is really nothing for the landlord to do. When I get a call like that will commit to sending a letter to the residents about following the rules and respecting their neighbors, but outside of that, there is not a lot to be done. I always suggest they call the police.

Can Be Easier to Finance: I say can be because financing is a tricky subject. The money you can get on single family is the best money out there. It is cheap, long term, and fixed. In a lot of cases, you can get higher loan to values and if you know how to use hard money as a bridge loan, you can potential buy homes with little or no money down. The big problem with financing single family is that you are limited on the number of loans you can get with Fannie Mae and Freddie Mac, and there is no flexibly with their guidelines. Either you fit into their box or you don’t.

Diversified Across Several Local or Non Local Markets: When you buy single family homes you are likely spreading your money out into different markets or neighborhoods. In Denver during the Great Recession, I owned houses in areas that dropped 50{b01fda100cf65558b06f1840d5ab4a7fc2864e24121e3aed812c5299696a8fb7} but I also owned homes in other markets that did not take a price hit at all.

Liquidity: This is big to many investors that I know. Single family homes are much more liquid. Your buyer pool will consist of; first time home buyers, move up buyers, downsizing buyers, and investors. A larger pool of buyers makes something much easier to sell, which reduces risk.

I left off appreciation, but many will argue that you will see greater appreciation over time with single family homes. That may be true, but I cannot say that with confidence because there is also a larger decrease in value in a down market.

You can see that there are benefits to both, which is why I like to have both small apartments and single family homes in my portfolio. I really don’t believe one is better than the other and each offers its own set of benefits.

 

Sticky

Tips To Get Success In Real Estate

Make your fortune in real estate. It is not that hard once you get the hang of it. Real estate flipping can be an extremely high paying career, but I see way too many people give up on it. The turnover in this industry is exceptionally high. I noticed the high turnover early on and have watched to learn why some people kill it while others disappear. This has been important to monitor to help myself and my clients last in this amazing business.

I have been in the real estate field for the last 16 years and my hard money lending company finances around 150 deals a year. Here is what that experience has taught me about being a successful fix and flipper.

Mindset: This is where it all starts. For the last 3 years, I have felt myself fall into a little lull and have realized that this occurred because of my mindset. Your mindset could be a lot of things, but the basic concept is that what you believe will happen… does. Sometimes just convincing your mind that you will hit a goal takes work. Not to mention the work that it takes to actually hit that goal.

Focusing your mind on positivity is a great start, but you really need to believe you deserve the success you desire. Meditation and affirmations are fantastic ways to accomplish this.

Hustle: Nothing is going to be given to you. When I was going through my struggles to hit some financial goals, I had to keep reminding myself of this. Times can get hard and things can feel unfair, but the reality is, no matter how much you don’t want to believe it, you are the only one responsible for your success. I would tell myself this over and over. “If I want it, I need to earn it” I had to get up in the morning. I had to deal with the problem on my plate. I had to stay up late or work on the weekend. I had to put in the work to get the results. Because I decided to be successful, I decided to work hard.

Network: As we have learned. It is not what you know, it is who you know. I constantly try to team up with people smarter than me, that can both help me learn and help me get results. This has resulted in millions in profits. I also feel very lucky to have a network that can solve just about any problem I run into. If I am rehabbing a house and run into a problem, I have a list of people I can call for help. If they don’t know how to help they will know someone who does. I lean on my attorneys, my CPA, partners, wholesalers, and other professionals on a regular basis.

Education: To make my top five list you know I believe this is important in your success. Constant improvement is essential and the exciting thing about this, especially early in your career, is that growth is exponential. As you learn and implement ideas into your business, your business grows at a faster and faster pace. Obviously, for this to work you will need to learn AND implement. Many people learn all about investing and never invest. That comes down to the investor mindset. That’s why, I believe, you need all five of these essential keys to be a great fix and flipper. The good thing is this is possible for everyone, including you.

Access to Money: So, this one might be self-servicing because I am a lender, and this could fall within the Network category but let’s face it, if you don’t have money you don’t do deals. Money can come from many sources including cash you have in the bank, money you borrower from institutions, partners, private and hard money loans. Many times, you will need a combination of these sources to get a deal done or to maximize profits. This can all be learned as part of your education or you can choose to work with a professional that can advise you on the best way to navigate this complicated subject.

 

Sticky

Tips To Get ARV Before Buying Home

The biggest reason fix and flip investors lose money is they make mistakes estimating the after repaired value (ARV). Getting the value and the repair budget right, or at least close, is essential to your success. Analyzing numbers on a deal is easy, but coming up with the numbers to plug into your formula can be tricky. Here are five mistakes I see investors and real estate agents make when they are trying to nail their ARV.

Not Adjusting Comps: It is well known that we value real estate from comparables, or comps. Comps simply means comparable properties that have recently sold or are for sale. We also know that we want our comps to be in the same area and the same size. But what if you can’t get something that is exactly like the house you are trying to value? Have you heard the term “apples to apples”? This holds true in real estate. If you cannot compare an apple to an apple, you need to adjust the comp to be an apple. Let me elaborate.

Let’s say you have a 1,200 square foot house. You find a great comp, but it is 1,400 square feet. To use the 1,400 square foot comp, you will need to take the price it is listed or sold for and adjust the number down to compensate for the house being larger. Basically, the subject property is expected to sell for less because it is smaller in size.

The mistake is to not adjust comps and using a larger house as the value. Adjustments do not stop at square footage, however. Common adjustments could be garage stalls, bathrooms, amenities, view, basements, and location, which can all impact value.

Location: I often hear that a standard for location would be within quarter or a half mile from the subject property. I guess that is OK, but my question would be is this a radius we are looking at? Most often, that is exactly what investors and agents do. Take a half mile radius. The problem with that is you might be pulling comps in neighborhoods that are not similar. Sometimes crossing over a river, rail road tracks, or a major arterial can completely change the area appeal. It is much better to look at the map and try to stay in the same area or neighborhood, which very well could mean comps that are farther away than other options.

Other mistakes when it relates to location is negative site influences. On busy roads, close to liquor stores, across from commercial space, on a lake or off a lake and distance to public transportation can all play a role. The last thing you want to do is try to value a house on a busy road and only use comps inside the neighborhood. Buyers will demand a better price for the negative influence of the busy road. Knowing you need to make an adjustment for location is the biggest issue, but the problem is how much of an adjustment will you need? Well that is why property valuation is an art and not a science. You will be guessing here a little, but here are two good ways to accomplish this:

  • Find a comp that sold with a similar influence and use that as one of your comps, even if it is a little older or farther away.
  • If you cannot find a good comp with a similar negative influence, try to find an older comp with the influence (even several years old) and compare that to houses without that influence and see what the price difference was back when it sold. Knowing how much of a discount was needed for the location in the past can help you craft an educated guess on what it will be today.

Square Footage Adjustment: With the exception of newer developments where all the houses are similar, using a price per square foot model is a mistake. I do see real estate professionals, even ones that have been in the business a while, find an average price per square foot in the area and multiply that by the square footage in the subject property. You can get lucky and get close to accurate on this, as long as the size of the subject property is very average and comparable to the comps, but it is more common to miss your value using this strategy. The actual adjustment for the difference in size above grade will be closer to 1/4 to 1/6 of the average square footage price in the area. You can ask four different appraisers and get four different answers for how they come up with the adjustment to use for size. I will typically use 1/5 of the average price per sq foot in the immediate area, unless the average price per sq foot is pretty high, then I will use 1/6. This is not a formula, this is just a quick way for me to get close.

Let’s assume you are in an average neighborhood and you use 1/5 to keep this simple. Going back to our example of the 1,200 square foot subject and the 1,400 square foot comp. If the average price per square foot in the area is about $140 and the comp sold for $200,000 I would adjust the $200,000 sold price down $5,600 so the adjusted value of my comp is $194,400. Confused? Let’s look at the math. Starting with the average price per sq foot in the area, I would divide that by 5. $140 PPS / 5 = $28 PPS. In our example, there is a size difference of 200 feet, so I multiply 200 by $28 and get $5,600. Since the comp is larger than the subject, I would expect the subject to sell for less, so I subtract the adjustment. $200,000 – $5,600 = $194,400. Remember, this is the indicated value using one comp. You will want to use several comps to get an even clearer picture of value.

Finally, above grade square footage is much more valuable than below grade. Even though you can double your finished square footage, you will get nowhere near double the value for the house. It is extremely rare for us to see a finished basement add enough value to even cover the cost of finishing it. I would call some appraisers in your area to see what they adjust for basements, both finished and unfinished, or dig into comps with basements and without to try to find what an adjustment should be. In the markets we lend in, we will typically see $10 to $15 a foot for unfinished space and another $10-$15 for finished space.

Bedroom Adjustment: This is an easy mistake to make, but in most cases, we don’t see a difference in values for bedrooms. A 4-bedroom home does not necessarily sell for more than a 3-bedroom home. If the houses are the same size and one has an extra bedroom, it is likely giving up something that a buyer may want; like a formal dinning room or a master suite, or it could just mean that the 4 bedrooms are all small, while the 3-bedroom home has 3 roomy bedrooms. Buyer appeal is based on their needs, so it is unfair to say that a house is worth more just because it has an extra bedroom. Except for rare cases, we do not see our appraisers adjusting for bedrooms. If a home is bigger and has an extra bedroom, it is worth more. In that case you are capturing the increase in value in the sq footage, not the bedroom count. If you adjusted a comp for size and bedrooms, you would be making two adjustments for the one room.

Believing Someone’s Opinion: I just had a client lose $10,000 on a deal because he believed the wholesalers opinion of value. He was pressured to give a large deposit on the spot to secure the home and did not have time to do his own research. Based on the comps provided by the seller, the deal worked. When he brought the deal to me, I quickly saw errors in the comps that were provided. I showed him why the comp selection was flawed, and how he would need to adjust the comps to get a more accurate value. One comp was twice the size above grade!!! The very next day my client went to the wholesaler armed with the data I provided and asked for his $10,000 back. The wholesaler denied the request and then spread the word that Pine Financial is way to conservative. My response is that if you want a lender to fund bad deals, we are not your lender. I would rather pass on a deal than fund something that my client is sure to lose money on. Investors choose to work with us because we are not about the deal, we are about the relationship. We have no trouble giving you the advice you need to build a successful real estate investing business.

 

Understanding Real Estate Better

Basic Real Estate Statistics Explained

We are going to define some of the basic real estate statistics that get thrown around on a regular basis. To do that, we will use one real estate market, located in Hood County Texas. Even more granular, we will use the single family numbers for homes in Granbury Tx, a small town of approximately 8,000 residents which has seen substantial real estate growth in the past 12 months. It is important when reviewing real estate statistics to use a group of numbers large enough for consistency, but granular enough to tell your story.

The statistics that we will be referencing are true and accurate for the year discussed but are being used to define the real estate statistic itself.

We have chosen Granbury Tx as our example because the growth of the local real estate market there make the statics stand out.

Anytime you are evaluating statistics, especially in real estate, the source of the numbers are extremely important. In most instances, the MLS (Multiple Listing Service) provides the most accurate numbers when referring to real estate. This is because they have all listings by all local real estate brokers in their database. For the sake of explanation of the data, we will be looking at the numbers for home sales in Granbury Tx, directly from the MLS. These numbers are meant to give an example of how to read the statistics themselves. Anytime you evaluate real estate numbers, its important to pay close attention to how the numbers are gathered. In this instance, we will be using ONLY single family properties in the city of Granbury.

Basic Real Estate Statistics

    • Number of Sales – This one is pretty self explanatory. It is simply the number of single family homes sold in a particular month. In January of 2015, they had 51 single family homes sold. One thing to pay attention to when looking at this statistic is are they using the Under Contract date or the day the property actually went to closing. These two dates are usually between 30 and 60 days apart, so its critical that you know which one is being referenced. In addition, many of the homes that get calculated, if you are using the “under contract” number may not actually close! In our example, we are using the number of homes that actually closed. In January of 2016 they had an increase of over 49{b01fda100cf65558b06f1840d5ab4a7fc2864e24121e3aed812c5299696a8fb7} which brought the total to 77 from 51. Growth of that level is very seldom ever seen.
    • Sales Volume – Sales Volume is simply the total amount of dollars spent on single family housing within that month. Once again, when reviewing this statistic, its important to keep the property types consistent. If you are comparing two areas to see which one has grown more and you include vacant land in the number for one area, you must include it in the other too. As previously mentioned, our examples only include single family properties. With Number of Sales looking at the units, you would expect the Sales Volume to go up appropriately, but in this instance, it went up even more than the units (by percentage). The total Sales Volume of single family homes in Granbury in January of 2016 was $15,191,500 as opposed to the January of 2015 number of $9,281,915. That is an increase of over 63{b01fda100cf65558b06f1840d5ab4a7fc2864e24121e3aed812c5299696a8fb7}. Because the Sales Volume went up at a larger rate than the number of units, this reflects the average home sale being much larger in 2016 than 2015.
    • Months of Inventory – This is a commonly referred to statistic when examining a real estate market. This statistic refers to at the current rate of sales, how long will it take to sell through the existing level of inventory. This reflects the supply and demand for the market. In our example, in January of 2015 the level of inventory was 9 months and in January of 2016 it had dropped to 6 months. That is a 33{b01fda100cf65558b06f1840d5ab4a7fc2864e24121e3aed812c5299696a8fb7} drop in available inventory! This means if you are looking to buy a home in Granbury Tx, it will be a little tougher in 2016 as there is less inventory available to buy.
    • Median Days To Sell – This stat simply refers to how long it takes for single family properties to be put under contract. Don’t let the “to sell” confuse you. To accurately show the demand for active homes, you really want to track how long it takes to go “under contract”. The process of acquiring final lender approval, insurance and getting to a closing can vary on a variety of factors. In January of 2015, the Median Days to Sell was 88. That number dropped by over 30{b01fda100cf65558b06f1840d5ab4a7fc2864e24121e3aed812c5299696a8fb7} to 61. Once again, this tells you if you are looking for homes in Granbury TX, you better get your offers in quickly as the most desirable homes are going fast!
    • Average Price – This statistic can be derived in a variety of ways. We are going to use it in its most raw form and simply be the Average Price of Homes Sold within that month. Be careful when looking at this statistic printed anywhere as how the user defines the date sold can vary. Needless to say, Average Price can be used for active homes for sale or for the homes that sold. The Average Price of ACTIVE homes for sale is generally a pretty useless number as you can list a home for any price, without any possibility of it ever selling. Many homes listed for sale are at unrealistic prices thus the Average Price of Active homes for sale can fluctuate dramatically and give little insight into the market. You will want to look at the Average Price of SOLD homes. In January of 2015, the Average Home Sale was $181,998 and it jumped to $199,888 in the same month in 2016. This is an increase of almost 10{b01fda100cf65558b06f1840d5ab4a7fc2864e24121e3aed812c5299696a8fb7}. This is not a number that truly tells the increase in home values across the board, but simply of the homes sold in that month, what the average was.
  • Median Price – The Average Home Sales Price can be skewed by a variety of factors. All it takes is one 5 million dollar home sale to throw those numbers off. To get a better view of the overall increase in value, it can be better to look at the Median Sales Price. Median Sales Price takes the number that is perfectly in the middle. For instance, if you have 11 homes that you are using in your statistic, you would take the sales price of the 6th one. This leaves 5 homes sold higher and 5 homes sold lower. In this instance, they are pretty close as the Median Sales Price increase from January 2015 to 2016 was 9.69{b01fda100cf65558b06f1840d5ab4a7fc2864e24121e3aed812c5299696a8fb7}. This shows that we didn’t have the Average Price skewed too much because of an extremely large or extremely small sale.

There are hundreds of ways to look at the same numbers, when referencing to real estate, so be very careful to read the fine print on exactly what numbers they are using. When making comparisons, you will want to make absolutely sure that both are referencing the same property types, dates etc. It like the old saying says… there are lies, damn lies and statistics.

In an effort to describe some of the most basic real estate statistics, we are using the market statistics from Granbury Tx as they have seen some extraordinary growth.

 

How To Get New Client For Realtor

Admit it or not, finding clients on the vast real estate market is very challenging. It is challenged by the existence of big real estate firms which employ hundreds of experienced real estate agents on their teams. If you are a newbie, you could easily be swallowed by the efforts exerted by the established firms. But have you ever think that they also started out as rookies in the field? If you are in this situation, here are some tips to at least give you a leverage on finding the right clients for you.

Create your own circle of offline connections and influences. As much as the online world is essential to widen your connections, the offline connections and influences is equally essential. Start with your family and friends. Then add your past classmates even those from your elementary days whom you still remember. Your teachers can be great additions. Move on to those whom you are tapping services as professionals such as your doctors, dentists, hair stylists, pet groomers and fitness coaches. The parents of your children’s classmates and friends can also expand your offline connections. If you have business contacts, add them as well. Don’t forget your neighbors. They can be great sources of referrals.

Build a better online network of friends. Through social media, you, as a real estate agent is bestowed greater power to enhance online connections. Your network can be a greater web of interconnected persons starting with your family members down to their own friends, acquaintances, friend of friends, and so on. Before you notice it, your network has expanded to include professionals of diverse titles not only in your locality but also in adjacent towns and nearby cities. If you think they are not relevant, you may be wrong with the impression. Anyone in your online network of friends can always be a great source of referral even those who you seldom see to be adding activities in their social media accounts.

Send mailers, both online and offline. Now that you have established both your online and offline connections, it is time to introduce yourself as the rookie real estate agent. For offline mailers, be sure to have a formal tone. Give your full name, license number, the firm you are connected too, its address, and contact numbers of you and the firm. Inform them of the services you are offering.

For online mailers, the same can be followed. But since it is an electronic form, you may want to add some enhanced graphics and video.

Create your own website. For personal branding, having an own website is an essential. This is where you can provide listings, value added services, frequently asked questions, and even informational articles that can help spark the interest of your potential clients. Support it with a blog, and connect it with your social media accounts in different real estate online platforms.

Profit In Real Estate Business

WHY MILLIONAIRES GO BANKRUPT

“That is exactly why we cannot loan you the money you need,” I said in response to a potential client explaining to me that he has over $20,000 a month going through his account.

Cash is king. If you have it, you stay in business. If you don’t… you don’t. A lot of money going through your account does not matter. In fact, that is not a good thing unless the money into the account is more than the money out. In this case, this particular client was doing very well financially on paper. He had a high net worth and several assets. The problem is, he set up the loans on his rentals to pay them off early and was spending all of his rent, and sometimes more than his rent, to make the payments. These rentals were profitable because income was more than the expenses, but he had no cash flow. The principal portion of your payment each month is a reduction of debt, so it is not an expense. In the long run this will prove beneficial, but it is risky. In this case, he was using shorter term amortizations to reduce his loan size quickly. All of his loans were set up as 15 year loans. Although, with the exception of a default, this is a sure fire way to speed up the loan payoff, I believe there are better ways to do it.

I made a similar mistake when I was really young. Whenever I got some cash in the bank I would want to invest it right away. After all, money in the bank is not working for me. I could earn much higher returns in other investments. I was buying houses at a rapid pace, and quickly became a millionaire. I was extremely proud that I hit that status long before my 30th birthday. The lesson I learned the hard way is that your net worth really doesn’t mean much. Net worth is simply your assets minus your liabilities. All my assets were in real estate. It was easy to buy discounted properties, so I increased my net worth each time I purchased a home. I am sure you have heard the term, “you make money when you buy.” That could not be truer. Although you make money when you buy, you can’t spend it until you sell. My model was almost exclusively buy and hold, so I never really generated the cash reserves I needed to withstand a problem. And a problem is exactly what I got. I was a millionaire and could not pay my bills.

I am a big leverage guy. I believe strongly that you need leverage to reach your potential. You will make more money and grow faster with leverage. Although I think you need to leverage people as much as money, I am going to focus on money for this point. If you have a lot of leverage in the way of loans, you need to make money to pay it off. Companies, and frankly our Government, end up spending all of its revenue to pay off debt; and although they are profitable, they are broke.

Once I shifted my focus to cash flow I was able to rebuild a much stronger financial picture. I rebuilt much more slowly and smarter. I still love and use leverage, but I am smart about it and stay diversified. I have access to cash if I run into a problem, and I use my assets to steadily pay off debt AND produce cash each and every month.

 

Mistake To Avoid During Investing Apartment Building

An apartment building can still be a good investment today. Why? For starters, there are still a lot of people who are still looking for homes to rent. In addition, the units of an apartment building do not just have to be spaces for residence or homes for families and individuals. By getting the right permits, units in an apartment building can be rented out as commercial spaces.

First-time buyers of apartment buildings will certainly have high expectations regarding this particular investment. This is mainly because they will invest a significant amount of money for this venture. As such, if you want to make sure you will own the right apartment building that can help you find success in the field of property rentals, make sure you avoid these common (and costly) rookie mistakes:

Not looking into the history and reputation of the apartment building’s builder or developer.

As a first-time owner of an apartment building, the last thing you want to happen is to stumble upon some structural problems or system failures. As such, it is important to check the background, capability, and reputation of the company that constructed the whole property. Going online and asking companies or individuals that have worked with the property developer is a good way to get some ideas about their competency. If the property developer has a good reputation and has stellar reviews about the properties they built, chances are, it is quite safe to buy a building that they constructed.

Buying a property that is located in an unpopular area.

When purchasing an apartment building, keep in mind that aside from your budget, an important factor you have to consider is its location. Real estate experts say that it is a good idea to buy a property in an area that is improving since buying in a declining location will simply result in high vacancies and rent drops.

Not having sufficient cash flow and reserves.

As a newbie investor, if you are not confident with your reserved funds, you have to get into deals that will create a quick cash flow only. Avoid going into deals that won’t provide a cash flow from day one even if that transaction promises a huge potential profit since you may be put at risk of being unable to pay the bills.

In addition, make sure you have enough cash reserves. Failure to do so can get you involved in different complicated situations. As a property owner, keep in mind that a lot of unexpected issues can happen. As such, you need to have a reserve fund that is adequate to pay for these emergencies.

 

How To Make Your Home On Track

Buying a house is a major financial decision that will not only give you a peace of mind, but also a wonderful place to live, and of course, the perfect location to start a family for those who are planning to settle down. Sooner or later, you will have to decide to settle down on your own home that will be considered as the best location to start a family.

That being said, it is important to greatly consider the factors that will affect your everyday living experience. The following tips will help to get your search of to the right start. While it is important to note the number of rooms, the size of the yard and the layout of the kitchen, there are several important things you need to consider before making an offer.

Avoid trying to time the market

– Trying to time the market when you are planning to purchase is impossible. Considering whether the market drops low or gets too high will only prolong and possibly make you lose your chance of owning your perfect house of choice. The best time is when you find the best one that you can afford. The real estate market is cyclical, and waiting for the perfect time will only make you miss out on an opportunity.

Location

– Proximity to essential establishments and the surrounding people can give great impact in your living environment. You can overlook a couple of imperfections in a home if you love the neighborhood and neighbors. As most would say, three of the most important factors in buying a home is location, location, location. When choosing, you need to consider its proximity to your work and other essential establishments, environment or the neighborhood, and public transportation.

Inspection

– Of course, you will need to check everything out inside the house. When you have finally narrowed down your list of choices, it’s time to hire a home inspector. It may cost a little but in the long run, it will end up saving you thousands. This will help you gain the best information regarding the new home so that you can make the best decision as to whether or not take it.

Situation factors

– One important thing to note: when buying a home, you can easily replace furniture, and other things inside however, you can never change the location. This is why it is important to also check the situational factors. Is the location suitable for kids, pets and gardening? Do the neighbor’s window look directly to your home? Has the driveway elevation properly installed for safe access to the property?

 

How To Buy Real Estate Without Down Payment

This tends to be a pretty controversial subject, and for good reason. When I was getting started in the business, I was young and broke and had no credit to speak of. I was not qualified to borrow money, yet I figured out how to buy properties, and I bought a lot of them. It was not long before I became a full time real estate investor, and on paper, I was a millionaire long before my 30th birthday. I accomplished this with a lot of hard work, education and tolerance to take the risk.

With all this said, just because you don’t need money to buy houses, does not mean you should have no money. I am a big, big believer in this. You see, although I was a millionaire at a young age, I basically lost it all when the market shifted. I was too aggressive with my growth, and did not establish an appropriate amount of reserves. After starting over, I structured things differently and am in a good position to not only survive a down turn, but to thrive in it. In this article, I will briefly walk through 4 ways to buy rentals with nothing out of pocket, but want you to understand that this does not mean you should own rentals with no reserves.

Owner Finance: This could mean many things, but for the purposes of this article I am going to assume that the seller of the home is extremely motivated and is willing to basically sell the house just to get away from the mortgage payments. This is commonly referred to as a subject-to transaction because you, as the buyer, will take title subject-to any other liens that are in place. What this means is you get ownership of the house, but the seller is still on the hook for the loan. You as the buyer will agree to either pay off the loan or make payments on the loan on their behalf. If you don’t, the lender can foreclose and wipe you off of title.

The seller is taking a tremendous amount of risk with this type of transaction, so it is difficult to negotiate and they need to be extremely motivated. It works well for you because you don’t need down payments or to qualify for a loan. It works for them because they have someone else making the payments on their loan, which relieves them of the payment pressure, and potentially can improve their credit. As you become more experienced, this is a strategy you will want to look into. This allows you to purchase an unlimited number of cash flowing properties without ever needing to qualify or sign for a loan.

Lease Options: This is the strategy that really worked for me when I was just getting started. I like it a lot because it is easy to explain to the seller and it is not difficult to get them comfortable with it. They still need to be motivated to want to do this, but nothing like the subject-to transactions.

The way this works is you negotiate with a seller of a home to lease the property for a set period of time. I would typically negotiate 10 years on these, but it can be anything you are comfortable with. The rent amount will be set. From there you agree on a price to buy the property for sometime during the lease term. The price is typically locked in close to today’s value. You then sublease the property, hopefully for more than your rent payment, and wait for the value to increase. If the value does not increase, which has happened to me, you can either re-negotiate the deal or let the property go. You have no obligation to buy, so you are not taking the risk of market fluctuation. If and when the value does increase you have several options: You can sell your option, exercise your option and resell the house for your profit, or just exercise the option and keep the property in your portfolio.

Bridge Loans: The idea here is to find a property that needs a lot of work that will make a good rental. You need to negotiate a price were you can buy it, fix it, and roll in all closing costs, and still be at or below 70{b01fda100cf65558b06f1840d5ab4a7fc2864e24121e3aed812c5299696a8fb7} of the after repaired value (ARV). This does not work well unless the property needs to be repaired. This is very different than the first two strategies discussed, and is commonly used with bank owned foreclosures. Although, anytime you can negotiate a great deal will work.

After you purchase the home, you want to get it repaired and get a tenant in place as quickly as possible. You then refinance the loan into your permanent rental property loan. There are some additional details for this to work that are beyond the scope of this article.

Partners: At the time the market was collapsing around me, there were tremendous buying opportunities everywhere. Using the Bridge loan strategy, I was able to pick up a handful of deals that I still have today. I did not qualify for loans, so I brought in a partner to sign on the debt for me, and I shared the deal with him 50/50. Neither one of us put money down, and the properties all cash flow, net of vacancies and maintenance, a minimum of $300 a month. There has also been a tremendous amount of appreciation over the years. The houses have more than doubled in value!

No matter what your strategy in real estate, partners can help you reach your potential. They can provide anything that you are lacking to get deals closed. I have a great deal of respect for partnerships because I think they are necessary, but I also think they can be the worst decision ever made.

 

Benefit Between Buy or Build House

When families, or individuals, first begin to think about purchasing a home, the question often arises as to whether they should buy a previously owned house, and then add a few personal touches, or whether they should hire a custom home building company to help them design their own. There are benefits and downfalls to both, making it a tough choice.

Buying

Buying a new home has certain conveniences that many people appreciate, like the fact that everything is already done. For example, the washer hook up is already in place, the walls are already insulated and the bathroom is all ready to be used. This saves the hassle, and possible conflict of making major decisions, which can be a huge relief for individuals that are a bit indecisive. Buying a home means that buyers can move in sooner, and they may save money in the long run, depending on the house.

The same things that are positives have the potential to turn into negatives. It may be nice that the washer hook up is already in its designated spot, but what if it is in the kitchen and buyers would prefer it in the bathroom. This is a small adjustment, but when a buyer is not satisfied with the minor things, it can all build up over time. Also, the bathroom may already be ready to be used, but how old are the pipes?

The pipes, furnace, central air system and the very foundation of all previously owned homes have been in use for several years when the building is purchased, and they may need replaced sooner than buyers are prepared for. A used furnace is more likely to need repaired than a brand new one, and the same rule applies to everything in the house.

Building

Working with a professional home builder can be fun and exciting. Every room will be the exact size that the buyer wants or needs, buyers will be able to have an energy-efficient home, and the ability to personalize every space guarantees that custom homes will have more personality. Even the floors will be perfect, whether they are hardwood, tile or carpet.

Vital components of new homes, such as the furnace, will have less wear and tear, costing first time buyers less money in the long run, and less hassle. Last, a professional home builder will make sure that everything is exactly how the buyer wants it, eliminating the need for renovations, and the stress that can come with each new project.

Building a house can be stressful for buyers that are unsure of what they want. Are open spaces better or closed off rooms? Where should the washer hook up go? Qualified home builders with enough experience can help make some of these decisions a little bit easier.

The only other downside to custom-built homes is that it may be more expensive when looking at the short-term cost. Brand new furnaces are not cheap. On the other hand, most buyers will wind up with a brand new furnace if they purchase an older (cheaper) house in the long run anyway.

All in all, it boils down to whether buyers would like to spend a little bit more money when first buying a home for a brand new home that has been designed to meet their needs, or whether home owners would like to spend more money in the long run as renovations take place and things, like the furnace, need replaced. Taking the time and money to hire an experienced home builder can save families years’ worth of stress and hassle.

 

Tips Open House For First Time

I finally decided to write my first post. Why not? But what could I possible write about that is interesting and educational as well. I can write about the market, mortgage rules, down payments, etc

Or read the newspaper and write a well digested post.

So, here we go, I remember that day as if it was an hour ago! It has scarred me forever and ever. Every time a client asks me to run an open house, I sweat and swallow super hard. Even after having lots of successful “open houses”, this one still manages to make me run to the bathroom and grab the famous Pepto-Bismol.

So, long ago, when I became a licensed real estate agent, at the beginning of my time as a Realtor. The new challenges I was facing, a bit anxious but super excited at the same time. Knowing what I am made out of, a very hard working, honest, reliable, ethical individual couldn’t wait to run my very first open house!

Since I had no listing of my own and couldn’t just run an open house on my own house and tell anyone entering through the entrance: “thank you for coming, but this house is really not for sale! It is just for me to practice my new skills”

So I asked a few fellow agents in my office and at last, after 2 months of trying, one of our broker asked me to help him out!

I was so excited that I had a hard time falling asleep! I did a CMA, I looked up all the past, present sales in the area; looked up all the schools from public, private, catholic, French, etc in the neighborhood. I had so much info on the area that I felt like a walking Google!

I asked myself so many questions that people could come up with and I had the answer to every single one of them memorized!

The day of, I put on my super tailored suit, make sure nothing was stuck between my teeth, etc. I just wanted to run it as professionally as possible.

Anyhow, after opening the lock box to the unit, I realized that my suit had no pockets! And I didn’t take my purse with me, so the only secure place I could come up with storing the property’s key for 2 hours was my bra. No big deal, who would find out, after all, I showered and my bra was super clean and my suit just came out of the dry cleaners. I could use a bit of water and soap after and put it back in the lock box. Problem solved!

Open house was over at 4 pm, not too many people showed up but I had everything under control. I was extremely happy with the outcome. It was GREAT, except for the key stored in my bra and started to be a little uncomfortable.

So, I lock the property’s door, made sure it was actually locked, put back the key in the lock box, shuffle the combination, get in my car with a huge smile!

Contact the listing agent and thanked him for the opportunity and that everything was left in its perfect condition.

The next day, I had a fund raising event to attend. 5KM walk for a children’s hospital. So, on that Sunday, I am walking and thinking of yesterday’s open house. I am going to call those few individuals that came in. Asked them for feedbacks and take it from there. At exact same moment, my phone ran and it was the listing agent asking me where the key to the property is?!

He asked me to look in my pockets or purse, just in case, by mistake I forgot to put it back in the box. I told him that was not possible. And I had to tell him where I stored the house key for 2 hours the day before (super embarrassing!) and the silent after that.

I drove to the property just to see it for myself, and yes, sure enough, no key… I couldn’t believe my eyes! Being new to the business, new to this brokerage, my very first open house experience that I wanted it so badly and wanted to be “perfect” just got destroyed. No key, no house key a scheduled open house and we couldn’t get in.

The property had no showings after my open house. Key just gone, nowhere to be found, did not fall out of the box when I was putting it back. A total mind blowing experience.

It was obvious that it was stolen, by whom? No one knows. They’ve changed the lock right away and took all necessary security action, but… I felt terrible for the owners! There is nothing worse than feeling unsecured in your own home! Just the thought of knowing that some stranger might have the key to your property made me sick! I put myself in their shoes and I couldn’t fall asleep just thinking of it.

I can’t describe how I felt on that day and still do. Every single time I have to open a lock box and close it again, I get this weird feeling (even today). It just feels like time stops for a split second and it slows down.

I get a little more anxious when clients ask me to run an open house for them. I do it, but there is something, some weird feeling that surface.

My first open house experience shook me like a massive earthquake… and I still can feel the aftershock from time to time.

 

How To Get Pre Approved For Real Estate Loan

What does it Mean?
There is a difference between getting pre-qualified and pre-approved to buy one of the condos for sale downtown. The difference is a pre-qualification means you may be able to get the loan based on skimming of your income and other information. This is why you may get pre-qualified credit card loan offers from time to time. The information usually comes from a list.

When you are pre-approved for a real estate loan, it means you are able to get that money. You can use it to buy one of the condos for sale downtown that you are in love with. This process involves you actually applying for a loan, providing all of your documents, and completing everything the lenders needs to get you approved.

They will tell you the amount of money you can borrow and the interest rate. The offer is going to be good for a set period of time. Typically, it is going to be up to 90 days after you have been approved. Armed with this information, you can start looking around. Once you find the place you wish to make an offer on, they can help you to proceed.

Know what you can Afford
It doesn’t make sense to look for condos for sale downtown that are outside of your price range. With the pre-approval process, you are able to shop within your market price. You can use filters online to find those at or below your approved amount. You can talk with a real estate agent and they can refer you to real estate on the market that fits that amount too.

If you can find one of the condos for sale downtown that you want to make an offer on that is less than you were approved for, that is exciting! Not only does it mean you can buy it, but it also means you can reduce your monthly payments below what you know you can pay. That means more money for savings or you can use it to pay off the mortgage early.

Make an Offer
You have bargaining power with the pre-qualification for a mortgage loan. When you make an offer on one of those condos for sale downtown, the seller is going to see you are already approved. It can be enticing to them to accept the amount you offer rather than to hold out for another offer to come along.

Since you are already approved, you aren’t going to be on pins and needles after the offer, hoping you can get the money. It is very upsetting to some consumers who find the perfect place but then they can’t get approved for the loan. The closing can be done in less time too if you already have your loan approval completed.

Sometimes, there are credit report issues that prevent someone from getting the loan. Finding out about them early on before you look at property can be helpful. It gives you time to evaluate the situation and to work to clear it up. Then you can move forward with buying a place and not have unexpected surprises crash your dream.