June 22, 2006
Real Estate — Financing For Investors
For decades the way to finance a property purchase was 80-20, 20 percent down, 80 percent on loan. Certainly, there have been many who put more down, but 20 percent was considered the bare minimum. Happily, things have changed.
While it's nice to invest less for the same property, the downside is not limited to the higher interest rate on the second mortgage loan. Since the buyer doesn't meet the standard 20 percent minimum, lenders almost always require PMI (private mortgage insurance). Fees are usually hefty.
Though it's theoretically possible to have the lender remove the PMI requirement after enough payments have been made it rarely happens. In theory, once the loan(s) have been paid down so that the LTV (loan-to-value ratio) is at 80 percent — usually by a combination of paying down the second mortgage and appreciation of the value of the property — the lender will be willing to consider removing the PMI cost from monthly payments. Most often, before that happens, the loan is refinanced or the property sold.
The ambitious can find other sources of financing. When considering property in a new development, such as a planned community or new housing tract, manufacturers will often be willing to fund a home loan for early buyers. Such loans are frequently available at only 5 percent of the purchase price.
For the really daring it's possible to 'buy' a property, then sell it, without ever owning it — at least not for long. It's possible to buy a property, establish a contract, and then sell the contract for anywhere from $500-$5,000 without ever taking possession or even being on the title. Profits are usually smaller, but obtained quicker, though deals require excellent credit.
'Sub2' deals are another form of creative financing. The typical 'subject-to' deal involves having a seller deed you the property while leaving the existing mortgage in place. You never legally assume the loan, but simply start making the payments. There are lots of variations on this new way of buying property. Not recommended for the beginner.
You can finance a property investment by forming a limited partnership. Arrangements cover the spectrum. In some, each partner puts up some percentage of the cost, usually half and half, but sometimes profit is apportioned according the original percent invested. In some cases, it's possible for one partner to invest money, while the other(s) performs services —— such as repairs on a 'fixer-upper'. The deals are as varied as people.
For those with low incomes, or military service, or other special circumstances various government loan programs are available — though they're usually limited to individuals intending to occupy the property.
It's even possible to fund a property purchase with credit cards, but there are several obvious downsides to this method. Apart from the substantially higher interest rates, lenders look at all outstanding debt when judging whether to grant a loan on the remaining balance. Taking out a cash advance to cover a shortfall between the needed 5-20 percent down will usually get you turned down.
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Friends, family, and other sources of money are usually viewed the same way, unless you can prove to the bank that the money is a gift and not just a loan. Mortgage lenders have seen it all! Don't try to fool them.
Posted by RealEstate at 11:18 AM | Comments (0)
June 21, 2006
Real Estate Risk Mangement Tips
Real Estate — Tips on Managing Risk — Part II
Investors have a hard life. Rising insurance rates, legal liability, security concerns and increasing interest rates may not be actually conspiring to give them early heart attacks, but it can seem that way. Managing risk is in large part about how to lower uncertainty by dealing appropriately with those and other stress factors.
When building new structures, manage risk by reviewing trade area demand — by demographic and daytime population for commercial structures, for example. Look also at site characteristics and examine local competition and contrast with regional differences. Take some time to find out about upcoming environmental regulations.
Be sure to set aside the needed amount for insurance, and err on the side of too much insurance rather than too little, if minimizing risk is an important goal.
Go into a deal with the maximum available capital by not spreading your resources too thin. Keep borrowing low and avoid ARMs (Adjustable Rate Mortgages) unless they're longer than three years and you expect to sell well within that period. ARMs are inherently higher risk, and the 'interest only' type even more so. Rates tend to rise more quickly than they fall, over the long term.
If you have an ARM and rising monthly payments occur, due to interest rate increases, while the market price is dropping (as may soon be the case), consider selling. Even stocks have to be sold sometimes during a period of declining prices. Capital preservation is important for long term investing, and part of that involves keeping liquid during a 'market correction'.
Some lenders allow borrowing more than 100% of the value of the property. Unless you can use the extra cash in a way that more than compensates for interest and other charges, that's burdensome debt.
Take the time to seek out trustworthy and competent people — don't settle for an uncooperative or arrogant Title company or an unreliable contractor because you're busy. Think in terms of long term relationships. Otherwise, the long term will involve counting financial losses.
Risk can be spread by forming partnerships and, in come cases, by incorporation. Incorporation can allow you to separate personal from business assets, protecting you in case of severe decline. But there are limits — you don't automatically get to walk away from debts by being incorporated. Partnerships though, if you can find reliable and compatible individuals with whom you'll feel comfortable over the long haul, can strengthen your position.
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Partners can help fill in gaps in your knowledge and experience, provide additional capital and someone to bounce ideas off of. But choose carefully. Differences of outlook can lead to stagnation when it comes time to take action. Remember, risk can never be reduced to zero.
Posted by RealEstate at 05:52 PM | Comments (0)
June 20, 2006
Commercial Real Estate Investing
Real Estate — Commercial Investing: Complicated, You Bet!
According to a recent study in The Economist, residential property investment in developed countries amounted to $48 trillion, while commercial real estate investment (CREI) was 'only' $14 trillion. Though the number may be smaller, CREI is much more complex.
It may be a multi-dwelling apartment complex used as residences by others, but to the investor it's a commercial enterprise. As often, the commercial property is a multi-tenant commercial building on land zoned for that purpose. That introduces different considerations for valuing, financing, leasing, maintaining and a host of other tasks.
The commercial investor has, usually, to invest a larger amount — requiring superior credit and incurring greater risk — and to estimate capitalization rate (cap rate) and Gross Rent Multiplier (GRM).
The cap rate is calculated by dividing a property's annual net operating income by its purchase price. Historically, good investments had a 10% cap rate, but the last few years has seen that decline to 8% corresponding to a greater risk and lower expected return. The GRM is arrived at by dividing the purchase price by the property's monthly gross operating income. These, along with consideration of assessed vs appraised value, and comparables, total income and replacement costs form the hard-fact base for estimating the worth of a deal.
Commercial properties are at greater risk of unpredictable changes in general economic conditions. A building that enjoyed a 100% occupancy rate can quickly become only half full because of factors far outside the local market. Events in Asia or elsewhere around the globe can turn business conditions for some upside down overnight, whether the tenants are located in California or Barcelona.
Commercial property investment requires increased knowledge of law, maintenance and finance. Zoning, leasing regulations, and other legal issues are more complex than for residential property. Where properties are rented, rather than just bought and sold — often the case with CREI — owners usually have to consider large electrical, air-conditioning and security systems, along with fire suppression, telephone and Internet facilities. Even plumbing is more complicated in commercial structures. Mortgages are more complicated and insurance is more costly.
The exception is the triple-net lease. In this arrangement the tenant is responsible for all the expense and arrangements for maintenance and repair as well as insurance.
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But not to be gloomy, there are great potential rewards from CREI. The risks are greater, but often the return is as well — especially during good economic times. And the satisfaction of being part of sustaining and helping grow the dreams of other entrepreneurs is a great bonus for the commercial real estate investor.
And, after all, sometimes, more complicated means more interesting.
Posted by RealEstate at 05:49 PM | Comments (0)
June 19, 2006
Real Estate and The Internet
As it has with almost every business, the growth of the Internet has significantly changed the landscape of property investment.
Now, with a brief search and a few mouse clicks, you can find more properties than you could ever turn over and more information about them than most of the previous owners know. With the arrival of high-bandwidth connections you can quickly access and view photos, 360-degree views of the interior and exterior, as well as the surrounding area and streaming video in close-up and overview.
Title searches, back taxes owed, legal encumbrances, previous ownership history and other pieces of valuable data are easy to obtain along with the current and past selling price. In some cases, you can get past inspection reports and records of repairs made.
And most of that information is available for nothing more than the cost of your time to find and review it.
Of course, mortgage financing has taken on entire new possibilities with the growth of the sites devoted to that subject. Traditional lenders have taken advantage of the technology, but there are also dozens of mortgage lending sites that have no brick and morter presence at all.
Even out-of-state and foreign markets have been opened up across the globe by the growth of the world wide web of property information. A Spanish investor can find a villa in Italy or France, while an American can easily locate wineries for sale in France or a Bed and Breakfast in England. Properties are available for purchase as a pure investment, a second home — which can be rented for part of the year using Internet sites, or even full-time rental.
Selling, too, has been made easier by utilizing any of the hundreds of sites devoted to the subject. For Sale By Owner is now much more feasible and quicker thanks to sites that advertise property — many of which provide low-cost additional services for helping you make that sale. That's an average 6% increase — the average cost of an agent's fee — in profit all by itself. Six percent of $200,000, for example, is $12,000. Subtracting off $100 for a three month listing still leaves a very healthy reduction in cost.
Though it's always a good idea to see any prospective property first hand, much time can be saved by gathering useful information before a site visit. And with the ease with which appraisers, contractors, title companies and realtors can be found — and more so with the growth of Local Search by the major search engine vendors — buying and selling has gotten even easier.
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It won't be long before transactions can be carried out entirely electronically without leaving your home office. Many states and countries already allow electronic signatures on documents, eliminating the need for mail or faxing of paperwork. Now if they could just invent something to legally produce the investment capital...
Posted by RealEstate at 05:46 PM | Comments (0)
June 18, 2006
Real Estate Investing Tips
Real Estate — Keep Your Cash For A Rainy Day
Buying property is expensive under the best conditions. Even if you don't outlay a huge wad of cash initially, you're signing up for a substantial financial commitment. For those intending to occupy the property, at least for a while, there are additional expenses — moving, storage possibly, and often tax consequences.
So the first step after agreeing on a deal is to get favorable financing. Bzzz! Wrong answer. Get favorable financing BEFORE you agree on a price and decide who pays for what. Assuming you intend to finance, and if you aren't you don't need to read this, shop around for lenders.
Banks, mortgage companies, on-line financiers, and others all compete for your business. Make them earn it by looking for the lowest rate you can obtain for your credit rating. Negotiate fees required and the dozens of charges that lenders tack onto the loan — sometimes before even agreeing to fund it. Don't pay the lender a large 'application fee', unless you have seriously bad credit and have no other option.
Repeat the process with everyone else involved in the deal. Title companies often have high fees, but you're not required to use the one an agent or the lender recommend. You're free to use whomever you wish. Watch out for 'rush delivery charges' - often $50 or more to have a package of a dozen papers sent across town — and similar fees. You're not required to give anyone free rein when they're spending your money.
Do the same thing with whomever the lender and title company recommend for insurance. You're not required to use the one they like, but they will usually try to bully you into accepting it because they're busy and it's easier for them. Remember, though, you are paying them. They're looking out for their interests — you have the right to do the same.
When you talk to the lender, ask what options are available with your credit rating. You can often obtain 5% down, and sometimes even no-down, loans — but beware of the high interest rate that sometimes accompanies them.
Other financing options can be found by those willing to wait and to shop around. Some sellers and lenders will allow you to assume an existing loan. It's also possible to negotiate a deal in which the seller agrees to pay a larger percentage of the closing costs. In rare cases, they will pay all the closing costs, but usually by rolling it into your loan.
The last few years have been largely a seller's market, so this has been less common. But the situation is changing. Even in a seller's market, though, not everyone is in a position to be rigid. New employment opportunities, layoffs, unexpected expenses, a death in the family, and a dozen other reasons can give a seller a big incentive to move quickly. That translates to a willingness to negotiate a fast deal for the best price they can get.
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It's your money. Keep as much of it as you can by shopping around and not letting anyone rush you into taking a bad deal.
Posted by RealEstate at 07:41 AM | Comments (0)
June 17, 2006
Real Estate Timing - Buying and Selling
Buying and selling real estate is similar to timing other investments — stocks, bonds, mutual funds. But there are two important differences.
Most investments can be bought or sold within minutes at the market price. Buying or selling real estate takes months. That difference introduces interesting wrinkles in timing when to buy or sell. Like other investments, selling at a high point, with the intention of buying back in at a lower price, is one way to make a profit. Here again, the difference in time required to complete a transaction makes life more interesting.
It's usually easy to sell a stock, wait a day or a month and buy that same stock at a lower price. When that stock continues to rise, there are often others that have declined but can now be predicted to rise again. The real estate market rarely offers those kinds of opportunities.
The other difference is that companies differ but most stocks are alike. Real property is always unique.
Selling requires one to either acquire a new residence, wait for a new opportunity to enter view, or buy back in at a higher price, hoping for yet greater increases. Along the way the costs of getting in and out are substantially higher than a few dollars for a stock trade.
So, what to do?
One clue is provided by the historical fact that many have and continue to make good money in real estate — even though the market has gone through several cycles over the last few decades. That last piece of information gives another clue — think long term.
There are several strategies for improving your timing options. One is to acquire property at bargain prices, either through seeking out foreclosures, or looking at property requiring substantial repair.
If you have patience, it's possible to find foreclosures that sell for anywhere from 25% to 35% under current market for that area. Read local newspapers and websites for Notice of Default listings and upcoming auctions.
It's also possible to find areas where sellers tend to be leaving, but there is some likelihood of a turnaround. The latter is possible — previously depressed neighborhoods in Manhattan, such as the Lower East Side, now sell at a premium. Areas in other major urban centers have experienced similar turnarounds. Again, you will need to research and think long term. Look for political activity of urban renewal efforts.
If you're good with tools or know someone who works inexpensively it's possible to acquire property needing substantial repair. Fixing a leaking roof, and repairing water damage through installing new drywall and painting, can increase the sale price of a home by 10% or more.
One key to making any of these strategies, and many others, feasible is to have as much working capital available as possible. That doesn't necessarily mean having a huge savings account. You need to be liquid and have access to money, not necessarily in your own account. Keep liquid, keep your credit rating high, and establish a good working relationship with a lender in order to have rapid access to financing.
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Opportunities for profit, even in a market that's leveling off from historically high rates of increase, are still around. But only for those who are willing to exercise patience, do tons of research, and have the ability to walk away from any deal when illusions meet reality.
Posted by RealEstate at 05:38 PM | Comments (0)
June 16, 2006
Real Estate Flipping Video
Real Estate — Flipping: Not Gymnastics, But Lots of Exercise
'Flipping', in real estate investing lingo, is nothing more than buying a property and selling it again quickly, hopefully for a healthy profit. It's not illegal, it isn't even unethical — it's just business, and that can be done either way.
To flip a property, you first have to find one that's flippable. That usually involves finding either a 'fixer-upper' and 'fixing-upping' quickly for a rapid sale, or finding a buyer that's eager to sell at a bargain price.
Talk to friends and relatives, business contacts, bankers, real estate professionals, or anyone else who can give you a lead to a bargain. Sometimes, simple driving around the right areas will allow you to spot one. Look for those 'For Sale By Owner' signs or knock on doors.
Alternatively, public records sometimes contain references to 'fire sales', and — if you dig deep enough — occasionally to property owners finding it difficult to make their mortgage payments. When you find one and they agree to sell, you're getting something you want — a property that might turn a profit. They're getting something they want — relief from an unsustainable debt burden. Nothing unethical about that.
Some deals are possible that don't even require you to put your name on the title. You can 'double-escrow' a buyer who wants to remain living at the property. Double escrow involves taking a very long escrow — longer than say 90 days — and reselling the property during the escrow so that both deals close escrow on the same date. In a rapidly rising market, the buyer can then take advantage of the increase in the sale value of the property.
Always have your financing in place, if needed, and be prepared to move quickly.
You can 'flip' by entering an agreement to purchase a property, then selling the contract to another investor before close of escrow. You pocket anywhere from $500 to $5000 and don't even need to find financing.
To be successful at flipping you need to master a steep learning curve and look honestly within.
You need to learn how to spot a salable property and to learn to judge buyers. You need to learn a little about property repair, which usually involves doing some yourself. That means finding out about plumbing, carpentry, and other skills that usually aren't the first love of investors.
You need to have an active personality — flipping involves dealing with lots of details in a short span of time. It also means having or developing a high tolerance for risk. Stressed buyers aren't usually the most calm, reasonable people to strike deals with. They often have poor credit and can back out on a deal at the last minute.
You need to hone negotiation skills and develop relationships with contractors and lenders, especially the kind that can be relied on to move quickly when you need them to. You should have a trustworthy accountant and a responsive attorney, unless you already have these skills.
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You need to learn a fair amount about contract and real estate law, and study the tax consequences of buying and selling properties within a short time frame.
Whew! And you thought your business was a tough racket.
Posted by RealEstate at 04:15 AM | Comments (0)
June 15, 2006
Real Estate — Getting Started
Real Estate — Getting Started: Think First
It's often been claimed that Real Estate investing is one of the easiest ways to make money. In one way, that's true. With a modest financial investment and a fair amount of sweat equity, a property can be bought and sold for a healthy profit and the future still looks pretty good.
But easier is not the same thing as easy.
So, to simplify the process, here are some things to consider when getting started.
Before investing money, invest some time. Think about what financial goals you want to achieve and over what time frame. Be realistic. Easy to say, hard to do — especially when home prices have been rising for several years and still are. But like any market, real estate values may go down, and when they do it's usually a sharp, steep drop.
Once you've decided how much of a time and money commitment you want to make, write it down. Make a one year to five year business plan in as much detail as you can, and then review it after six months and again after two years.
Part of that plan should be an estimate of how much capital you've got to invest, which will differ depending on whether or not you plan to use your primary residence as your first investment. Just as one example, if you have less than $10,000 to start with you are definitely looking at either using your own home or buying a 'fixer-upper' as your first venture.
It's true you can get into a secondary property with no money down and just a couple of thousand in closing costs if you have good credit. But the market would then have to rise quickly, and you would have to sell right away.
That's risky and has serious tax and legal consequences. The alternative would be to take on high monthly payments and maybe additional expenditures on repairs. Again, risky and potentially expensive. You stand a high chance to lose more than your initial investment, because even though you only put in a small amount, you're still legally bound for the entire package.
Unwise move for the newbie.
Another part of that plan should state how much risk you're willing to take. Be especially honest and consider your personality type. Some investors favor capital preservation, others lean toward maximum return in the shortest time. People differ in their tolerance for risk. Be sure you know yours.
You'll need to consider your available time commitment, establish a relationship with a lender, learn about the market, contracts, insurance, legal rights and requirements, tax consequences, and many other aspects of real estate investing.
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If you still want to take the plunge — bravo! You can make a healthy additional income, or even a full time living, in what remains one of the soundest investments available. And, apart from what can be serious money — it's a great adventure!
Posted by RealEstate at 04:19 AM | Comments (0)
June 14, 2006
Real Estate — Cheap Repairs
Real Estate — Cheap Repairs, Big Profits
You want the most profit you can get for that property you sweat blood to buy. Is there anyway to improve your chances, without investing a lot more? Fortunately, there is.
Offer to mow the lawns of those to the left and right, or take their trash to the dump as an incentive. A small cash offer on successful sale will also motivate cooperation.
At the same time, show them you're getting your own house in order. Mow the lawn carefully and repair any bare spots. Trim the edges. And invest in a few dozen inexpensive flowers and plants if the season permits it. The exterior is always what is seen first and first impressions linger.
Since a home inspection will almost always be done prior to a conclusive bargain being struck, take the opportunity to make those inexpensive plumbing repairs BEFORE showing the house. Some of the more expensive ones might wait, to be used as a bargaining chip. But fix that leaky sprinkler head that sprays the sidewalk and replace that dripping bathroom faucet.
Replacing carpeting throughout an entire house, or even one room, can be expensive. But getting it cleaned costs very little, typically. And repair any small damage or try to cover it with a piece of furniture. Eventually, you'll have to show every flaw when you have a concrete deal. But it needn't be the first thing they see. Replace those old welcome mats and small entrance rugs with new ones.
New screens are low priced and can make the exterior look fresh and new. To save even more, you can remake the screens with mesh and rubber kits, provided the frames are still in good shape.
Replace any cracked or broken windows. You'll usually have to do this anyway as part of closing the deal. Of course, all the windows should be cleaned thoroughly to give that shiny new feel. Even a brand new house that's dirty will fetch a lower price.
If you have air conditioning and heating ducts, replacing defective or worn conduits can get very costly. But many parts in a house that are not seen use silvered duct tape anyway, so patch any holes carefully to give a professional look. Replace old filters to give the appliances a newer look and the air a fresher smell.
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A bit of spackle and a coat of paint on those rooms that have seen accidents needn't cost a lot and don't take a lot of effort. Be sure the work is done carefully, though, or it can come out looking worse than before you started. A buyer that sees that you've made efforts to keep the property up will be more inclined to offer a better price. Think of the last time you bought a car. Didn't you favor the one that was well maintained? You were probably willing to pay a little extra to get that one. They will be too.
Posted by RealEstate at 11:23 PM | Comments (0)
June 13, 2006
Real Estate Tax Considerations
Real Estate — Tax Considerations For The Investor
There is no more Byzantine human invention than the complex tax codes, and among the most complicated are the laws surrounding real estate investing. So, what follows is NOT to be considered legal advice — consult your attorney or tax accountant before making any decisions.
Many investors still believe they can purchase a residential home, not take up residence, make repairs and then sell for substantial profit. And that's often true. But profits can be lowered by neglecting current tax law. The rule they're mis-remembering applied only to property used as a personal residence and, in the U.S., is no longer law.
In 1997 that rule was replaced by one that allows for tax-free sale of a personal property, occupied for two years or more. Investment income, whether from stock sales or real estate is considered capital gain. If the asset was held for a year or less it's a short-term gain, taxed at ordinary income tax rates — sometimes as high as 35 percent. Hold the asset more than a year and any sales is now a long term capital gain, taxed (usually) at 15 percent. One day more or less could make a 20 percent difference.
If you keep the property for 730 days, not necessarily sequential, as a residence and you can pay no tax at all — provided the money is reinvested in a home of equal or greater value. (There is a one time exemption.)
For the investor not looking to occupy the property, there is an alternative, in the U.S. — the 1031 exchange.
As long as you trade an investment or business property for another of "like kind", you can defer any tax owed. "Like kind" is defined somewhat loosely. You can swap undeveloped land for developed land, a residential rental home for commercial property, etc. The only restriction is the exchanged property has to be an income producing asset, not a personal one.
You have 45 days to identify up to three replacement properties and must close within 180 days. You must also find a neutral intermediary — a "facilitator or accommodator" — to hold funds and keep records.
Keep in mind this option is not tax avoidance, merely tax deferral and can't be used in conjunction with your personal residence. See your tax accountant or attorney before taking advantage of this.
For married couples, tax law changes allow a profit of up to $500,000 on the sale of the personal residence, $250,000 for singles, with no tax penalty.
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Mortgage interest deductions continue to be one of the best write offs, with up to $1 million loans qualifying, as well as any points or loan origination fees. Always keep accurate records and consult with professionals before making any investment decisions. This is especially true for those lucky enough to have inherited property, or those involved in estate sales and trusts. Their fees will be more than paid for by avoiding penalties and unexpected taxes.
Posted by RealEstate at 07:35 AM | Comments (0)
June 12, 2006
Real Estate - Maximizing Your Return
Real Estate — Maximizing Return
Buy low, sell high. Anyone in any market aims for that, but few succeed. The only reasonable conclusion is it's easier said than done. So, to be part of that group of 'we happy few', consider some of these ways to maximize your return.
After the purchase, carry out any repairs needed yourself — to the extent you can do professional level work. Be thrifty, but not foolish. Amateur repairs lead to larger costs down the line. Shop around for low-cost quality roofing materials and superior carpet deals. When you can't do the work yourself, seek out skilled handymen from small outfits. Companies whose prices include overhead for bonding of employees eat into your profits.
Shop around for low-cost loans with lesser known lenders. Major banks and mortgage companies tend to have higher fees and less than competitive rates. Never pay anyone an 'application fee'. Perform the same exercise with respect to title and insurance. You're not required to use anyone the lender recommends.
Once you've selected them, don't passively accept unnecessary fees with ridiculous prices. In today's world it's absurd to pay $50 to deliver a few dozen papers across town, but tacking on charges like that is common practice. Take your time looking for property, lenders, title companies, insurance brokers, agents, etc. Shop as carefully as you would for a new car — no more so, you're investing much more.
Educate yourself about real estate law and basic accounting. Professionals in those areas charge large fees — and earn them. Good advice costs heavily for a good reason. These professionals can save you thousands by avoiding costly mistakes. But you can perform many of those services yourself if you're willing to study. You don't need a law or accounting degree, just an active mind and a lot of patience for detail.
When you've found an attractive property, negotiate firmly but in good faith. Be willing to state clearly what you want and prepare to compromise. Individuals who feel they've been burned often find ways to sabotage your profits in ways you discover only later.
When you're on the selling side, perform the same thorough shopping process and negotiate agent percentages, closing costs, and other high-ticket items.
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Prepare the property for sale at the maximum price by investing in a few flowers and having the property thoroughly cleaned. Leave the lights on even during the day. Put on some "mood music" at a low volume; put out some attractive flyers with photos and little snacks for visitors. Market your property heavily to get a large pool of interested buyers. Competitive bidding always benefits the seller. Be willing to take your time during the process. He who is most eager, makes less.
Posted by RealEstate at 05:32 PM | Comments (0)
June 11, 2006
Before You Invest In Real Estate...
Real Estate — Questions To Ask Before Investing
Real Estate is a complicated business. Every facet is controlled, in most countries, by numerous legal restrictions and requirements and there are many people involved in any deal, some with vested and competing interests. But you can also make a lot of money and, in some ways, a lot easier than in many other businesses.
Before you take the plunge, ask yourself — and try to answer — some of the following questions.
1.How much capital do you have?
2.What's your tolerance for risk?
Capital and risk are inseparable partners. A person with five million in the bank can absorb a risk of five hundred thousand without serious, though maybe painful, consequences. Someone who is putting up their hard earned five thousand, hoping to turn it into fifty, is in a different situation. I'm not suggesting the one with five should stay home and watch television. Taking risks is admirable and exciting. But you should estimate realistically how much actual money you can put into an investment. The mirror half of that is to be honest with yourself and think about how much risk you can live with emotionally. Some people are natural adventurers, others prefer a cautious approach.
3. What are your long-term financial goals?
Some individuals are interested in capital preservation, others want maximum return in the shortest period. Each carries a level of risk, and also an implied time commitment. Each demands a particular level of investment of time and money. If you're looking for a ten percent profit on your investment in a matter of weeks, real estate isn't for you. If you're after high percentage gains, that's possible but risky and usually requires a year or more commitment. During that year, your investment is not liquid apart from the ability to borrow against it. Along with having your funds tied up for other potential uses, property values can change dramatically in a short time frame. The last few years have been steadily up in most areas, but with changes in interest rates, that can (and probably will) change.
4.What kind of person are you?
Real estate investment, unless you just enjoy losing money and enduring stress, requires a tolerance for risk, a commitment of time and effort, and an interest in details — especially legal details. Beyond all that, the more basic requirement is an interest and aptitude for learning. Market study, advertising, contracts, construction, property law, even a fair amount of psychology, all form a part of real estate investing. You don't have to become an expert in these, and other, areas before making a move. But if you don't enjoy learning about these and the host of other subjects that are part of the business — well, come on in because the sharks love fresh meat.
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If you still haven't been scared away — bravo! You stand to make a lot of money in one of the oldest businesses and biggest adventures still around in the modern world.
Posted by RealEstate at 05:29 PM | Comments (0)
June 10, 2006
Rental Property
Real Estate — Rental Property: Great Investment or Nightmare?
No one profits from their own ignorance. Thinking ahead is your best guarantee when considering whether to rent a property into the future or to sell for a fixed profit today. If you want to keep a property in the hope of taking advantage of tax breaks and capital appreciation, but hope to offset the expense, consider both those upsides and some potential downsides to renting.
Before you get to that stage, plan ahead.
Consider the tax consequences of keeping the property versus selling. Make a guess, based on studying the current market, interest rates, and past trends, about where prices are going. Once you've decided to rent, learn your legal rights and obligations.
All prospective tenants should fill out an application that supplies you with information allowing you to perform a thorough background check. Take that info and actually do one. Check credit history — noting especially any history of late payments. Verify employment and talk to previous landlords.
Write a fair contract that spells out as clearly as possible respective rights and responsibilities. Write it in plain language, so one has any valid claim to failure to understand a clause. Make sure it's fair to both parties. Spell out the amount of deposit required, how much notice is required for landlord inspections, who is responsible for what kinds of maintenance, and so forth.
Carry out your part of the bargain by adhering to the agreement, then go a step beyond what's required. Respond quickly to reasonable requests for repairs. Tenants have usually only one weapon short of legal action — failure to pay rent. Don't provide any justification for them taking that step. Both parties benefit by fair and responsible behavior.
Make sure you have adequate insurance for serious repairs (roof, carpets, air conditioning systems, etc), or can carry out these repairs yourself.
Keep accurate records of payment dates and amounts. When a payment is late, don't delay finding out the reason. An occasional delay of a few days is not generally a reason to get excited — everyone has unexpected expenses from time to time. But a tenant who is perpetually late is a cause for concern.
Call and discuss the issue calmly and professionally. Make clear that, in the contract, you're entitled to levy a late fee on late payments. Use that as a bargaining chip to encourage on-time payments. Make sure you know the law or have good legal advice available before it's required.
Check with the neighbors from time to time, without displaying hostile suspicion, and find out whether the tenant is acting like a good neighbor. They don't have to be a friend to all, but if they are making life miserable for those around — leaving trash around, damaging property, excessive noise, etc — the value of your property can be affected. Neighbors can provide uncomfortable information for future tenants and prospective buyers.
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If legal action is required, try to opt for arbitration. Issues get settled quicker, cheaper, and usually all parties are happier at the outcome. Do your homework and keep up the property before and during renting. That provides the best protection of your investment you can muster. That way whether renting becomes a nightmare or a beneficial investment strategy is up to you.
Posted by RealEstate at 05:23 PM | Comments (0)
Slow To Sell Real Estate
Real Estate — When It Doesn't Sell Fast Enough
In a market that has seen double-digit price increases for two years or more, selling a home was easy. Offer the property for sale at or slightly above market value and watch the bids roll in — sometimes within days.
Even in a tightening property market, a seller has options. If the property is also a primary residence and there's no pressing need to move, one can just sit tight and wait for the next upswing. You may have to wait one year or five, but come they always do.
Whether you're waiting three months or three years, there are several viable strategies for upping the odds of getting acceptable offers.
Almost any property can be improved, usually at modest cost — sometimes with sweat equity alone. Get out your tools, or find a low cost contractor and fix those broken roof tiles. Even if the damage doesn't affect the integrity of the roof, the improvement in appearance is worth it.
Replace those worn throw rugs near entrances to give the house a new look. Paint that room that's seen wear or too much smoke tarnishing. Get the carpet professionally cleaned and keep the inside and out looking immaculate. Buyers always pay more when a property owner shows they've maintained it well.
Other low cost, but profit enhancing, items include inexpensive lawn repairs and a few dozen garden plants and flowers. Remember, the outside of the property is always what visitors see first.
Once you've made everything look and function as well as possible within your modest budget, encourage the neighbors to do the same. Most properties are near others. The appearance of a neighborhood — children's toys in the front lawn, tired looking screens, shaggy hedges, etc — reflect on your property too. Whether future homeowner or investor looking to sell to one, others will be interested in the effects on the property you're offering.
Now that everything possible has been done to make the property and it's surroundings optimal, check to ensure the price is reasonable. Market prices change fast, but they also vary considerably within a local area. A 1,500 square foot one-story dwelling is generally going to go for less than a 2,000 square foot two-story.
Prices vary by total square footage of property, year built, and other factors. Look on-line for comparable properties to get an estimate, then speak to a professional to get "the comps" — the estimate by appraisers and others of the actual prices of comparable properties.
Does the property back up onto a noisy thoroughfare? Consider double-paned windows so visitors inside the house hear nothing but the soft music you play while they're looking.
Has the property been on the market for several months, but not sold? Take it off for awhile, then re-check the price before re-listing. Most people don't want something that others have rejected, even if they can't find anything specifically wrong.
Have you spread the word far and wide? Market heavily to the local area, but spread the word on-line and in other cities that you have an attractive and well-maintained property. People re-locate and it's still the case that advertising to outsiders is less effective than to those who can visit with a short drive or train ride. Use new technology to give you an edge.
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Be the one to make that extra effort and you'll get a fair price.
Posted by RealEstate at 05:18 PM | Comments (0)
June 09, 2006
Real Estate Negotiating
Real Estate — Negotiating, Tough But Fair
No doubt, negotiating an agreement you'll later be happy about is the toughest part of any investment. It's a rare investor who consistently says afterwards that they got everything they wanted at the price they wanted to pay. But like any skill, negotiating can be learned.
Of course, most sellers will not volunteer answers to these questions when asked point blank. One technique is to draw them out slowly, revealing personal information about one's own status.
Apart from knowing the seller's situation and the true condition of the house, which you will find out from a professional inspection, you need to know the surrounding market. How much are comparable properties selling for? 'Comps' are available on-line or from a broker.
Talk to the neighbors of those homes that sold recently. Find out if there were repairmen in-and-out prior to the sale. That will help you sharpen the comparison. When you're looking around, note the condition of other homes in the area and try to judge the trend. A neighborhood can deteriorate or improve; that affects future property prices.
Once you know the seller and the market, make sure you have all your other tools in place before even beginning the negotiation proper. Have financing already assured and in-place — don't just get pre-qualified, but pre-approved. Cash in hand is much more persuasive than promises.
When you make an offer, suggest a figure that is NOT a round figure, like $253,300. In large transactions individuals have a tendency to think in terms of percentages. The percentage difference between $253,300 and $253,000 is small — but $300 is still $300. It also puts a seller temporarily off guard. They'll wonder what you might know that they don't.
Make a fair offer, consistent with the middle range of the market. Too low an offer leaves you with an unmotivated seller, too high gives you nowhere to bargain. Make sure you have plenty of bargaining chips to start. In any deal everything is negotiable. The price is only one item.
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Negotiate percentage of closing costs covered, and which items — insurance, realtor fees, title costs, repair expenses, and so on. But be realistic. No one gets everything they ask for up front. Make sure you have adequate legal and accounting advice, if you don't have these skills yourself. Review any written offer with them. Be willing to walk away from any deal that doesn't meet your criteria and goals. Be willing to take your time finding the right property and negotiating the price and conditions you want.
Posted by RealEstate at 05:09 PM | Comments (0)
June 08, 2006
Your First Investment Property
Real Estate — Your First Time
Buying a property for the first time, whether as a home or purely an investment, is exciting and risky — and one because of the other. You read or hear about rapidly rising prices and think 'I gotta get me some of that!' Excellent idea — if you keep in mind, too, that there are risks. Here are some suggestions about how to keep the excitement, profit from the opportunity, and minimize the risks.
Familiarize yourself with the market you're interested in and find out what the average property is going for. It can vary considerably even within a single housing tract. That information is easily gained by talking with local Realtors or looking on the Internet.
Study a little bit about legal restrictions and requirements, about contracts, escrow, titles, insurance, closing procedure, and the roles different individuals play in the process. Each has a cost. Shop around.
Once you're ready to take the plunge the next step is to find a potentially profitable property. The Internet makes that a lot easier these days, but you need to drive around the area, too. Look for 'For Sale By Owner' signs and scour the local newspapers for 'For Rent', abandoned properties, etc. And talk with friends, family, and local Realtors.
Look at properties nearby. Are they maintained in a way that will not depress the selling value of your property? Even if you buy a 'fixer-upper', and turn it into a castle, it can be tough to sell profitably in a deteriorated neighborhood.
Once you've found that diamond in the rough, unless you've won the lottery or invested well in the stock market, you'll need to finance the purchase. Bzzz! Mistake number one. You should have your financing in place BEFORE you find a property.
Talk to mortgage lenders — banks, mortgage lending companies, Internet home loan businesses. Discuss how much you want to invest and answer their questions about income, etc. They'll examine your credit history, so make sure your report is clean of any outstanding negative marks.
Ask them about financing options. Today there are a dozen different ways to fund a real estate investment, with variations in rates, up front funds required, and tax consequences. You're about to put out a chunk of money, but also to take on a substantial liability. Be prepared.
Got that dream deal and ready to buy? Perfect. Negotiate the best price you can, without expecting to get something for nothing. The seller wants to get as much as possible, and you want to pay as little as possible.
Out of that tension can come two satisfied parties, or two individuals who both lost. Be firm, but prepare to compromise. You want the seller to repair that bad water heater prior to closing, the seller wants you to give them an extra two weeks before having to move. Give a little, get a little. The alternative is usually a lot of expensive and life-draining legal action. Strike a mutually beneficial arrangement and you'll save money and stress.
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Enjoy your first time. It's an adventure!
Posted by RealEstate at 12:03 PM | Comments (0)
June 07, 2006
Real Estate Risk Mangement
In the world of property investment, there are various points along the 'just looking' to 'ready to sell' spectrum. Protecting your investment takes on different hues at different points.
After investigating the current market — what's available at what price, and what's the current level of buyer interest — judging the likely future is required. Property values have been rising in most markets for several years. In a rising interest rate environment, that can't last forever. No one knows with certainty how long the trend will continue, but you can look at some signs.
Is the economy in general still on the upswing? Are employment prospects good for most individuals? What is the rate of new home construction, relative to the last five years? All these and more are good indicators of whether property values are more likely to continue to rise, level off, or even see a correction.
Once you've purchased a property there are several ways to minimize the risk of seeing your investment wind up 'under water'. At the moment of purchase, make every effort to invest in a large down payment. Seriously consider putting in at least 10%. You'll create instant equity and usually get a lower interest rate.
That level of initial outlay decreases your liquidity — you have less cash after the deal is closed — but there are few alternatives that have the return rate, low level of risk, and degree of capital appreciation of a real estate investment.
When looking at funding options, consider how long you intend to keep the property. ARMs (Adjustable Rate Mortgages) get you in with less cash and an attractively low relative rate. There are 1 year ARMs, 5 year, even 7 year — the number signifies how long the offered rate is good for, after which the lender adjusts it according to prevailing interest rates.
But if you intend to keep the property longer than the initial period, you can see that attractive rate climb several percentage points. Unless you sell, or have paid down the principle substantially within that time frame, you can see yourself saddled with much higher monthly payments.
At the same time the ARM rate is going sharply up, property values are under pressure to level off or even decrease — because of the rise in interest rates. Your investment gets hit twice. Of course, it's possible for rates to go down, but that's less common and refinance is usually toward a fixed rate, in those cases.
There are insurance options that can cover the increase in payment in such scenarios but if you pay more than a couple of years of premiums, they are usually not worth the extra outlay. Better to use the extra funds to pay down the principal by making more than twelve annual payments, or paying more per month than the minimum.
If you can't come up with a large initial down payment, weigh the value of continuing to rent versus any tax break you get from owning a property acquired with low or no down payment.
So, invest as much as you can up front, make at least one extra payment per year, lean toward fixed rate mortgages of the minimum length you can afford. A 15 year mortgage pays down the principle quicker, so you spend less on interest, increases your equity rapidly, and usually carries a lower rate.
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Take a long term view; real estate is still one of the least risky, highest paying investments around.
Posted by RealEstate at 11:59 AM | Comments (0)
June 06, 2006
Real Estate Investment Strategies
According to one study 23 percent of all homes sold in 2004 were purchased as investments. Considering the historical returns, and the high percentage increase in prices over the last few years, this shouldn't be surprising. But there are several ways to profit from an investment in property.
Remember that property values have risen in most markets for several years. But with interest rates increasing no one can predict how much higher they'll go nor for how much longer. No gain without risk!
Apart from gains from a tax write off and appreciation, some costs can be offset by renting the property. But, consider the amount of time and cash you have to find tenants, manage the property, and pay for or perform repairs.
Foreclosures are another investment avenue, but also not without risk and often requiring substantial cash outlay. A foreclosure occurs when a property owner is no longer able to make payments on a mortgage, usually over a period of several months. But seldom are foreclosed properties all gain and no pain.
Foreclosed properties tend to be in need of repair — someone about to lose their home isn't usually incented to maintain it in pristine condition. Be prepared to spend time and effort bringing the home back to salable condition, if you have the skills, or laying out cash, time, and effort to find a reliable contractor.
Similar considerations apply to investing in abandoned property, with some possible additional legal hoops to jump through. Foreclosed properties usually have clear title. The lender (a bank, mortgage company, or other financier) reclaims title as a part of the foreclosure process. In the case of abandoned properties, it may not be clear who has title. Factor in the additional time and cost for title searches and possible legal action.
For those who want to take advantage of profit opportunities in real estate, but without actually laying out cash, signing dozens of documents, or worrying about the physical property, there are purely paper investments. As a result of computerization and the explosive expansion of investment options in the 1980s, several types of 'monetization' of real estate came into existence.
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REITs (Real Estate Investment Trusts) are one type. There are others — mortgage backed securities, property bonds, trusts, mutual funds, and stocks oriented specifically toward real estate. Before investing in any of these 'non-property' options, talk to a broker.
Posted by RealEstate at 09:52 PM | Comments (0)
June 05, 2006
Real Estate Investing and Your Portfolio
Since the exponential expansion of products in the 1980s, investments now come in a bewildering variety. Sorting through the technical details and balancing the risks against potential gain of any given mix is a job for professionals. But short of gaining an advanced degree, the educated investor can still improve the odds by following some simple guidelines.
Direct commodity investing is usually safe only for the savvy investor who has time to closely monitor the market. Whether gold, oil, or other hard good, the commodities market forms the most volatile and risky ventures. Options, commodity oriented mutual funds and other indirect investments are less risky, but still far from wise for the average person.
For those who want to include 'paper' in a well-rounded investment scheme, real estate offers several opportunities. REITs (Real Estate Investment Trusts), options, property oriented mutual funds, and other mortgage backed securities are available in a dizzying array.
REITs are entities that invest in real estate related assets, such as shopping centers, office buildings, hotels, and mortgages secured by real estate. REITs fall into one of three categories. Equity REITs, which invest in or own real estate and make money for investors from the rents they collect. Mortgage REITs which lend money to owners and developers or invest in financial instruments secured by mortgages on real estate and Hybrid REITs which are a combination of the two. To qualify, a company has to pay 90% of its taxable income to shareholders every year and invest at least 75% of its assets in real estate and generate 75% or more of its gross income from investments in or mortgages on real property.
Options are an alternative form of offer. A potential buyer offers a sum, 'an option consideration', in order to effectively take a property off the market for a period of time. Option offers generally run anywhere from a few hundred to a few thousand dollars, but higher or lower amounts are possible. Some options bind one party only, some are called 'bilateral', requiring each to adhere to contractually specified conditions. Conditions involve contingencies around inspections, financing, and always have a time limit.
Every deal is a little different and, of course, if the option isn't exercised by the specified time limit, the optionee — the potential buyer — forfeits the money. Risky, but potentially rewarding, since you've effectively eliminated alternative bidders. One advantage to the optioner is the time to find a buyer for the property itself, then selling the option. This eliminates the need to pay for transactions costs, keeps debt low, etc. Do your homework, first.
To fill out the other part of your portfolio, nothing beats the 'real' in real estate. Historically, buying and selling real property, or even long-term owning, has proven one of the most profitable, least risky investments available. Observe carefully the words 'least risky'. That doesn't mean 'zero risk' — there's no such thing in investing. Prices can always go up or down, relative to other goods and investment channels.
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Be willing to get educated about the market and the law. Make purchases while minimizing costs like agent fees, repairs, interest rates, etc. Have sufficient cash and other liquid assets to be able to hold until the time to sell is right. Follow these guidelines and you'll never have any reason to regret making real estate investing a major portion of your portfolio.
Posted by RealEstate at 01:50 AM | Comments (0)
June 04, 2006
Real Estate Insurance and Risk Management
First, some statistics. In the summer of 2005, the median price of a home rose nearly 15 percent from the year earlier, in some markets, much more. Lenders lowered required credits scores (FICOs), waived some documentation requirements, and raised the debt allowance to 45 percent of income. Some reports estimate that interest-only loans now make up 30 percent of all new mortgages. Nearly 35 percent of mortgages are now ARMs (Adjustable Rate Mortgages). Since June 2004, the U.S. Federal reserve has raised rates 11 times.
The most common forms that benefit the investor/owner are title insurance and liability insurance.
Title insurance is designed to cover any lapses that may have occurred during the title search, prior to closing. Title companies search databases of public record and other sources to ensure a property is legally free of encumbrances. I.e. title can be legally passed to the new owner.
But like any human research effort, time and resources are limited and errors can be made. Public records databases are imperfect and title companies, though rarely, can fail to uncover a past tax lien or miss the fact that the adjoining strip of land is actually part of the adjacent property.
Title insurance covers any potential economic loss that results of these errors, up to a specified limit.
Liability insurance is intended to cover injuries to another party occurring on or as a result of using the property. When a salesperson or visitor steps onto the property and falls from a front deck because of a loose board, or any of a thousand other causes, liability insurance pays for medical bills, settlement of suits, etc. Again, up to a contractually specified limit and for a normal range of events. What constitutes 'normal' is what lawsuits are all about.
More extensive, and more expensive, forms of insurance are available for the dizzying variety of risks possible. Hazard insurance covers earthquake, tornado and hurricane, flooding, fire (natural), and dozens of other disasters outside human control. Damage from wind or freezing can be covered, too.
Alongside 'natural disaster' insurance are policies to cover man-made events: chemical spills, human caused fires, electrical failures, and on and on, endlessly. Insurance can cover damage or loss from vandalism or theft, faulty plumbing or wiring, even large appliance failure.
For landlords there are additional policies to cover the risk of rent interruption from non-payment, damage making the property unhabitable, or abandonment.
Naturally, all these insurance policies come with a price, which varies according to amount covered and deductible desired. They're also invariably accompanied by limitations that restrict payment — for zoning variances, environmental conditions, negligence, and a host of other circumstances. As with any investment, shop around — you're not required to use any particular company the agent or title company recommends.
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You are required, though, to get one form of insurance that doesn't benefit you at all. If you acquire a loan to finance a property purchase, the lender will require mortgage insurance — which pays the lender, not you, in the case of default or disaster.
Posted by RealEstate at 11:48 AM | Comments (0)
June 03, 2006
Real Estate Inspections
Real Estate Inspections Save You Money
Property, like any other good for sale, comes in all conditions. But the average home or real property costs 8-10 times or more the amount of other high ticket items. That's what makes it an investment rather than merely a purchase. Essential to ensuring it's a sound one is getting a thorough inspection. Write right into the deal that any offer is contingent on a satisfactory inspection. And what constitutes 'satisfactory'...?
Professional inspectors check every aspect of a property and structure.
Starting with the foundation, they look for large cracks (almost all have minor ones), check for level ground, and influx of water. Evidence can show up as efflorescence — a white powdery material which indicates penetration points, mold or mildew (black stained areas). Some will use lasers to check level and cracking and some even use meters to check for radon gas concentrations.
Houses sit on top of foundations and that flooring has to be inspected for proper joints, angles, and materials used. From those floors rise walls which are similarly subject to incorrect framing and potential water damage. Inside the walls, plumbing and electrical systems are inspected for damage, non-code compliant construction, or simple age or wear. Any leaks are noted and pipes inspected for rust, lead, or other chemical concerns. Flow rate and pressure are sometimes measured.
Electrical systems get a thorough review, checking for faulty wiring, uncovered switches or receptacles, incorrect grounding, inadequate circuit breakers, or bad GFCI trips. The latter are those little red buttons often seen in the middle of outlets. They are somewhat like miniature circuit breakers built into the receptacle itself.
Working up to the attic, framing is checked for angles and strength and the area checked for air or water leaks or damage. The underneath of the roof is examined for tears or holes in papering and proper seal where vent pipes protrude outside.
Up on the roof the inspector will check for holes, loose tile, bad flashing or any other weakness that leads to lack of protection against the elements.
Around the house outside all faucets are tested for leaks and proper flow, inside all heating and air conditioning systems will be checked for duct leaks, filter condition, and adequate capacity and flow. Thermostats get a thorough going over.
Any inbuilt appliances, such as stove and water heater are checked for compliance with standards. Installed propane or wood stoves and piping are checked for physical integrity and proper function.
Carpets are checked for inappropriate levels of wear or damage and tested for mold or water damage. Any paint damage, particularly due to water infiltration, get noted.
All these items, and many more, are noted on a report available to whomever ordered and paid for the inspection. To the potential buyer, defective items can be used as bargaining chips when negotiating price and other terms of sale. But the inspection can also benefit the seller by allowing for the opportunity to repair or improve items before putting the property on the market.
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To either party, an inspection for a few hundred dollars can save thousands during the process. Information isn't just power, it's money, too.
Posted by RealEstate at 11:46 AM | Comments (0)
June 02, 2006
Real Estate Foreclosures
Real Estate Foreclosures: Sugar or Arsenic?
To the novice real estate investor foreclosures often look irresistibly attractive. Who wouldn't want to make a quick profit of 50% or more? But whether a foreclosure deal is really sugar or merely sweet-tasting arsenic depends on a list of complex factors.
Also keep in mind that, in some foreclosure proceedings, borrowers have the 'right of redemption'. This allows them a certain period in which to 'cure the loan' — make back payments, shore up credit, etc — and reclaim title to and possession of the property. Stay clear.
Once the foreclosure process is complete, or at least inevitable, you can put in action a plan to acquire the property. Look for deals in which, at minimum, a Notice of Default has been issued.
Auctions on foreclosed property are common but tricky. Never bid blind on a property. There's no substitute for first hand knowledge of the physical condition and legal status of a property.
Keep in mind that foreclosures are sold 'as is'. Unlike other property sales, no warranties are provided and no title insurance granted.
At minimum, you'll need to have a professional inspection performed, even if you are a knowledgeable investor. Some investors are, of course, professional inspectors themselves — along with wearing many other hats. The property needn't be free of every tiny defect, but you'll want to know that the roof doesn't need to be replaced, that the plumbing is sound, there are no serious foundation cracks, or potential for flooding, etc. If any of those are present, they can be acceptable if you're looking for a 'fixer-upper' and have the time and funds. Discount your offer accordingly.
Eventually you'll hear about someone entering a 'short sale' deal. This occurs when a lender is willing to accept less money for a property than is outstanding on the loan.
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Another type of foreclosure opportunity is the REO — real estate owned (by the lender). These are properties auctioned but not bought. It's possible to get some very good deals, but exercise extreme caution. Remember to do your research. Get a thorough inspection and perform adequate title research. Any major defects or encumbrances in the form of tax or other liens has to factor large in your plans. Remember, arsenic just tastes like sugar, it's still poison. Learn to tell the difference.
Posted by RealEstate at 01:42 AM | Comments (0)
June 01, 2006
Real Estate — Finding and Evaluating Property
Today, investing in Real Estate is easier and more profitable than ever. But even in a healthy market, with new tools to find and evaluate potentially profitable properties, you can lose a lot of money in a short time. To maximize the odds of winning, consider these tips...
Visit Realtor or estate agent businesses. If you can afford it, you can obtain an MLS, a multiple listing service, and get the same information they get. In some locations, a license is required, even if you have the cash.
Even if you use the web to find a great value, be prepared to do some 'leg work'. The only way to judge properly is to visit the property and the surrounding area. Is the neighborhood maintained in a way that won't depress the selling price? While you're driving around, look for FSBO signs, For Rent signs, and talk to some of the neighbors.
The person next door, might know something about that yard that turns into a swamp after a few days of rain. Be prepared to make more than one visit, in different kinds of weather and at different times of day, if possible. Property, land and houses, look and act different in the cool of the night than they do in the heat of the day.
And the best way to check for a leaky roof is to go when it's raining — exactly the weather you don't enjoy evaluating property in. Neither will your competitor for that property. Going that one step further puts you ahead in the race. Information is power.
After the informal inspection, you can strike a contingent deal. 'Contingent', here, means dependent on a satisfactory professional inspection. Find someone experienced and reliable, even if you have to pay a little more. The price will be repaid many times over, especially if you use them regularly in the future.
Learn the craft yourself if you have time and interest, but at minimum learn at least enough to keep the inspector honest. Most are, anyway.
Review the report carefully. It's not required that everything is 100%, but every major and minor flaw should be recorded. Leaky plumbing or roofs, stained carpets, damaged walls or floors, inoperative air conditioning or heating systems, etc. Look especially for any standing water in basements, near foundations, etc.
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Everything is negotiable, so there's no rule about who pays for repairs, if anybody. But information is power. Still, be realistic. Very few properties, even newly constructed ones, are perfect. If they are they're expensive enough to eliminate your profit, unless you plan to keep the investment for an extended period.
Happy hunting!
Posted by RealEstate at 11:31 AM | Comments (0)