Hidden Rehab Fees You Need To Look Out For

Numbers should drive everything you do in real estate. If the numbers don’t work, as difficult as it may be, you need to walk away. There are plenty of numbers that alone won’t move the needle too much but added up can have a significant impact. These seemingly hidden figures are especially prevalent in the world of fix and flip real estate. Most investors only look at the pot of gold at the end of the rainbow and fail to dive in the numbers on how to get there. As obvious as it sounds the goal isn’t to simply close a transaction. The goal is to maximize profit and only pursue deals with acceptable upside. If you are sloppy with your numbers and fail to notice the hidden costs you will be left disappointed with the results. Here are five hidden rehab costs you need to look out for.

  • Wholesale fee. There are many ways of finding good fix and flip deals. Two of the most common are through local wholesalers and through real estate agents. A strong relationship with a wholesaler is essential for finding good deals. They will do the legwork of working with sellers and negotiating the best possible price. They then pass that deal along to an end investor and expect a fee for their services. This fee varies on the relationship with the investor, the potential profit of the deal and how far along they are in the process. Some wholesalers work for a flat fee on every deal, while others try to get a percentage of the bottom line. Regardless of the fee structure you can expect to pay some kind of fee, generally anywhere between $1000-$5000.
  • Commission. Working with investor buyers is not easy on the real estate side. Most investors look at dozens of properties without making an offer and if they do submit an offer it is generally well below the asking price. To say that real estate agents earn their money is a gross understatement. When listing agents get quality deals they are generally from lenders in their real estate owned (REO) portfolio. Because there is a process for how properties must be sold they have to charge a set commission, regardless of the relationship. This means you can easily pay a point or two, possibly even three percent to the listing agent. This must be looked at as the cost of doing business but still must be calculated when evaluating the property.
  • Inspection/appraisal. Unless you plan on knocking the property down and starting from scratch you need to order an inspection on the property. Where some investors get in trouble is thinking that they know everything about the house and nothing could possibly elude their experienced eye. All it takes is one oversight on a given deal to cause a world of trouble. It is a good idea to spend the money for an inspection on every deal. The inspection cost varies on the size, style and square footage of the house but is typically only a few hundred dollars. This may seem like a waste of money if the deal falls through but will actually be the best money spent in the process. Most investors don’t see the value of ordering an appraisal but there will be times when a hard money lender requires it. A single-family appraisal can cost $400 with a two family just under $600. Between the inspection and the appraisal, you are easily looking at close to $1000.
  • Title/attorney. A title search should be performed on every deal you are a part of. Without clean title you can waste months on a transaction only to have it fall through. Pulling title is a legitimate fee that must be endured by the attorney. If you have a good relationship they can give you a discount, but some fee must be passed along to you. This fee may only be a few hundred dollars but if you plan on making offers on five properties your title search fee can easily hit $1000. You also need to consider the attorney closing fee if you are using traditional financing. Between the search, title insurance and miscellaneous fees the total attorney fees will be anywhere from $1500-2,000.
  • Carrying costs. It is not just a cliché to say that time is money in the world of fix and flip real estate. Every day you hold the property literally costs you money. For starters, you are paying daily interest on your financing until you pay back the note. On a high interest hard money loan this can add up at the end of the month. You also need to account for prorated property taxes and insurance payments. You also have utility payments that need to be made for the water & electricity. As with most of these costs alone they won’t be too overwhelming but when they are added up they can make a difference.

There are dozens of minor fees and costs in every fix and flip deal. Without knowing and understanding every one of them you can be left frustrated and disappointed when it is time to close. The hidden fees can make or break any deal.

Looking To Get Started In Real Estate? Start By Answering These Five Essential Questions

Anyone can invest in real estate. You don’t need a degree or an expensive license to make an offer. Someone with twenty years’ experience has the same opportunity as a new investor looking for their first deal. Many of the real estate investors you see on TV struggled for years before finding their grove. The reality is that every experienced investor has been in the exact same shoes as you, looking for the right path to follow. As much as you may want to dive right into the business you should take a step back and figure out how to best go about it. The decisions you make in your first 90 days will influence the trajectory you take for months to come. If you are looking to get started, or simply want to change your business, here are five essential questions you need to answer.

  • Will I invest full time or part time? How much time you can dedicate to the business will influence almost everything you do. There is a huge difference between an investor looking to supplement their income and one only looking for a deal a year. If you have a job that doesn’t give you a lot of flexibility during the day you may be hamstrung in how you invest. Conversely if you have a job where you can talk, email or text freely you may be able to stay employed while still building a portfolio. The first thing you need to figure out as you start your real estate journey is how much time will you be able to dedicate to the business. Everything else you do will be impacted b this decision.
  • Where do you see yourself 1, 3, & 5 years from now? One of the most common job interview questions is always where you see yourself at some point in the future. As you start your investing career you should ask yourself the same question. What is it that you want from the business? Do you want to have multiple rental properties in your portfolio a year from now? Do you want to have a bulk of your income tied to your rentals five years down the road? Do you simply want to rehab one property the next twelve months? Whatever your goals are for the future you need to acknowledge them. These goals will help you make decisions and will drive you when you are in a rut. They will steer you to certain markets and give you pause to avoid others. Your goals can change over time but when you are starting out you need to clearly define what, when and how you want your business to go.
  • Do you have financing in place? Any grand vision you have for your real estate career is directly tied to your financing. Without financing even the best plans won’t get too far off the ground. In a perfect world you will have excess capital to fund your own deals. A more realistic scenario is that you will need to find lender financing for your rentals and hard money for your flips. Fortunately, both options have become more readily available in recent years. With lender financing you will need to come up with anywhere from 20-25% down payment. With hard money it should not be too difficult finding multiple sources in your market. Hard money has become much more popular since the recession. With lending guidelines ever-changing hard money is often the easiest and more common form of financing. Instead of relying on lender approval you can get a decision on your offers much quicker. This allows you to close more deals and dramatically improve your bottom line. If you don’t have financing options in place your business will not get too far.
  • Do you want, or need, a partner? Do you have an idea of how you want to conduct your business? Once you know how much time you can commit and what kind of deals you will pursue you can them piece together and who you may need around you. If you have money but don’t have the time to work any projects you may need a partner to help fill in the gaps. If you have managerial expertise and can manage your rehabs you may just need a financial partner to help get off the ground. However you plan on doing business you should evaluate how much a partner will help grow your business. If you feel the impact would be minimal you can try to go it alone. If you feel that a partner is the only thing holding you back, you should start searching for the perfect partner for you and your goals.
  • Are you willing to sacrifice? The real estate business isn’t easy. Even though there is opportunity abound you need to work for it. If you think that deals are going to just fall on your lap you are mistaken. Making money in real estate requires you to stay on top of several different areas all at once. You will need to sacrifice some time on the weekends, watching your favorite show in the evening or giving up some sleep in the morning. In the big picture it will all be worth it, but you need to have this mindset before you get started.

These five questions will give you a jumpstart in your business. Take your time answering them and more important, act on them when you are finished.

What Is Your Investing Niche?

Regardless if you close a deal a month or a handful a year it is important to have a specific investing niche. Many investors think that being a jack of all trades and investing in numerous different areas of the business is a hidden key to a strong portfolio. While this is true over time you need to plant your flag somewhere and find something that works. Without a bread and butter niche to rely on you will simply bounce around from deal to deal without any real direction. You may close a few random deals, but you won’t be able to build a sustainable business.

Your investing niche could be developing raw land or focusing solely on tax lien auctions. It can be developing large apartment buildings or sticking to single family rentals. It is not cliché to say that there is truly a niche for every type of investor. As long as you are passionate about it and are willing to become an expert you can be successful in whatever niche you follow. Here are some examples of potential investing niches.

  • Single family rehabs. If you are a real estate investor in 2018 there is a good chance you dabble in rehabs and flips. Without question this is currently the most popular form of investing today. As popular as it may be, it doesn’t mean it is for every investor. Not only do you need to find discounted properties, but you need to do the right work, follow a tight schedule and a strict budget. There is plenty of upside in house flipping but only if you know what you are doing. With the recent influx of competition, it is important to have a backup niche if your market has become oversaturated.
  • Multifamily rentals. There is an almost natural progression for rental property owners. Most start out self-managing their single-family property and over time explore the option of adding additional units. In most cases owning a three or four family property delivers a greater return on investment in relation to a single family, yet this niche remains largely untapped. Many owners are apprehensive about managing the additional units. Additional units don’t mean additional headaches. In fact, the extra units provide a layer of protection with more rents coming in. With additional rents it makes it easier to justify hiring a dedicated property manager, making your life even easier.
  • Tax lien auctions. The key to being a successful real estate investor is finding deals with reduced competition. This isn’t to say that tax liens are an untapped niche, but they can provide a unique opportunity. A tax lien auction is similar to a property auction in some respects but also has several unique qualities. For instance, the winner of a tax lien auction receives the tax lien, not necessarily the property. This may eventually lead to the property, but worse case is a guaranteed return. Popularity in tax liens has slowly started to spread but is still a niche with reduced competition.
  • Mobile homes. When most investors consider mobile home investing they think of large vehicles that can be taken on the road. In reality, investing in a mobile, or modular home, is very much like investing in a condominium. A mobile home community features some of the same perks and amenities as the average condo complex. The biggest difference is the size of the units. The reduced size also comes with a reduced price tag which can make it an ideal niche for someone looking to invest their own funds on a budget. The percentage gains for some mobile home flips rival that of single family homes in the market, but with much less competition.
  • Commercial buildings. A commercial building is any property with five or more units, including mixed use and retail. It can mean a pizza shop with an in-law apartment upstairs or a twenty-five-unit retail space. Commercial purchases are typically intimidating, but in many respects are the same as any other purchase. The biggest difference with commercial buildings is that they are based more rents received and formulas rather than value. All it takes is one prime commercial building to set your portfolio up for years to come.
  • Land. If you are looking for a blank canvas to build, raw land is what you are after. There are some definite hurdles and drawbacks investing in land, but the returns are generally worth the headache. Raw land alone is not where the value is, but rather what you do with the land. Building any type of structure takes time, money and resources but in the right location can be a legitimate home run.

By associating yourself with a niche not only will you know what to look for, but you will find yourself with more opportunities. People in your market will know that you are an expert and associate you with the niche. If there is a deal in the niche they may give you the first crack at it. Additionally, you will know which deals are an automatic pass and which to pursue, saving yourself hours of time and effort. If you are interested in a niche you should give yourself every opportunity to pursue it. Not only will you enjoy the business more, but you will see the impact on your bottom line.

How To Help Determine A Property’s Value

In real estate numbers are everything. You can personally love a property but if the numbers don’t work you need to walk away. When you come across a new property how quickly you can process all of the data and assign a value is critical. Although value is always at least partially subjective there are a few key indicators you should use as a guide. Only when you put everything together and come up with an estimated value should you move forward with an offer. Even though there is a lot to digest when determining property value it is an essential part of the investing business. Here are five items to help you determine property value.

Seller Motivation. There is plenty of friendly debate in the real estate world as to exactly where you make your money. One camp insists you make it when you sell and the other based on the price point you buy. What can’t be argued is that the best deals are usually acquired from motivated sellers. In any transaction value is simply the number someone will pay for an item. This is often influenced by the motivation of the seller. If they have ample capital and can wait the market out they will not be inclined accepting the first offer that comes their way. On the flip side if they are delinquent on their mortgage or in the midst of a divorce they are more likely to want to sell quickly and without hassle. Knowing the motivation of a seller will help define your value and give you an inside track on the deal.

Comparable Sales. Regardless of the item it is human nature to rely on previous sales to determine value. This is the case whether we are talking about baseball cards, comic books or real estate. All buyers look at previous transactions as a starting point for future offers. They pit the past sales price against their notion of value and either defend or support it. In real estate the more local sales data you have the better idea of what kind of value you may be dealing with. It is important to remember to always compare apples to apples. A sale five miles away may not be a true indicator of what you may be able to sell your property for. The closer the sale is and the more similar in size, room count and style the more reliable the comparable sale is. Where many investors go wrong in estimating value is assigning too high a number for improvements. Upgrades are always nice but if they exceed what has sold in the market it may not make too much of a difference.

Property Info. Everything starts with the property itself. It is important never to trust data you get from outside sources. You can get a good idea of what a property is about by what you find online but you still need to do your own homework. Walk the property and gather as much information as you can on the square footage, room count, layout and any other amenities you see. Always look for places where you can add value. Does the property have the potential for an extra bathroom or bedroom without breaking the budget? Can you knock down a wall and open up the kitchen or living room? These changes take some experience but always look at the “bones” of a property instead of what you see on the surface. You also need to factor in the strength of the local market. A solid property in the right market can do more to improve property value than almost anything else you can do. You can have the best property in the world but if it is in a poor area you won’t have the value you are looking for.

Exit Strategy. If you show a property to two different investors they could have two completely different opinions on the value. With real estate investing value is not necessarily the price you can buy a property for but what you can do with it. When determining your value it is important to always consider the exit strategy. Generally speaking the more options you have the more valuable the property will be. If the exit strategies are limited you may want to reduce your offer price and lower your value estimation. As is the case with every aspect of real estate you always want to take a conservation approach with your numbers. You may think your after repair value will be one number but what do you need to make that happen. If you need multiple things to break right the value may not be as strong as you think. Exit strategy and value often go hand in hand.

Carrying Costs. A final step in estimating value is understanding what it costs to realize your end value. If you plan on rehabbing the property you need to know all of the carrying costs and any variables associated. You can have a great property but if the oil tank needs to be removed this has to be factored into your value. Getting a 50% discount on a property may sound like a deal but what are the costs in getting the property the way you want? If the costs are too high you can end up disappointed in the bottom line regardless of your purchase price.
Only when you know and understand everything about the property, deal and market can you begin to form a value. Mastering these five items will give you a good head start valuing your next property.

5 Tasks To Complete At The End Of Every Lease Calgary

No landlord likes dealing with tenant turnover however, it is a critical part of the job. How you deliver the rental to your tenant often sets the tone for the rest of the lease. If the property is sloppy, or even dirty, your tenants will feel that since you don’t take care of it they don’t need to either. They will be resentful from the first month which leads to property neglect, late payments and increased wear and tear. On the flip side if the property dazzles they will want to maintain it as long as possible. They will go the extra mile to make sure they take care of everything and will call you at the first sign of trouble. They may also be inclined to renew their lease or recommend someone simply based on the first impression. Dealing with tenant turnover isn’t easy but here are five items you must do prior to any new tenant moving in.

  • Professional Clean. There is a big difference in a few hours of cleaning and having the property professionally cleaned. Even if you are armed with a bucketful of cleaning supplies and hours of time you may not get the property as clean as it should be. Of all the items to spend money on at the end of the lease cleaning should be the most important. It is not enough to simply wipe the kitchen sink and be done with it. You need to clean the refrigerator, bleach the tub, dust the curtains and steam the carpet. These are items that a professional house cleaner notices. A tenant wants to open the door to their rental and immediately feel like home. If the property is clean and smells nice they will have this feeling and want to stay there as long as possible. Spending a few hundred dollars to have the property professional cleaned is worth every penny.
  • Paint. There are many landlords who think the walls are “good enough” for a rental property. Even if they are in average condition you should consider hitting them with a fresh coat of paint. Your tenants are not going to treat the property the same way you would. They are going to put their dirty hands on the walls and if they have kids you can bet there will be something written in crayon somewhere. Painting the walls is not a massive expense. Since most landlords prefer to keep the walls a neutral color you are simply painting over the existing color which means you don’t have to prime and can probably get away with just one coat. Dirty walls stand out in an otherwise clean rental. You can do everything else right but if the walls are a mess this is what your tenants will notice.
  • Declutter. You should not treat your rental property like your own personal storage bin. When you deliver a rental to a new tenant it should be cleaned from top to bottom. Many landlords will clean the interior but forget about the basement, garage and attic. While these are not obvious items they still need to be addressed. Start by removing any large sized items that you have been moving around the house for years. The basement may seem like a good place for storage but you are decreasing the value of your rental. If you have advertised use of the basement or garage you need to follow through on it. Depending on the items you can possibly get away with renting a pickup truck and taking a trip to the local dumpster. If they are too big you may need a small dumpster to get rid of items accumulated over the years. This usually doesn’t take more than a few hours and maybe the help of a few friends. The end of a lease is a good time to declutter and give your rental a fresh look.
  • Exterior Clean Up. As important as cleaning the interior is you can’t ignore the outside. The exterior is the true first impression your tenants have of the property. If there is garbage or old toys near the garage they will be less than enthusiastic with the property. The same is the case if the bushes are overgrown or the grass needs to be cut. You should take a walk around the yard and see if there is any debris by the back-yard fence or approaching the front door. Putting down a fresh layer of mulch or placing some plants on the front steps certainly won’t break the budget but should be considered before your new tenants arrive.
  • Utility Changeover. The final item you should do is have your new tenants change over any utilities in their name. It is not uncommon to wait weeks before a cable company can schedule a new service appointment. Your tenant will appreciate if you give them enough notice so the cable can be in as soon as their lease starts. The same is the case with the electricity. Even if this is simply a phone call it should be done at least a few days before the start date so there are no issues.

The little things you do as a landlord often have the greatest impact. Focus on these five items before the start of ever new lease.

How to Stop Foreclosure

Today’s housing market can be difficult for homeowners in danger of defaulting on mortgages. The foreclosure process can be incredibly quick. In some states, if you miss just one payment without taking action, you may find yourself homeless in less than a month. If you’re concerned that you may default on your mortgage, never fear: there are ways you can stop foreclosure. Although it can be challenging, you do have several options to keep your home from being foreclosed on.

Some possibilities for avoiding the threat of foreclosure include:

  • Get a housing counselor. Loan counselors are professionals who will work with you to find options to stop foreclosure. Because they are familiar with the industry, they’ll be able to point you towards the right solution for you.
  • Forbearance. Lenders may sometimes agree to give you time before taking legal action against you. This gives you time to figure out how to repay your mortgage.
  • Refinance. You may be able to reamoritize your loan by adding your back payments to your loan balance. However, you’ll need to be back in a stable financial position, since this will probably increase your monthly payments.
  • Note modification. You may be able to work with your lender to get a more favorable interest rate or more time to pay back your loan in the long run.

No matter which option you choose, make sure it works for you financially. Almost a third of all foreclosure modifications offered by lenders can actually increase monthly payments.

If you’re already facing foreclosure and none of the above options work for you, you still have a chance. Consider the following options to stop foreclosure:

  • Selling your home. To avoid a foreclosure, one option is to sell your home. Work with a good real estate agent to ensure that you’ll get the best value for your property. Make sure your real estate agent can work with you very quickly to sell your home so that you can sell it before it’s foreclosed on.
  • Short sale. If your home is worth less than you owe, you may be able to consider a short sale. However, you’ll have to work with your lender to make sure they’re amenable to the sale.
  • Deed the home back to the lender. Although this affects your credit the same as a foreclosure, it prevents the negative consequences. In this scenario, you would deed your home to the lender, and in return, they forgive the mortgage.

Defaulting on a mortgage is a scary prospect. Luckily, you still have a chance to stop foreclosure. No matter what your situation, make sure you contact your lender if you believe you’re going to have an issue making payments. If you wait too long, it may be too late.

6 Tips To Help Improve Business Negotiation

Negotiation is an essential part in almost everything you do. Without even realizing it you negotiate with your spouse, kids, business partner, contractor and attorney on a daily basis. Some negotiations are worth thousands of dollars and others are strictly for principal. It is human nature to try to win every negotiation we are part of regardless of what is at stake. The best negotiators know that it is not how fast your talk or the cadence of your voice that has an impact on the result. Some of the best negotiators would be considered average speakers. There are several things that seasoned negotiators do that separate them from the pack and give them the results they desire. They do so without raising their voice or speaking 1000 mph. Here are six tips that will help anyone improve their business negotiation.

  • Discover motivation. In every negotiation there is something that both sides want for their desired outcome. With that there is usually a motivation behind their desires. A bank often tries to get the highest sales price or the quickest transaction. A distressed homeowner may need to sell to avoid foreclosure or because they are dealing with a divorce. An attorney may be trying to squeeze extra money from you at the closing. Whatever the case is it is important to discover the motivation of the other party. The motivation will drive their actions, requests and scenarios. It will push them closer to an agreement or drive them farther away. You can usually find their motivation but doing a little bit of research or simply asking the right questions. Before you get too deep in your negotiation you should always try to discover their motivation.
  • Have a walk away number. As you enter in a negation it is important that you know where to draw the line. Many investors that go to live auctions get caught up in the process and before they know it they are in a bidding war thousands of dollars above their desired price. They didn’t have a walk away number in mind before they got started. Regardless of what your number is or what you are negotiating for you need to know when you will walk away. This isn’t being stubborn or unreasonable but rather measured and responsible. If things get too heated or the ends don’t justify the means it is ok to walk away.
  • Never make idle threats. Having a walk away number and making threats often go hand in hand. Everything that you say in a negotiation can be used against you. If you say that you are wholeheartedly opposed to something and later you are open to it nothing else you say in the negotiation will be taken seriously. When you say that you will not go a penny higher or this is your absolute bottom line you had better mean it. Any blanket statements like these should be at the end of the negotiation and only when you feel things aren’t getting anywhere.
  • Give to get. The best negotiations are the ones where both parties feel like they have won. Even if you have the upper hand you never want to completely steamroll the other side. If they feel they are being taken advantage of they will most likely try to find an alternative. One of the best ways to wrap up a negotiation is by offering up a small concession. Not only is this seen as a sign of flexibility but it gives the other party something of value. They may want you to pay for the closing costs but rather you counter that you would pay for some of them. They may want you to go to their number but instead you increase your offer slightly. By being flexible and open minded you can get more negotiations to the finish line.
  • Focus on positives. There are two sides to every negotiation. Most people focus on what they are giving up rather than what they are receiving. Your goal should be to constantly focus on the positives of what you are offering. If you are looking to buy a property at a discount you need to focus on your ability to close quickly given all the issues with the property. Constantly point out any work that needs to be done, the cost of repairs and the limited pool of potential buyers. The better you are at pointing out and explaining the negatives the more likely they will give in and agree to your proposition.
  • Don’t take anything personally. There is plenty that is said and done during negotiation. It is important that you understand that this is just part of the deal and you should never take anything too personally. If someone makes you a lowball offer you should not be insulted by it and cut off communication. On the flip side you also need to recognize what may be insulting to the other party. Not everybody may have thick skin. By nickel and diming the other side you can lose their trust and make the negotiation more difficult.

Negotiation is a cat and mouse game where the more controlled person usually wins. If you are negotiating with someone you frequently work with such as a contractor, attorney or real estate agent you should try to be as fair as possible. Winning the negotiation can cause you to lose a valuable partner.

5 Actions To Take When You Apply For A Traditional Mortgage Loan in Calgary

There are many real estate investors who are utilizing traditional lender programs. With interest rates continuing to slide this has become an increasingly viable option.  As popular as lender programs are not every borrower can get approved.  There are still strict guidelines in place and a mountain of documentation that has to be provided.  With a strong credit score, significant down payment and low debt to income the process can seem as easy as it has ever been.  However, if there is even the slightest blemish you need to have everything in place well before you consider making an offer.  The more organized you are with your loan items the easier the process becomes.  If you are considering applying for a traditional mortgage here are five actions you need to take.

  • Review Your Credit Report. Regardless of what type of loan program you are considering everything revolves around your credit report. If you are considering bank financing the very first thing you should do is obtain a copy of your credit report. For starters this will give you an idea of your score but it will also provide you with all of the liabilities and negative items. If you haven’t looked at your credit report in some time there may be old accounts on there that catch you off guard. One erroneous account or old collection can single handedly pull your score down. The quicker you can get a jump on removing them the quicker your scores will improve. Starting this process after your offer is accepted may not give you enough time. The difference between a 690 score and a 722 can not only impact your interest rate but your approval as well.
  • Deposit Funds ASAP. Loan guidelines for investment loans are different than traditional single family purchases. In addition to stronger credit score requirements investment loans require down payment funds to be seasoned for at least sixty days. Simply put this means the money needs to be in a dedicated account for two months.   If you plan on pulling money from a stock account or anything else you need to do so as soon as possible. Lenders have strict guidelines regarding how long the funds must be in the account for. It is not enough to have them available. If they are not in the account for a full 60 days you will not be able to move forward with the application. In addition to the down payment amount the lender may ask for a few additional months of the mortgage payment for reserve funds. The bottom line is that if you are considering using a bank you need to put all of the funds in one account before you start your search.
  • Pay Down Debt. If your score is dangerously close to the acceptable level you need to focus on how you can give your credit a quick boost. If there are old items on your credit report you can get them removed and have your score updated in as little as 30 days. However, this only works for legitimate accounts. The only other way to quickly improve your score is by paying down your debt. The amount of available balance is second only to payment history when it comes to calculating your credit score. The lower your balance is in relation to your maximum balance the higher your score will go. First look at situations where a balance transfer makes the most sense. From there you should consider pulling funds from your bank account to pay down accounts you are maxed out or near maxed out on. The sooner you can lower your debt the sooner you will see the impact on your credit score.
  • Review Bank Statements. With every loan submission you are required to supply at least two months of bank statements. In addition to verifying the deposit amount you will also need to document any large deposits and withdrawals. A large majority of real estate investors are self-employed and deal largely in cash. This can create a problem when it comes to verifying items on the bank statements. Start by looking for any item over $500. Determine where the funds came from, or went, and write down an explanation. If your offer is accepted you will need to write a letter of explanation for each item and possibly supply cancelled checks. It is a good idea to have your lender review your statements and tell you exactly what you will need to provide.
  • Shop Around. Long gone are many of the loan programs from last decade. Almost all local banks have the same set of investor programs. There may be some slight change in the interest rate but the programs are basically the same. If you are looking for an investment loan your best bet is to shop around and find as many different options as possible. The best way to do this is through a local mortgage broker. Most brokers have access to dozens of banks with several different programs. All it takes is one to be a good fit for you and what you are looking to do. Before you commit to anyone you should talk to at least three different companies. Instead of having them pull your credit you should come armed with your credit score and bank statements. Ask about specific programs and guidelines and find the person or company you are most comfortable with.

There are many advantages of using lender financing. The key is to find the right program for your credit profile.  After your offer is accepted is typically too late to change gears.  Get everything in line before you start your property search.

5 Tips To Help You Deal With Business Debt

There is nothing that can bring your business down quicker than excessive debt. You may be able to manage it for a while but the slightest reduction of income will cause the air to come out of the balloon.  If you are like most business owners, and Americans in general, you deal with debt.  If used properly debt can be a vehicle that helps your business grow.  Unfortunately most investors use it on items that do nothing but increase liabilities.  Managing debt requires education and discipline that can be difficult to obtain.  It is easy to real estate investors fall into the debt trap.  Here are a few tips to help avoid and deal with business debts.

  • Understand Debt. The most basic step in dealing with debt is to try to understand it. In the simplest form you are paying interest for the access to quick capital. The most common form of debt comes from credit cards. You can also accumulate debt through home loans, auto payments and personal loans. It is important read the fine print every time you fill out an application. You need to know everything about the terms you are getting into. Not only do you need to know the interest rates and fees but any potential changes that will affect your monthly payment. It is also a good idea to take note of what happens if you miss a payment. Most credit card rates will escalate after the first missed payment. Even though personal finance can be a difficult topic to learn you need to have a basic level of knowledge.
  • Good vs. Bad Debt. One of the biggest misconceptions in business is that all debt is bad. There are many successful investors who utilize leverage to grow their business. There is a big difference in good verses bad debt. Good debt is anything that is used to add value. This could be using credit to fund a direct mailing campaign. Your debt is used with the hope that it can produce additional revenue. An example of bad debt could be using credit to furnish a rental property or pay for unexpected repairs. You continue to pay for these items months after the fact. With them at least you keep your rental property afloat. It is when you truly abuse debt that you run into trouble. Using credit for personal items like weekend trips, meals and lavish expenses will leave your business on a treadmill. You will end up working twice as hard just to remain in the same spot. The money you bring in is quickly going out the door to manage your debt. Not only is this frustrating but it causes you to cut corners in other areas just to see a small profit. Once you get caught in this bad debt cycle it is difficult to pull yourself out.
  • Budget/Schedule. If you truly want to pull yourself out of debt you need to do something about it. You need to acknowledge the hole you are in and tackle it head on. Start by making a list of all your monthly liabilities. Write down your current monthly payment, balance owed and payment due dates. This may seem very overwhelming but you have to start somewhere. From there make a schedule of when you are going to make the payments. Hold yourself accountable to these dates. There are going to be some months where there is not a lot of excess cash flow. You need to grit your teeth and make sacrifices during this time. Surprisingly enough one of the reasons that people spend is because they don’t have enough money. Credit allows them to spend without having the money available in the bank. Instead of making the problem worse on months when cash is tight fight the urge to spend. The more detailed you in with what you owe and how you will repay it the easier it will be to deal with.
  • Monitor. It is important to monitor where your debt has been used best. Like anything else you do in business you want the greatest return on your investment. When you use credit you are really making an investment. Most people that get into debt trouble will start off strong then quickly fade after just a few months. You need to constantly look at every statement you receive and offer you get in the mail. There are instances when transferring balances from one account to another could save you hundreds of dollars every month. You may also find a monthly fee that catches your eye that could be eliminated elsewhere. Listing all your debt is a good start but you need to stay on top of it every month.
  • Long Term Plan. With any plan it always helps to have a vision of your end goal. Take the time and go through all of your accounts. Write down your plan for how you are going to pay them off. This could be making an extra payment with cash flow received from a rental property or paying it off completely after you close your next big deal. Along the way remember to reward yourself with every three consecutive payments. Give yourself a small indulgence that you may have wanted for a while. Don’t pile on new debt but do something as a reward. If you do this every three months you will be motivated to stick with your plan.

As a real estate investor you can quickly pull yourself out of any financial hole you may be in. There is no cap on your income and no ceiling for what you can earn.  Dealing with debt is often very frustrating but can be conquered with a plan and the discipline to stick to  it.

5 Business Crushing Mistakes You Need To Avoid

There is a certain euphoric bliss when entering any new endeavor. You are so excited that you finally took a leap of faith that you fail to see the bigger issues ahead of you. Being a self employed real estate investor is one of the greatest professions in the world, but it doesn’t guarantee success. There are many minefields that you need to avoid. Just when you think you have everything figured out something new will come out of nowhere.

As an investor you are the CEO & President of your real estate business. You steer the ship of which direction you want your business to go. One poor decision can set you and your business back months and make it difficult to recover. You don’t need to labor over every single decision you make but you should know that everything you do has consequences. Here are five business crushing mistakes you need to avoid.

  • Thinking you climbed the mountain. There is a saying in sports that becoming successful is the easy part, maintaining it is difficult. As hard as you worked to build up your business and grow your pipeline you need to work twice as hard to maintain it. For many new entrepreneurs, and investors, getting to a point where you commit to the business full time is the top of the mountain. You think you have finally made it simply because you are now investing full time. The reality is that now is when your work really starts. Without maintaining the same edge you had to get to this point you will quickly fall behind your competition. Just as you have committed full time there are other investors in your market with the same vision. If you let your foot off the pedal you will lose deals & opportunities that used to be available to you. Entering the business is just the start of your real estate journey.
  • Emotional decisions. There are dozens of decisions needed to be made on a daily basis. Some are obviously more important than others but everyone is important in its own certain way. It is essential that you base your decisions on facts and logic rather than emotion and instinct. There will be times when you come across a property that you love personally but it may not make the best investment. The numbers don’t quite add up or the seller won’t budge off their number. You look at every possible angle to try to make the deal work but deep down you know it just doesn’t make good business sense. As difficult as it may be these are the deals you need to walk away from. Sometimes, some of the best deals you are a part of are the ones you don’t get involved in. It is ok to say no if you need everything to break right just to scratch out a small profit or the deal will engulf too much of your day. Never let your emotions influence the important decisions in your business.
  • Lack of action. If you are like most business professionals you probably have dozens of ideas floating in your head every day. What separates success and disappointment is often the ability to act. It is not enough to say what you are going to do or even write down an action plan. You need to get up and do it every single day. There are days when you don’t want to spend a few hours at a local networking meeting or want to drive to a business engagement. There is nobody telling you that you have to go so you choose your action based on how you feel. Before you know it, you find ways to justify not doing something and slowly it will negatively impact in your business. The action you take is the one thing you can control that separates you from the competition.
  • Putting all your eggs in one basket. There should always be a delicate balance between striking while the iron is hot and putting all your eggs in one basket. Just because something may be going well in your business now it doesn’t mean it is going to last forever. There should always be a safety net if the market shifts or changes unexpectedly. Foreclosures & short sales were a great source of business last decade but have since come back to Earth. If you put all your resources to marketing and generating deals in these areas you may have had a tough time finding good deals and generating a profit. Conversely if you marketed in several areas and had a diverse portfolio you can weather almost any storm the market brings you.
  • Poor time management. As obvious as it sounds you need to focus on doing the right tasks. There are only so many hours in a day. It is easy getting caught up on a simply task for hours if you are not careful. Before you know it half of your day is gone and you haven’t been nearly as productive as you would like. You need to take time to plan your day so you can be as efficient as possible. Wanting to act is great but you need to be able to fit everything in on your schedule. Something as basic as time management can influence how productive you are.

Being your own boss and running your own business can be a difficult adjustment. It is important that you keep working every day and understand the potential pitfalls out there.