Six Reasons You Should Consider Investing In Real Estate Today

beginner-investor-2-624x312Real estate investing is one of the best careers you can possibly have. Sure, this may be a little biased but it also happens to be true.  Investing in real estate gives you the ability to make your own schedule as well as the chance to generate unlimited income.  There is no boss telling you where you have to be and what you need to do.  You can invest as little or as much as you like and there are no licenses needed to get started.  The business is truly available to anyone who wants to be involved and the sky is the limit.  If you are on the fence as to whether or not a career in real estate may be for you here are six reasons why you should consider investing in real estate today.

  • Barriers Of Entry. As we mentioned one of the biggest reasons why new investors get started in real estate is because anyone can do it. If you wanted to practice law you couldn’t just go down to the local courthouse and work on the next case. You would need to go to school for several years than pass a grueling exam. In real estate you can make an offer on the next property that hits the market if you wanted to. There is no licensing requirement or continuing education you need to uphold. A brand new investor has the same opportunity for success as someone who has been in business for years. There is nothing holding you back from getting started or standing in your way from sustaining it.
  • Make Your Own Schedule. As a real estate investor you can concentrate on the business as much or as little as you want to. If you want to close just a few deals a year that option is on the table. If you want to quit your day job start a new career path that option is available as well. As a new investor you can dictate how you want your day to go. You no longer are forced to the same tired routine every day. You can get out of the office and come and go as you please. This doesn’t mean you won’t have to work hard but you will have greater flexibility to do some of the things you may have been missing out with your previous schedule.
  • No Office. Working for a big company and sitting at a cubicle all day has a few distinct advantages and disadvantages. On the positive side you can receive steady income and utilize any health insurance provided by the company. The negative is that you are forced to deal with office politics and usually do the same mundane tasks every day. In real estate there is something exciting and new each and every day. Instead of sitting at a cubicle you can get out and meet people and grow your business. You are the CEO, CFO and President of your own business. You can run in any way you like without someone looking over your shoulder.
  • Unlimited Income Potential. Wouldn’t it be great to have the ability to control your own income? In real estate that scenario exists. There are no caps on how much you can make. If you work hard, network and find deals you can close as many as you can handle. You don’t have to climb the corporate ladder and wait your turn to succeed. This doesn’t mean you will have instant success upon entering the business. The real estate investing business isn’t easy. However you are in control of your financial future more than any corporate job you can ever have.
  • Higher Average Returns. Any type of investing is about balancing risk and reward. You don’t need to be a finance major to know that parking your money in a savings account may not be the best investment vehicle. Sure, you will make a small yield every month but it won’t grow at a very fast pace. With real estate you can turn an average investment into a home run. Additionally you don’t necessarily need all of the funds to come from your account. It is quite possible that you leverage bank funds or even other people’s money to generate a return. Any way you slice it the potential in real estate is much greater than almost any other investment you will find.
  • Cash Flow Potential. When most people think of real estate investing they think of quick flips and rehabs. There are more rehabbing shows currently on TV than ever before. However, rehabbing isn’t the only way to invest in real estate. There are many real estate investors who focus solely on rental properties. A high performing rental property gives the owner a mix of monthly cash flow coupled with long term appreciation potential. With a strong management team in place they can receive all the perks of the property without having to deal with the day to day drama. The ability to open your mail box once a month and receive surplus cash flow is a wonderful part of the business.

There is truly no better time than right now to get started in real estate. Getting started in anything new is never easy but the perks of the business are too great to ignore.

 

6 Things You Should Review Before The New Year

new-year-investor-2-624x416We are officially under 40 days until we turn on page on another year. While that may seem hard to believe
it will be hear sooner than you realize.  If you are like most people you look at the New Year as a time to make tweaks or changes to your business and personal lives.  Instead of waiting for the end of the year you should take some time now to assess where your business is and what may need to be changed.  By doing this you can hit the New Year running and get your year off to a great start.  Here are six areas of your business you should review now prior to the end of the year.

  • Business Plan. Did you do everything you wanted in your business over the last year? If yes, what caused this to happen? If no, what prevented you from achieving it? In addition to reviewing your successes and failures you should look at your business plan as a hole. Does your plan still fit with what is going on in the market? Are your goals still in line with where you want your business to go? There is typically plenty of down time between now and the end of the year. Take some time and look at your business plan and more importantly how you can put any changes into action.
  • Marketing. In the world of real estate you are only as good as your marketing. You can do everything else right with your business but if your marketing is poor you won’t have the results you desire. There are more marketing options than ever before. It can be very tempting to dabble in all of the various marketing options that are on the table. It is always best to pick out just a few and make those your focus. With marketing you want to look at the return rather than the expense. Analyze what marketing gave you the biggest bang for your buck and what failed to hit the mark. Many times just a few subtle changes in marketing can have a huge difference.
  • Systems. Most human beings are creatures of habit. We often do the same things at pretty much the same time every day. With any business it is commonplace to continue doing things the way they have always been done. This isn’t always the best approach to take. You should constantly review if there is a better way of doing things. There are so many facets of the real estate business that can be improved simply by accepting change. There are systems for everything from lead generation to deal evaluation that change be altered. Look at every micro aspect of your business and see if there is a better way of doing things. As long as you accept that change is a part of business it is easier to make them.
  • Lease & Insurance. There are many hidden aspects of a good business. One of the things that make a good business is protecting yourself at all times. Items like leases and insurance are incredibly boring but are essential in the event of an emergency. When is the last time you look at either one of these items? If you are like most people you probably only glance at them when a lease is ending or when your policy is renewed. Looking at them after an incident is often too late. Reach out to your insurance agent to see if you have all of the coverage you need. Spending a few extra dollars a month is worth it to give you peace of mind. With your lease you need to be protected in the event of an eviction or unexpected issue with the property. Call your attorney and ask if they can give your lease a look to ensure you have everything you need.
  • Expenses. Do you have a firm grasp on every expense your business makes? It is not enough to have an idea or be able to take an educated guess. You need to sit down and take the time to go over each and every expense. This is another of those painstaking items that is necessary for business success. By pouring through your expenses not only can you save money but you may be able to find a better way of doing things. A few hundred dollars a month may not seem like a ton of money but added up over the year can equal thousands.
  • Financing Options. The final business item for review is your financing options. Even if you have a primary financing option you should always keep your options open. You never know when you will need a private money or hard money lender. If you use lender financing you should reach out to you lender or mortgage broker to see if there are any new programs available. There are always new mortgage programs hitting the market. There could be one with a reduced down payment or documentation option that fits with your lending profile. At any time you should have at least four different lending options you can utilize if a new deal presents itself.

Take advantage of any down time between now and the end of the year to set yourself up for next year. The better in touch you are with these six areas the better position you will be to have a great 2017.

 

Why November Is A Great Time to Buy

As we quickly approach Thanksgiving the end of the year is right around the corner. With this often comes holiday parties, excessive days off and a general lull in the real estate market. In real estate this can present a great opportunity to buy. With your competition mailing the rest of the year in you can take full advantage of it. Even though November is traditionally a slow sales month there are still good deals to be had. You just need to know where to look and how to approach them. By closing just one more deal before the end of the year it will set your business up for a great start next year. Here are five reasons why November can be a great time to buy.

Reduced Prices. Sellers know that the end of the year can be a difficult time to sell. With the change in weather mixed with the holidays there are many buyers who decide to postpone their home search until the New Year. Partially because of this sellers are inclined to reduce their asking price. Even if they don’t come right out and lower the price they may be inclined to accept a below asking price offer. If there are any properties you have had your eye on now is a good time to at least make an offer. You never know what a seller may be thinking and want to do with the property. They may be desperate to sell by the end of the year and willing to come off their list price. A good tip is to look at properties that have had a price reduction in the last 45 days. If they took one reduction there may be a chance they are open to accepting any reasonable offer that comes their way.

Motivated Sellers. As we mentioned there are many sellers who are desperate to sell before the end of the year. By finding motivated sellers you can stumble upon good deals. One group of motivated sellers at year end time are lenders. Banks are not in the business of being property owners. Although the number of short sales and foreclosures has declined there is still a good amount of inventory in many markets. Banks holding these properties would love nothing more than to clear their books of them by the end of the year. Ask your real estate agent for a list of all bank owned, short sale or foreclosed properties in your area. Go through them one by one and look for properties that have either been on the market for some time or require cash buyers. Don’t be afraid to make an offer you feel comfortable with as long as you can close before the end of the year.

Tax Break. There are a handful of tax incentives or breaks that expire at the end of the year. As a buyer you can write off several closing costs expenses and apply them to your 2016 tax return. This alone may not be a reason to buy but if you are on the fence it can be a deciding factor. There are also a handful of sellers who want to take advantage of these benefits on the other side of the transaction. If you can target a seller who has recently purchased a property you may be able to get a good deal. This is especially the case with fellow investors. Scour through as many real estate listings you can find online and target properties sold by investors. They may be highly motivated to sell by the end of the year and will often offer a steep discount to do so.

Quick Turnaround Time. Not every real estate purchase is done through a cash sale. If you purchase your properties with lender financing you may still have time to close by the end of the year. With decreased volume lenders have the ability to turn your loan around much quicker. Instead of waiting days to clear an underwriting issue it is possible get these taken care of the same day. The downside is that there are plenty of days off or half days towards thanksgiving but there is also more of employees looking for work to do. Ask your lender or mortgage broker what their current turnaround time is. If you have all of your loan items in place it is very possible that you can close your purchase well before 30 days.

Supply. The end of the year is usually filled with ample property supply. This gives buyers the ability to sift through inventory to find exactly what they are looking for. It is not uncommon to find the best deals of the year at the end of it. Sellers understand that after the calendar turns there is still three to four months before the spring selling season. This is four months of carrying costs or mortgage payments they would have to make. With increased supply you know exactly what you are buying with a seller who may be willing to turn the page and move on from the property.

With the weather turning and the days getting shorter there is a tendency to work less. However if you can finish up the year strong and keep your eyes open for deals you will be rewarded. November can be a great time to take advantage of the market.

How You Can Improve Your Credit Score

Improving a credit score does not happen overnight. Why? It’s because most creditors only report to the bureaus once a month. But there are a few steps you can take right now to start cleaning up your credit blemishes and here they are:

  • Always remember to pay your bills on time because late payments can have a serious impact on your score.
  • Do not apply for credit frequently because having a large number of inquiries on your credit report can worsen your score because it looks like you’re being turned down for credit and you’re just shopping around.
  • Reduce your credit balances. If you are “maxed” out on your credit cards, this will affect your credit score negatively.
  • If you do have any unpaid debt that you now have the ability to pay off, then either do so or try to set up a “payment plan” or settlement option with the debtor.
  • Obtain additional credit if you have limited credit. Not having sufficient credit can negatively impact your score. Because even if you don’t like charging purchases, obtain a low-limit credit card and use it every month and pay off the balance within thirty days.
  • When you do get your mortgage be sure to always pay it on time because late mortgage payments are one of the most significant blemishes that you can have on your report.

Are You Ready To Purchase A Rental Property?

It is no secret that owning a quality rental property can completely transform your portfolio. Not only does it give you the ability to generate monthly cash flow but you can also realize long term appreciation. As obvious as this may be not every investor is willing to pursue rental properties. They are influenced by negatives stories associated with rent collection, property damage and eviction. However if you understand that these are much more the exception rather than the norm you may be ready to dive right in. Before starting your rental property search there are a few things you need to get in order first. These will determine where, when, how and even if rental properties are a good fit for your business. If you are interested in rental properties here are five important things you need to consider.

Goals.
Does a rental property fit with what you want to do with your real estate business? If you have limited capital and are only interested in short term projects you may not want to have your money tied up in a long term rental property. Things can always change down the road but as of right now a rental property may not be for you. On the flip side if you aren’t interested in going from property to property a rental property may be ideal. With any rental property purchase you should be prepared to give it at least a few years. You are not buying for immediate appreciation and would be content to earn off the monthly cash flow provided. You should plan on having your money tied up for the foreseeable future in addition to having surplus capital available for the property. If you are on board with this long term view than you should start your rental property search.

Property Type
There are several different types of rental properties. Even though the most common type is the single family there are other options available. As you consider getting started you should think about which option is best for you. There are fairly distinct pros and cons associated with each individual property type. A single family property has less overhead and is easier to manage. The downside is that with only one tenant you are putting all your eggs in one basket. A two family property offers twice as many options to generate income but also has twice as many tenants to deal with. Once you cross over to four units you enter the world of commercial properties. This has a different set of financing guidelines as well as increased management challenges. There is no right or wrong type of rental property only what fits your budget and your business. Take some time to research all of these options and what is works best for your market.

Financing
There is a big difference in purchasing a property as an investment and one as a primary residence. With a primary residence you can take advantage of a number of minimal down payment programs. For an investment property you need anywhere between ten and twenty percent of the purchase price. Obviously this can be a significant chunk of change that does not include any closing costs or property taxes. While there have been some changes to other loan programs the investor programs have not changed too much in the past few years. You will not find a non-owner occupied program for less than ten percent down payment, with twenty percent a more likely scenario. These guidelines will change dramatically if you start looking at commercial and mixed use properties. The credit score requirements will be stronger and the down payment amounts slightly higher. Whatever type of properties you are interested in you need to have your financing in place first.

Management
How do you plan on managing the property? If you feel that management is something you can do you should know exactly what you are getting into. You will have to do everything from finding tenants to handling maintenance calls. You will chase rent checks every month and deal with every issue with the property. On the flip side if you simply want to purchase the property and collect rent checks you need to find a property manager. A property manager typically takes 10% of the monthly rent received. This has to be factored into your monthly cash flow calculations and projections. Whatever type of property you buy and whatever market it is in you need to have a management plan in place well before you make any offer.

Expenses/Reserves
You can figure out how much money you will need to purchase but once you take ownership you are not out of the woods. Even if the property is turnkey and you don’t need to make any major upgrades you still need reserves to run the property. Without reserves in place you will not be able to deal with property issues when they come your way. Instead of taking care of things the right way you will put a band aid on them and only make them worse. It is also important that you know all of the monthly expenses that are involved. Hidden expenses such as lawn care and snow removal have a huge impact on your cash flow.

Owning a rental property will impact your business today and well into the future. These five areas will give you a good idea of whether or not you are ready to take the step to rental property ownership.

What You Need To Consider If You Are Buying A Rental Property

There are many investors who are on the fence when it comes to buy and hold real estate. For every five investors who recognize the upside that rental property provides there are a few that focus on the negatives. Between dealing with tenants, handling maintenance issues and protecting your property being a landlord certainly has its share of potential problems. However on the flip side a good rental property in the right location can provide short term income as well as long term appreciation. Building a portfolio requires the assistance of a strong team around you. Additionally there are a few items you should have in place on your end before you start your rental property search. If you have thought about buying a rental property here are a few key items you need to have in place.

Financing. The first step in any purchase is finding financing. The financing for a rental property is different than an owner occupied property. For starters the down payment requirement is much greater. Depending on the number of units you will need anywhere between 20-30% down payment. The greater number of units the higher the down payment. There are also higher credit score requirements for investment properties. Typically the credit score needs to be at least over 700 with a 720 the minimum with some lenders. It is also not enough to have the funds available to close. They need to be in your bank account for at least 60 days. Any large deposits and withdrawals must be verified and accounted for. While long term interest rates are appealing the first step is securing financing.

Management. Before you make the commitment to buy a rental property you need to know how you plan on managing it. Regardless if you are looking at your first single family rental or have an existing portfolio property management is the key to success. With management there are a few ways to go about it. The first is to manage the property yourself. The positive is that you can save roughly 10% of the rental fee every month. This can add up to a large sum of money over the course of the year. The downside is that you need to be on call at all times. You will be the one that has to deal with maintenance issues, complaints and coordinating repairs. The alternative to self-managing is to hire a dedicated property manager. They will allow you to focus on other areas of the business. You will still have to pay for maintenance but they will make the phone calls and get the work done. There are pros and cons with both methods but you whatever you decide you need strong property management.

Attorney. You can do everything right on your transaction but if you don’t close it won’t make a difference. A good attorney can often times single handedly save your deal. They are the last line of defense between the seller and their attorney. They are the one that will smooth out any issues and protect you at all times. Your attorney is too important not to spend time finding the right one. You want to choose a good local attorney that practices real estate. They should also have a dedicated paralegal who is easy to reach and responds right away. Another key function your attorney serves is to prepare or review the lease. Your lease is the document that protects you and the property once you find a tenant. A poor lease with generic language opens the door to litigation and lawsuit. A good attorney will point out any holes your lease may have and offer ways to fix them.

Insurance Agent. Besides your lease the only other document you have to protect yourself is your homeowner’s policy. In the same way as your lease you should spend the extra time, and money, to get the coverage that serves the property best. You may be able to save some money on the premium or the coverage but this can end up backfiring. Pinching pennies monthly can cost you thousands if there is tenant injury or damage to the property. If you plan on buying multiple properties your insurance agent can find the best policy for the individual property. This can not only save you time but can give you the peace of mind in knowing that you are protected for whatever comes your way.

Maintenance. If you plan on doing any of the property management on your own you need to be proactive in finding help. Start by reaching out to a general handy-person. This should be someone that can handle the minor items from clogged toilets to changing the locks. You also need to find people that can handle the landscaping and snow removal. At almost every point in the year one or the other will need to get done. By waiting to the last minute to find a snow removal company you can end up costing yourself hundreds more over the course of the season. You should also find someone to remove the leaves in the gutter, perform checks on the furnace and update the HVAC. The better prepared you are the easier it is to own rental property.

The landlords that typically run into trouble are those that do not have a plan before they start. Get your team in place prior to starting your rental property search.

“Winterizing” Your Rental Property

Even though fall is just a few months old it is never too early to think about winter. As a rental property owner you need to do everything you can to protect your investment.  There is no season that can produce greater wear and tear on your rental property than winter.  One frozen pipe will cause severe damage that will be costly and time consuming to fix.  Additionally there are several seemingly minor actions you can take that will save your tenants money and increase the useful life of your property.  Providing seasonal maintenance to a rental property is always important but no time more important than in the winter.  Here are a few things you need to do to your rental property before winter hits.

  • Furnace. No landlord wants to deal with tenant issues in the middle of winter. Season maintenance won’t provide all of the cures but it will certainly go a long way. Instead of trying to squeeze every possible hour from your furnace you should take a proactive approach. By getting the furnace updated every winter you can easily add years to its life. Cleaning the pipes and changing the filter may not seem like a big deal but they are. There are plenty of landlords who balk at paying a few hundred dollars every year for something that doesn’t produce a direct benefit. You can either spend a few hundred dollars in November or be stuck with a much bigger problem in the middle of winter. These problems can be compounded if you do not have anyone you can call in a pinch. Regardless of the types of tenants you have the furnace will be used almost every day from mid-November to mid-March. Before the furnace gets used the first time you need to get it serviced.
  • Check Out The Attic. One of the most under appreciated aspects of heating efficiency is insulation. If your tenants have complained about the house not being as warm as they like you should take a look at the attic. For starters you should check the insulation itself and make sure you have enough installed. While you are up there you should also check if there are any cracks or gaps that could be stealing heat. If you do not know what you are looking for there are several people who you can hire to take a look. While heat rises it can also be going right out of your attic if you are not careful.
  • Doors And Windows. Prior to any snow or extreme weather you should take a walk around your rental and check out all of the doors and windows. Many times something minor like the space under the front door can have a major impact on the room temperature. Take a look at any door entry ways in addition to the garage door. A space at the bottom of the garage door can have a bigger impact than you think. You also want to look for any cracks in the windows. Replacing a crack can be a relatively easy fix if you catch it in time.
  • Gutters. If you think that not cleaning out your gutters isn’t a big deal think again. All it takes is one season of leaves to turn a small issue into a bigger one. When your gutters get clogged the water has nowhere to go. This becomes an issue after a few significant snow storms and the temperature begins to drop. The gutters will eventually become packed with snow and eventually frozen. If the snow is significant enough the gutters will begin to sag and possible fall off the house. This can be a nightmare to fix with a foot of snow in the front yard. It can also lead to water buildup on the roof that could possible turn to a leak in your living room. If you don’t get your gutters cleaned you are asking for trouble.
  • Miscellaneous. After you get your furnace service you should make sure everything is running smoothly. Walk around to all of the air ducts and make sure that the heat is coming out. It is not uncommon for there to be minor blocks that disrupt the flow of heat. You also may want to check the insulation in the garage. Older garages with poor circulation can often lead to frozen pipes. A front pipe in the garage typically means no water in a bedroom or bathroom. If your property has central air it is a good idea to buy a cover and cover it up for the winter. It is little things like these that go a long way in heating efficiency.

Now is a good time to get on the same page with your tenant. Discuss your snow removal policy and make sure there are no questions at all.  If your tenant thinks the driveway will be plowed every inch of snow they may be in for a surprise.  You should also ask that they inform you if they plan on being away from the house for any extended period of time.  Just a few days of cold weather can cause the pipes to freeze.  If the house is heated by oil you need to remind them that if it gets too low the heat will not work.  It is their responsibility to stay on top of the oil level. It is always better to deal with potential weather issues now than when they actually happen.

By protecting your property in the winter months your tenants will be happy which leads to longer rents which makes your life as a landlord much easier. Now is the time to consider simple winter property maintenance.

 

5 Tips To Help Get Your Flip Sold Quickly

As a house flipper your job isn’t over until the property is sold. You can do great rehab work but until you are at the closing table there is still more to be done.  Every day that you own the property you are on the hook for the carrying costs and other expenses.  It is not an exaggeration to say that with a rehab time really does equal money.  Additionally having capital tied up in one property may prevent you from purchasing others.  You want to get every property sold as quickly as possible but even more so with fix and flip properties.  Here are five tips to help get your rehab sold quickly.

  • Use A Real Estate Agent. There is a difference in getting a job done and getting it done right. Speed and efficiency are the name of the game when it comes to getting your property sold. You may consider selling your home on your own and saving some money but you are giving up much more than you are getting. Selling a home yourself is a lot more work than you may think. Not only do you have to find creating ways of marketing the property but you need to make yourself available for all showings. There are times in your business when it pays to use a professional and selling your home is one of them. Not only does a real estate agent know how to market your property but they have established contacts in the area. These contacts are vital in helping generate interest and creating a buzz. They can show the property quickly and answer any questions a buyer may have about the market. You may be able to get your property sold but if you want it done quickly you need to enlist the services of a real estate agent.
  • Price Right. The first item any prospective buyer notices is the price. The property may sparkle from floor to ceiling but it doesn’t necessarily mean buyers are willing to pay a premium. If you truly want a quick sale you need to price in line with what is on the market. Don’t just look for the highest comparable sale and base your list price off of that. Trying to shoot for the moon and squeeze every dollar often has a negative effect. A property that is listed too high from the start may not even be looked at. Gone are the days where you can list high and hope to get offers. If you out-price your market prospective buyers will look for more affordable market options regardless of the quality of your work. Always take in account what is currently on your market or sold within the last sixty days as you think about where to list your property.
  • Evaluate Weekly. The first few days after your property is listed should be a pretty good indicator of demand. There is no better way to tell if you have listed at the right price than by listening to the market. If there are limited showings it can be viewed as a sign that you may have listed too high or there is an issue with the marketing. If buyers have flooded the property without offers there may be a problem with the presentation or something inside the property. In a quick sale situation every week can feel like months. You should huddle with your real estate agent weekly to get a sense of what is going on. If you feel that marketing needs to be ramped up you can talk about alternatives. If there needs to be a price reduction you should be ready to take bold action if necessary. Don’t wait for the market to come to you. Evaluate where the property is every week and make your decisions accordingly.
  • Presentation Matters. You never know what a prospective buyer will notice. From the very first day your property hits the market you need to make sure every inch of the property is perfect. Even if you think it is clean enough you need to go the extra mile and have everything professionally cleaned. It is also important that you don’t neglect the exterior. Overgrown bushes, excessive leaves in the yard or rusting gutters can be the think that changes a buyer’s opinion. It’s a cliché but you never get a chance to change a first impression. With excessive demand in most markets you need your property to stand out from the crowd. How the property looks is critical in getting it sold quickly.
  • Accept Right Offer. All sellers want to get the highest price for their property. However when selling a rehab the highest offer may not always be the right one. It is more important that you accept the offer with the greatest chance of actually closing. By accept the wrong offer you set the process backs weeks and possibly longer. You lose all momentum the property has and you are forced to pick up where you left off. The right offer may sometimes mean a little less profit but the security of knowing you can close quickly. With any financed offer you need to look at the strength of the pre-qualification letter. There should be a significant down payment as well as quick mortgage contingency. Don’t just jump at the first offer that comes your way. Take a minute to gauge the strength of the offer and make sure you are comfortable.

The quicker you can turn your rehab over the faster you can move on to the next project. Follow these five tips to help get your next flip sold quickly.

 

4 Most Popular Types Of Real Estate Financing

Everything in real estate starts with obtaining financing. This is the case whether you are a first time homebuyer or a seasoned investor.  How the property is financed often dictates how the rest of the transaction will go.  Purchases backed by hard or private money can be closed in as little as ten days with little to no issues.  Lender financed purchases can be as long as 45 days with multiple hoops to jump through.  Each option has a specific set of strengths and weaknesses based on your short and long term goals and your credit profile.  However you plan on financing your purchase it needs to be firmly in place prior to looking at any properties.  Here are the four most popular type of real estate investing financing.

  • Hard Money Loans. A hard money loan is any loan obtained by an individual or group of individuals for the purposes of purchasing real estate. The number of hard money lenders has grown exponentially over the past decade. What was once a niche group used primarily for foreclosure prevention is now a formidable financing option in almost every market. Hard money lenders are similar yet completely opposite to that of traditional lenders. On one hand they still follow a set of guidelines and criteria like any big bank. On the flipside they base their decisions more on the property than the individual borrower. The ideal hard money candidate is any borrower who is either credit challenged or has trouble documenting their income. A hard money lender will ignore income issues as long as the deal makes sense. The property must have significant appreciation potential and the borrower must have some type of collateral. Using hard money allows the borrower to close quickly and usually close many more deals over the course of the year. The downside is the increased fees and well above average interest rates. A hard money loan is best used for rehabs and flips where the intention is to be in and out as quickly as possible.
  • Private Money Loans. A private money lender is typically one individual lending from their savings or self-directed IRA account. They have probably thought about investing in real estate from some time but did not know exactly where to begin. A private money lender can be any friend, family member or co-worker who has access to capital. They are similar to a hard money lender in that they provide you with the funds and usually step out of the way. They do not want to know about credit guidelines and focus almost solely on their rate of return. They want to know that their yield will be higher on the real estate deal than what they will receive from the yield their money is current in. They are also worried about potential risk and the worst case scenario. A hard money lender knows and understands everything that can go wrong. A private money lender is not as versed in real estate and needs to be walked through the process step by step. As long as you hash out all of the details before any money is exchanged a private money lender can be your best option.
  • Conventional Loan. In the past if you wanted to purchase an investment property your only option was a traditional lender. Much has changed with the mortgage market over the past decade. Long gone are the limited documentation and down payment programs. If you want a loan through a conventional lender you need at least 20% down payment, strong credit scores and low debt to income. Every step of the process is scrutinized and the underwriting guidelines are much stricter. On the flip side interest rates have hovered near all-time lows for the better part of the last few years. If buy and hold rental properties are your focus a conventional loan is your best option. Low rates and strong down payment will help you generate increased cash flow and build equity. There are plenty of hurdles to jump through but conventional loans can be the perfect fit for the right situation.
  • FHA Loan. A great option for a first time investor is the FHA purchase option. An FHA (federal housing administration) loan is one that is back by the government with increased mortgage guidelines. To qualify for an FHA loan a borrower needs to make under a certain income amount for the zip code the property is located in. Not only does FHA offer reduced interest rates but there are differences in guidelines. An FHA borrower can purchase a one or two family property with just 3.5% down payment. This creates a great opportunity for a first time investor looking to minimize their monthly payment. With a two family purchase they can live in one unit while renting the other. They can reap all of the tax benefits associated with rental property ownership as well as greatly reducing their monthly mortgage payment. An FHA loan only applies to owner occupied properties so this can only be used one time. Many investors have gone this route to gauge if they are comfortable with being a landlord and to make their first purchase work for them.

As an investor you need as many different financing options as possible. These are just four of the most popular options.  Find the option that works for you based on the specific deal you are looking at.

5 Step Process To Acquiring Your Next Big Deal

There is a lot that goes into buying a great investment property. It takes a combination of due diligence and hard work in several different areas.  If you let your guard down in any area along the way you open yourself up to trouble.  One mistake with an investment property can end up costing you thousands of dollars.  Regardless if you are looking for your first property or your next big one the steps to buying the right property are the same.  Here is the five step process you should use to acquire your next property.

  1. Write down property goals. Good real estate investment deals come in all shapes, sizes and locations. If you are not careful you can easily fall into the trap of chasing every deal that comes your way. When you start chasing deals you slowly lose focus of what it is that you really want. The first step in getting good deals is to know what you are looking for. List all the items you want in your ideal investment property. Be sure to include specifics on location, price range, size, room count and condition. Use this as a guide to help in your property search. You probably won’t be able to find the perfect property but a list will help you get as close as possible. If you had to choose one item that is most important it should be location. Not only does location help with the resale value but the more you look at properties in a specific area the better you know it. This helps make your buying decisions easier the next time a new deal hits the market.
  2. See every property. Technology has reinvented the way the real estate business is done. You can get most of the information needed to buy online. Between video tours and high quality photography you can almost feel like you are at the property while being 1000 miles away. It is important not to use technology as a crutch. To get the best deals you still need to lay eyes on the property. There is valuable information that can be gained simply by seeing the neighborhood and walking the property. A deal that looks look on paper can turn out to be a real dud. Conversely a deal that you would otherwise pass on can be a home run once you see it. The more properties you look at the easier the due diligence process becomes. Let your eyes determine if the deal is for you and not what you see online.
  3. Make the right offer. Once you have determined that the property is for you the next step is to make an offer. Where and how your offer is made goes a long way in whether or not it is accepted. The most obvious starting point is the price. You need to know which deals you can lowball and which you need to come in strong. On deals with heavy competition a lowball offer will be quickly dismissed. Try to get an understanding on seller motivation before you submit your offer. In addition to price you also need to make sure your contract has the right language. Very few sellers are going to sift through the contract if it is heavy with contingencies. The contact should also be on the correct form and clear to understand. How you plan on financing the property is also important. If you are paying cash you can reduce your offer slightly. If you are using lender financing you should be prepared to make your offer stand out. The final piece is the closing date. No seller wants to wait months to close even if the price is higher. If you really want the property you should be prepared to act as quickly as possible.
  4. Inspections/title. Getting your offer accepted does not necessarily mean it is going to close. You still have a few hurdles to climb. The first task you need to complete is to have all the necessary inspections completed. Your inspector is part of your team. They are compensated the same whether they think the property is flawless or they find significant issues. It is important to work with an inspector that you trust and can turn the report over quickly. Sometimes the best thing you can do is walk away from a deal. If there are issues that are too much to overcome you need to pass and wait for the next one. There are always other deals out there. The other major roadblock at this point is obtaining clean title. You should never assume that the title is cleared. Don’t wait until a week before the closing to get this ordered. If there are liens or other mortgages they need to be removed or paid off before you can close. Tracking down a past lien could take weeks that will delay the closing.
  5. Closing. There are issues that come up at closing all the time. The key is to take a proactive approach and be ready for whatever comes your way. There are times when the house may not be in the move in condition or there are fees that were undisclosed. It is important to keep the big picture in mind. If you are getting a good deal don’t let a few hundred dollars stand in the way of a much bigger prize. Nobody likes to be on the wrong side of a deal but many things are not work walking away from a good deal over. By compromising just a little bit you can get the property and still save face. The goal is not to win the negotiation but to acquire the property. When issues come up at closing work with your attorney and real estate agent and always keep the big picture in mind.

In real estate you are not judged on the quality of your deals and not the quantity. Following these five steps will put you well on your way to closing your next big deal.