Should I Borrow Money From My Family To Flip Real Estate?

Should you borrow money from your family to flip real estate?

Without question, it’s an awesome time to flip real estate and make profits in the housing sector. Done right, it can be a low risk opportunity to turn a profit and have a lot of fun. However, what if it means borrowing money from family? Where do you draw the line on lenders?

First, know that you can flip real estate with little to no money of your own, even with poor credit. Of course, some startup and working capital can go a long way. Being a cash buyer in today’s housing market can definitely be a plus.

As they should, many investors will value the relationships with their family above the earnings potential. However, if your family has extra cash to invest, then you could be doing them a huge favor. Using family money WISELY can potentially net everyone more profits.

On the other hand, if your plan would reduce the family savings to zero and strip their home of equity, you might want to think twice and work harder to find another way to accomplish your goals. At the very least, gain the proper education so that you know what you are doing before you invest your family’s money.

There are still many other tips for flipping houses and funding sources to explore. Crowdfunding, peer to peer lending websites, hard money lenders and transactional funding are each viable options. But if you can help your family benefit with you, why wouldn’t you?

If you are set on borrowing from friends and family, don’t pull the trigger without first laying out a written agreement. Discuss expectations, make sure all parties are happy with the worst case scenario and above all, invest in your real estate education. Eliminate as much risk as possible when trying to flip real estate.

This is Why You Should Really Be Flipping Houses

Flipping houses can deliver fast money, lots of cash and fuel many more investments, but is that really why you should be doing it?

One real estate investor recently featured on CNN Money flips houses for a different reason…

This investor was out buying up as many foreclosure homes as he could. Then he remodeled and flipped these houses. Now he has even moved on to acquiring and revamping commercial properties and local strip malls and storefronts.

Apparently he has become so wealthy that today he is now able to pay cash for foreclosures and repairs, yet demands little if any profits. His reasoning? He does it simply to better communities, because he doesn’t need the money anymore.

Yes, real estate investing is great, if not the best path to a better income, incredible wealth building, creating a valuable legacy, enjoying more free time and achieving true financial freedom. However, it can also be incredibly rewarding on many other levels besides the purely financial.

In fact, if you focus on doing it for good; for saving neighborhoods and cities, helping to make a significant positive impact on individuals and families and creating better communities the financial rewards will follow by themselves (providing you have a reasonable handle on money management).

So take a new perspective on flipping houses for a moment. What difference can you make by helping to stem foreclosures, picking up distressed properties, providing quality housing and revitalizing not just individual homes by rehabbing them, but entire communities?

How will this inspiring outlook change your real estate investing strategy, your pitches, your marketing, who can help you and how can you scale this to be achieved in a huge way?

5 Things You Can Do To Protect Yourself From The Unexpected

The real estate market is constantly changing. Anyone that was in the business last decade knows just how quickly things can change. One minute your business is riding high and the next you are left wondering what happened.  The best way to protect yourself is to always brace for the unexpected.  By acknowledging that bad things may happen you are able to act quickly if, and probably when, they do.  The quicker you act when something unexpected comes your way the better decisions you will make.  Nobody in business likes to consider the negative but by protecting yourself you are equipped to withstand whatever comes your way.  Here are five things you can do to protect your business from the unexpected.

  • Understand Exit Strategies. Even before you make an offer you should have an idea of what your exit strategies are with the property. As you will find there will always be times when things come out of the left field that will cause you to shift gears. When things pop up you need to be able to act on your exit strategies. If you have a rental property you should have some idea of what properties in the area are selling for. What would be the minimum price you would consider selling for in a pinch? The same is the case with any rehab properties you are working on. If something negative comes up what are the things can you do to combat it? Every day that goes by without action costs you money and probably makes the problem worse. Prior to getting involved in any deal or any property you need to know exactly what your exit strategies are.
  • Increased Cash Flow Rentals. In the world of real estate investing numbers don’t lie. It is important that you listen to them when they are right in front of you. If you pursue a rental property that needs everything to break right eventually the damn will break and you will be in trouble. The best way to avoid potential disaster is by only looking for properties with strong cash flow. Increased cash flow gives you the option of lowering your rent to avoid a vacancy in a pinch. It also offers protection in the event that another property in your portfolio isn’t performing as well as you would like. Increased cash flow allows you to manage the property the right way and always make the best long term decisions. Instead of stretching to rent to someone who has red flags in the past you can wait a few extra weeks to find a tenant you are truly comfortable with. All it takes is a sudden increase in property taxes or insurance to throw your projects out the window. If they rise you will be glad that you had the cash flow surplus to brace for the change.
  • Multiple Lead Sources. You never want to put all your eggs in one basket. Lead sources that may produce great results today can completely dry up in just a few weeks’ time. By dumping most of your reserves in one lead generation basket you can quickly run out of money with little or nothing to show for it. Just like in every other area of your business you need to diversity your lead sources. A few short sale and foreclosure leads are fine but you also need to mix in a couple of probate leads. With lead diversification you should also look to mix up where you buy. Having six houses on the same street may seem like a good idea but if the market changes you will be in real trouble. You need to constantly mix up where you find your deals, the market they are in and what type of holdings you have.
  • Equity. Knowing your exit strategies is only meaningful if you can actually pull them off. You may have an idea of how much you need to sell your property for in a pinch but does the market justify that number? With any long term property in your portfolio you should make it a point to constantly boost the equity. This can be done in a variety of ways. The first is by making improvements and upgrades. The problem with this is that work done today may not hold its value five years down the road. You need to do the right work for the property and the market. The next way to build equity is by paying down the loan balance. In addition to your regular monthly payments you should add an extra payment or two a year. By making just one extra payment to a 30 year mortgage you can knock roughly 12 years off the balance. Even if you don’t want to hold the property for that long a reduction in balance gives you opportunity to sell or even refinance if something unexpected comes up.
  • Reserves. The best way to brace for the unexpected is by having capital reserves. Reserves allow you to deal with a sudden vacancy or maintenance issue in a rental property. It can help get through an extended gap between closings and pay for leads to grow your pipeline. The biggest problem for investors during the mortgage collapse wasn’t the change in interest rates or even rising home prices but rather a lack of reserves. If reserves are present you can buy time until there is a positive change in your business.

There will always be areas in your business that are out of your control. Use these five tips to help deal with the ones you can brace for.

The Tenant Turnover Process In 6 Steps

One of the most stressful periods for any landlord is the end of the lease. For a month or so, there is a balance between finding new tenants while seamlessly moving the existing ones out. What you do in during this time can greatly impact the next several months and beyond. The best landlords have a strict move-out system that they use as a guide. By following this checklist they leave nothing to chance and are as efficient as possible. Here are six steps that you should follow if you are approaching the end of a lease.

1. Start 60 Days Out. It is important that you give yourself, and your tenants, plenty of advanced warning. Even if they know that the end of the lease is near it is a good idea to remind them as well. Not only are you giving them a gentle reminder but you also want to provide clear instructions and expectations for how you want the property returned. Ideally, you would have made this clear before they moved in but you can’t assume that they know what to expect. Either way you want to give your tenant at least 60 days warning. By starting this early you give them plenty of time to make any changes or repairs that you require. You should also give them the heads up that you will be showing the property to prospective renters. You will try to give them 24 hours’ notice but it is not guaranteed. Ask that the property is in decent condition for all showings. Now is the time to ask if there are any questions and to address any move out issues.

2. Provide specifics. Now is the time to make it perfectly clear what you want done. You can even go so far as to walk the property with your tenant and make a list of any items that can be a potential issue. Provide your tenants with an email of this list in addition to a generic move out list. Be sure to include items that are often overlooked such as the garage and closets. Let your tenants know what the repercussions are if the property is not returned in the manner you expect. Many tenants do not understand that there is only one final walkthrough. If there are items that need to be repaired or replaced they cannot do it after they move out. If you have noticed damage in your walkthrough or a room needs to be painted it is a good idea to attach the specific dollar amount it would cost to update. The more that your tenants know during the time the less confusion there is when their lease is over.

3. Schedule Inspection Date. As you hit the last month of your lease you should think about scheduling the inspection. It should go without saying but this should be as close to the end of the month as possible. If your walkthrough is a week before the end of the lease and you notice something after they move out you may not have any recourse. Your tenants will most likely want to be present during the walkthrough so they can question any issues. They can certainly be present but you should explain to them that it is not going to be quick. You are not going to try to find damage but you also aren’t going to just give them back their security without taking the time to inspect the property. For every nine great tenants there is one bad one that will try to cover up damage. You are doing yourself and the property a disservice if you don’t take your time during the inspection.

4. Return Security Deposit. When tenants move out they typically use the security deposit funds from their existing property and shift them over to their new property. In the last thirty days of the lease you will be asked multiple times as to how quickly the security will be issued. Each state has their own set of rules and guidelines regarding how and when you are required to distribute the funds. As a general rule of thumb you are allowed up to 30 days from the end of the lease. Assuming that everything was fine with the property there is no reason to hang on to their funds longer than you have to. You can most likely cut a check at the walkthrough or shortly after. Never issue the security until the property is inspected but don’t wait in getting it out.

5. Clean House. Once your tenant is out and you are comfortable with the condition you need to shift gears and focus on your new tenant. It is always tricky showing a property with an existing tenant. Even if they are clean the property will not show well. As soon as the tenant is out you need to have the property professionally cleaned. There are some landlords who try to tackle this themselves but it is not the same as a professional. If the condition is not perfect your new tenants will know and will be disappointed. Always start your new tenants with a clean slate, literally and figuratively.

6. Change Locks And Review Lease. Another item that you should do with every new lease is change the locks. There are always horror stories about past tenants making copies of keys and breaking into properties. For the minor expense of a new lockset you can eliminate this risk all together. Even if you are not the handy type you should be able to change a lock. After your property is cleaned and the locks are changed your new tenants are ready to move in. Before they do you should sit down with them and review your lease. Make it know what the expectations and guidelines are. The time you spend with your new tenants now will make the end of the lease much easier.

Once your new tenants are in you can let your guard down for a bit. The process of turning tenants over is the most important task any landlord will face. Use these six steps at the end of your next lease.

5 Tasks To Complete At The End Of Every Lease

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 Find The Best Rental Tenants

Tenant screening is the most important step you can take to ensure you are renting to quality tenants. While nothing you do will ever guarantee good tenants you always want to give yourself the best possible chance.  By taking the time to screen your tenants and ask the right questions you can eliminate many bad tenants that may fall through the cracks.  All it takes is one bad tenant to put you behind the eight ball and impact your business for the next several months.  By being willing to reject suspect tenants and focus strictly on solid ones you greatly reduce your risk of running into trouble.  Here are a few tips to help you find the best tenants for every lease.

  • Strict Screening System. Lenders don’t give out loans to every borrower that asks for them. As a landlord you should have a similar mindset. You can’t be willing to rent your property out to the first halfway qualified person that comes your way. This can be difficult when you are nearing the end of the lease and staring at eviction. However, by implementing strict screening you are protecting the long term life of your property. Screening starts with sending every interested tenant an application before they even see the property. The more you go back and forth with showings the more likely you will get frustrated and end up letting your guard down. Your initial application really only needs to be a few questions long. You need to have some idea of their current employment, current residence, previous residences, criminal history and any personal references. Make it known that this step is needed before you show the property. If there are any red flags at this point you need to make the applicant aware and move on to the next tenant. The longer you go back and forth the less time you have to look for your real tenant.
  • Pictures & Photos First. There are many more property marketing options than ever before. In the past if you wanted to rent a property you most likely put an ad in the local newspaper. Interested tenants would call about the price ask the address and schedule a showing. While newspaper can still be effective you now have dedicated rental websites as well as social media at your disposal. In order to streamline the process, save time and eliminate the window shoppers you should have quality pictures and videos readily available. For a relatively low cost you can even set up a website strictly dedicated to your rental property. This website can include pictures, videos, frequently asked questions, lease information and more. By doing this you save time but you also funnel serious tenants to you. There are many would be tenants who will not take the time to fill out an online application or follow up through by email. Those that do you know have a real interest in the property and are more likely to work out for you. They already know the rules and expectations as laid out on the website. They may have a few random questions but most of the bigger items are already answered. At this point it is all about whether or not they like the property and can fit your timeline for moving in.
  • Contact References/Previous Landlords. Having an application only makes sense if you are willing to follow up on it. While there are many great tenants there are also some serial property abusers. They may appear nice but on closer inspection are a disaster. The only way to know is to make some phone calls and do some legwork. Start with their current employer. Make sure that the phone number listed matches up with what you find online. It is not uncommon for bad tenants to provide the number of a friend or family member that poses as the employer. When you call ask for the human resources department or if the company is small enough the owner. Explain who you are and why you are calling and verify employment. You also want to verify the number of hours listed on the application.  If employment checks out you should also reach out to any previous landlords listed. A prospective tenant probably won’t come right out and offer up that they were recently evicted. A call to the past landlords should provide this information. You need to be a little careful in taking their word too strongly. You never know if they held a grudge for how the lease ended or if something happened during it. If there were no problems at all you should feel confident that you have a strong tenant.
  • Expectations & Guidelines. It is important that you get out as much information as possible before your tenant signs the lease. Your tenant may look great on paper and have an interest in the property but before you lease is signed you need to tie up any loose ends. Go over the lease and point out any items of particular importance to you. If you are set against pets or smoking in the property you need to let them know any consequences for breaking the rules. Regardless of what is on the lease you need to reiterate the guidelines for the maximum number of people in the house, parking rules, payment options and what utilities they are responsible for. If your tenant has any questions now is the time to address them. Even if it takes a few extra days or even a week to sort everything out it is better to do it now rather than have to deal with things in the middle of a lease.

By going the extra mile you give yourself the best chance at finding good tenants. This process may seem long and tedious at times but is the most important thing you can do for your rental property.

Why Letting Your Goals Guide You Will Lead To Success

There are many different ways to invest in real estate. If you are not careful it is easy to experiment with as many of these options as you can find. While there is nothing wrong with a little trial and error without a firm plan in place you will end up constantly chasing your tail. The best way to figure out what type of real estate investing is best for you are by putting your goals down on paper.  What you will find is that your goals will lead you to the market, purchase price, structure and timeframe of the deals you should pursue. Your investing goals are specific to yourself and your personal preferences. Here are a couple of investing options based on your short and long term goals.

Short Term Returns:

Most real estate investors get started in the business seeking the quickest return on their investment as possible. They are sick of the low yields that savings accounts or CD’s offer. They want to be in and out of the property in as short a timeframe as possible. If this sounds like you there are two main real estate options.

  • Flipping/Rehabs. They idea behind flipping matches the short term mindset to a “T”. In order to maximize the return on the property it is essential to get in and out as quickly as possible. The best rehabs often happen within a 90 day window. What makes these types of deals so appealing is the upward potential for profits. With the right property in the right market you can easy yield a 25% return on your investment. There are plenty of other factors that come into play but the possibility for these returns exists. While speed is important making the right improvements is critical. As a rehabber you are judged on the quality of your product. With most markets tilted towards buyers if the work is poor they will look elsewhere. As much as the real estate market has gained over the past two years you need to be able to pick the right stock at the right time. This is easier said than done. With real estate you can be in and out of the property in few months instead of waiting years for a stock to take off.
  • Wholesale Deals. If you want to turn a property over even quicker than a rehab wholesale deals are for you. On wholesale deals you don’t have to wait for the initial deal to close, the work to be done and the property to sell. All you need to do is find a motivated seller and an investor to see value in your property. The basic concept of wholesaling is to find deals at a discount and instead of rehabbing them yourself you pass the deal off to a fellow investor. This may sound like giving up money but there are plenty of positives. For starters you don’t have to deal with any of the risk associated with the property. You can get in and out as soon as the current homeowner is ready to close. You also have the ability to close many more deals throughout the course of the year. Instead of waiting 90 days or so you can close multiple wholesale during that same period.

Long Term Returns:

Not every investor is looking to get in and out of their investments quickly. There are plenty of investors who look at the business as a way to accumulate long term wealth. The best way to do this in real estate is by developing your buy and hold rental property portfolio. 

  • Rental properties. Rental properties are one of the best ways to accumulate true long term wealth. A few high performing rental properties can completely transform your portfolio. The first thing they will do is provide you with monthly cash flow. Depending on a number of factors your excess cash flow can be hundreds of dollars a month. With this money you can pay down your loan balance and accelerate the time required to own the property outright. Actually you can use these funds any way you please. If you want to pay off other debt or use in other areas of your business you have that option as well. Another benefit of a rental property ownership is the tax breaks provided. You have the ability to write off mortgage interest payments, expenses, repairs and even the mileage driven to the property. The tax breaks alone can turn an average property into one that makes sense to own. The final benefit of rental properties is the possibility of long term appreciation. Buying a rental property on the speculation that it increases in value is never a good idea. That being said with the loan pay down and market appreciation it is not uncommon for the value to rise substantially over the years. In fifteen to twenty years you could very easily be sitting on a property valued at hundreds of thousands of dollars with a low loan balance and strong cash flow.

Your goals will often change the longer you are in the real estate business. Instead of chasing every deal that comes your way let your goals guide you. By doing this you will very rarely regret any purchase you make. The happier you are with your investments the more likely you are to continue making them.

How To Build A Buyers List From Scratch

You never know when you will come across a deal that doesn’t quite fit with what you are looking to do. When these types of deals come your way, it is important that you can still find ways to generate income from them. One of the ways to earn is by wholesaling them to a fellow investor. Under this scenario you can either assign the contract over or pass along the terms to an end investor. Without a strong list of buyers list you will not be ready to act and the deal will fall through the cracks. Finding end investors, and building your buyers list, is something you should constantly focus on. The more investors you can pass a deal off to the more likely you can earn on whatever scenario you are faced with. Here are five steps to help build a strong buyers list.

  • Get Out There And Meet People. Building a buyers list is like building a personal network. If people don’t know you are in the business they will be less likely to respond if you have a potential deal. The first step for building your list is getting out and meeting people. Showing up at local networking clubs may feel like a waste of time but you never know when they will have an impact. With everyone you meet and every conversation you have you should discover a little more about the person you are talking to. Eventually you will build enough trust and comradery that they will be open to working with you. In addition to local networking meetings monthly investment clubs are also a great way to get your name out. It is important to get as much contact information as you can with everyone you talk to. Building your list is a numbers game in that the more people you meet the better your list will be.
  • Transaction History. There are times when building a buyers list requires just a little bit of legwork. Every real estate transaction is a matter of public record. When you are just building your list you should narrow your focus to a particular market or sub area within that market. From there you should go to townhall once a week and review all the transactions for that area. See which were cash transactions or if the owners address is different from the subject property. These are indicators that the buyer is most likely a real estate investor and is active in that area. From the information at town hall you know their name and address and can either send them a traditional letter or do a little digging and find an email address. Don’t stop with just one attempt. You may need to email them five times before you get one returned. Once a connection is made you should try to set up a meeting and go from there.
  • Bandit Signs. It is a common misconception that buyers are hard to find. All you need to do is drive for then minutes and you will most likely find one. These buyers don’t advertise on huge billboards but rather the tiny bandit signs you see throughout town. Bandit signs often promote candidates running for office but you will see them on telephone poles or in busy intersections saying, “we buy houses” or “quick, cash closings”. Like any other potential buyer, you need to find out exactly what they are looking for. Ask them about their ideal market, purchase price, style and even condition. Explain to them that you are a fellow investor in your area and occasionally you may come across a deal that isn’t for you. They should be open and receptive to you considering that they would be the one to benefit. If you reach out to five bandit signs you will probably find one investor you feel is the best fit and the one you would want to work with if a deal came your way.
  • Social Media Marketing. As you are just entering the business you should focus on generating a buzz through social media. As your business progresses you can use these sites to find buyers. Once a week you should generate a post looking for potential buyers. Since you may not have an active deal you should leave your posts vague. State that you are looking for local investors to work with on specific deals. The investors that respond will be the ones you want to work with. Once they respond you should ask to meet for a quick cup of coffee to get a better idea of what they want. Even if you aren’t on the same page as far as property types you will meet a fellow investor which you may bump into down the road.
  • Follow Up With Contacts. In addition to making weekly social media posts you should also have a weekly follow up plan with your existing contacts. Keep every investor email in a separate folder and use that to keep in touch. You can send them general market updates or if you have a specific property you can blast it out. The key to getting a response is to call for some kind of action. Ask them to meet or to email about how you can grow your business together. Everyone gets dozens of emails every day. If yours does not stick out you won’t get the response you desire.

Building a buyers list is an important part of building your business. You never know when you will need it but it is a great thing to have.

Is Foreclosure Investing in Calgary Right for You?

Unless you have been living under a rock for the last decade you are aware of the impact foreclosures have had on the real estate market. Fortunately, things have improved dramatically since the market collapsed but there are still foreclosure deals available. One of the big misconceptions is that all foreclosure deals are alike. The reality is that there are a few different stages to investing in foreclosures each with different pros and cons. The biggest difference is the control that the homeowner has at the various stages. When they are simply in default they can still sell without any restrictions. Once the lender takes ownership of the property you are forced to deal with them as opposed to the homeowner. Despite the reduction in foreclosure deals in most markets they can still be a home run under the right scenario. Here are a few ways to tell if foreclosure investing is right for you.

    • Pre-Foreclosure Stage. Just as it sounds the pre-foreclosure stage is when the homeowner is late on their mortgage but not in foreclosure yet. As soon as the homeowner is a few days late they will start receiving phone calls and letters from their lender. Once they hit four months, or 120 days, the lender can start the foreclosure process. There are various reasons why a homeowner becomes late on their mortgage. There could be a serious injury that has dried up all their savings, a loss of employment or an unexpected expense. The specific reason for the late has a lot to do with how motived they are to sell. If the issue is short term and fixable they will try to find the finds on their own or in the worst case seek out a loan modification from their lender. If the problem is long term and they feel can’t be resolved they will explore short sale or other sales options. Pre-foreclosure leads can be found in 30,60 & 90-day lists from various sources. By eliminating the lender you will deal exclusively with the homeowner which in theory should make for a smoother transaction.
    • Short Sale: A popular alternative to a foreclosure is a short sale. The catch with this is that even if the homeowner wants to sell and move on the lender still needs to approve the transaction. With a short sale, the lender agrees to receive less than the amount owed to take ownership of the property. They do this because the homeowner has stopped paying and the property is facing foreclosure. In most cases, a property in foreclosure is an expensive proposition for lenders that they would rather not want to deal with. For the homeowner, a short sale is the lesser of two evils on their credit report. Where a foreclosure can take several years to recover from a short sale can take a year or two depending on the rest of their credit profile. On the buyers side a short sale represents an opportunity to buy a property at a slight discount but not without hoops to jump through. Not only does the homeowner need to be approved but the value needs to be approved as well. On top of that the timeframe can take anywhere from thirty days to twelve months.
    • Auction. If you are interested in foreclosures it is essential that you know and understand all the specific rules and regulations. Depending on the state the foreclosure rules can be completely different. In some states once the house hits foreclosure it is brought to an open auction where anyone can bid on it. These auctions can be exciting but they can also be profitable. There is typically a minimum bid but if the house needs enough work or has other unique flaws it can be bought at a discount. The biggest downside with foreclosure auctions is the risk of buying sight unseen. When you take ownership of the property you do so without the ability to see the interior. This is the where you need to weight the risk versus the reward. It is also important to avoid getting caught up with the excitement of the auction and bidding higher than you anticipate. Walking away is the hardest part of dealing with auctions.
    • REO Properties. An REO (real estate owned) property is one where the lender takes possession instead of going through foreclosure. Lenders are not in the business of being property managers and would rather have the asset off their books. Most REO properties are listed on the market and sold through a local real estate agent. Because there is open competition the discount is not as great as the previous three options. This doesn’t mean you can’t find a good deal but as an investor the discount may not be as deep. The positive is that since the lender has ownership you can be confident that the title is clean and there is nothing to worry about on that end. It is possible to find an REO needle in the haystack but it will certainly take some digging.

Foreclosure investing requires patience, knowledge of the local procedure and persistence. All it takes is one good foreclosure deal to make it worth it.

4 Ways To Be A Better Landlord

Owning a rental property and collecting rent checks is one of the best aspects of real estate investing. As great as being a landlord is it is far from easy.  There is a lot that goes into owning a rental property.  Between finding a good property, good tenants and putting a good team in place there are plenty of moving parts.  Regardless of the size of your property or the number of tenants how you act as a landlord is critical.  You are judged on everything you do.  Sometimes the minor actions you make can have the greatest impact.  It is no secret that better landlords run efficient properties that maximize rental return.  Here are four was you can become a better landlord.

  • Run It Like A Business. Every property you own should be treated like its own unique business. Think of everything you would have in place if you opened a new business. Marketing, support staff, numbers, systems and processes should all be clearly defined. There should be nothing that comes at you that is a surprise. This doesn’t mean you plan for the worst case scenario but you at least know that it exists. You should first ask yourself if you are looking to maximize every dollar of cash flow or are you willing to make less but do less work. If you are willing to keep your free time you should look at putting the best possible team in place. A good property manager will handle all of the mundane tasks necessary to run a profitable property. You are still in the picture but you will not go crazy dealing with all of the time eating tasks you despise. To get the most out of your investment you need to run your rental property like a business.
  • Better House = Better Tenants. Owning a rental property doesn’t mean you can just recycle tenants year after year without doing any work. You need to be willing to spend time and money on your property. It is no secret that better properties produce better tenants. A property with overgrown bushes and weeds in the driveway may not seem like a big deal but it creates an impression to your tenants. If your tenants feel that you don’t care about maintaining the property either will they. Instead of going the extra mile to make sure the condition remains intact they will slowly let your property slide. This damage will not be enough to withhold a security deposit but over time makes a tremendous impact. Sometimes just doing the little things in keeping the property updated is enough to find better tenants. If the property looks immaculate inside and out tenants know they have a higher standard to follow. You may not be able to command a higher rent for a cleaner property but you can get a better tenant.
  • Respond Quickly. One of the biggest pet peeves that tenants have is not being able to get in touch with their landlords or property managers. As the landlord you need to make it a priority to have all calls, texts and emails returned as quickly as possible. It can be frustrating getting called every time a light bulb needs to be changed or a tenant has a ridiculous question but that is all part of the job. These issues may not seem like a big deal to you but to your tenant they can be important. Responding quickly, regardless of the situation, shows your tenant that you care about them and the property. This will help get rent checks sent in on time and have your tenants take extra care of the property. By responding quickly they will be much more inclined to inform you if there are minor issues with the property that if not resolved can turn into bigger, more expensive, ones.
  • Good Tenants. You are only as good as your tenants. The best landlords understand that they need to spend enough time in the screening process. There will always be a temptation to rent to the first semi qualified tenant that comes your way. Your goal as a landlord is not to find the first tenant but to find the best one. A good tenant will make renting as easy as you imagined. A bad tenant is where you get all the horror stories and nightmares. Not only does your tenant need to pay on time and take care of the property but you need to be able to get along with them. You don’t have to be best friends with your tenant but you should at least be friendly. You are holding your tenants with the responsibility of living in your house and taking care of it. This should only be done after you fully review their application, follow up with any references and personally get to know them. It is easier to be a better landlord if you have better tenants. Spend however long it takes to ensure you have the best possible tenants.

To be a good landlord you need to accept that things won’t always go as smoothly as you would like. There will be unexpected issues with the property or with your tenants.  If you can accept this and quickly move on you will be a better landlord.  The little things with a rental property go a long way.