Do I Really Need A Building Permit in Calgary?

What home improvements require building permits?

Which remodeling items do and don’t need to have permits? Why do permits even exist? How are many real estate investors sabotaging themselves by ignoring the importance of this piece of paper to their profits?

Home Remodeling Projects that Require Building Permits

Home improvement and renovation projects which often require permit approval include:

  • Aesthetic changes to the exterior
  • Structural changes
  • Demolition
  • Adding sheds and alternative structures
  • Finishing basements and attics
  • Moving or adding outlets or plumbing fixtures
  • New roofs
  • Converting garages
  • Additions to a home
  • Swimming pools
  • New electrical systems, including solar

Like real estate, all building codes and permit regulations are local. Each authority adopts its own codes. Some are completely customized, but most simply adopt variations of international standards. Exact codes may vary by state, county, and city.

Why Do Building Permits Exist?

The very first records of building codes date back almost 4,000 years. They were originally created to ensure safety for consumers, and ethics and quality of work among builders. This is still the basis for having building codes, and requiring builders, licensed contractors, and property owners to obtain approvals and live up to them. Some estimates put the average cost of obtaining a permit in the range of $400 and $1,400. Permits also alert taxing authorities to property improvements, and potential tax increase opportunities. So this certainly makes permitting a significant source of income for local government. At their various levels, building codes also preserve the look of communities, and control who can build what, what it can look like, and what materials can be used.

What Remodeling Projects May Not Need Permits?

Popular home improvements which often don’t require building permits include:

  • Painting the inside or outside of a home
  • New kitchen cabinets
  • Changing existing plumbing fixtures
  • Replacing water heaters and AC units
  • New fans and light switches
  • Installing basic alarm systems
  • New phone lines
  • Putting in new flooring
  • Screening existing covered outdoor spaces
  • Recoating driveways

It is important not to assume you won’t need a permit. Some authorities put a maximum dollar amount on improvements which can be made annually without a permit. Low end cosmetic remodels may not trip these limits. Luxury home remodels may go over these limits with just a few square feet of tile or new quartz countertops.

How to Get a Building Permit

Getting a building permit can be a pain. It can appear to add extra time and costs. It can also be easier and less painless than many homeowners and real estate investors expect.

The exact process will differ from area to area, but will generally include:

  • Obtaining the application online or in person at the building department
  • Submitting detailed plans
  • Paying the applicable fees in advance
  • Fulfilling any final inspections after work is completed

There are also third party permit services which can help expedite the process. Most contractors involved will also be happy to handle the permit process in order to gain your business.

The Dangers of Buying and Remodeling Properties without Permits

Work done without permits, when they are required, is illegal. Illegal improvements can be catastrophic for property owners. It doesn’t matter who did the work, the responsibility and liability is on the current owner.

The potential penalties include:

  • Code violations
  • Fines and daily interest penalties
  • Liens against your property
  • Inability to sell the property
  • Condemnation
  • Seizure by eminent domain
  • Inability to obtain financing, or withdrawal of loans made

Do not underestimate how severe these penalties can be. Some have faced liens of tens of thousands of dollars against their properties.

Building Permits & Real Estate Investing

Whenever building permits are required, real estate investors need to get them. It is just not worth the risk to forgo them. There may be appealing investment opportunities in properties with illegal garage conversions, and other unpermitted work. Experienced investors with good real estate attorneys may find hidden profits in these deals, but tread carefully.

Permits cost money, can take a month – or several – to obtain, and can trigger increased tax assessments and property taxes. For some investors who hope to fix and flip houses in less than a month, it may be necessary to avoid improvements which require permits. Those with the capital and tolerance for much longer hold times – or who plan to and lease them – may be able to find profits others have to pass on.


Building Vs. Rehabbing in Calgary: Which One Has The Upper Hand?

Is it now more profitable for real estate investors to be building units instead of rehabbing existing ones?

Many real estate investors are turning to the Internet to float their ideas of building houses instead of buying and rehabbing existing ones. So is this one of those genius moments where individuals are catching on, or are they missing out on some big issues and potential pitfalls?

To Build or To Rehab?

What would make some investors choose the prospect of building over rehabbing an existing property? Perhaps even more specifically, what is building new properties being contrasted with? Is it being compared with acquiring existing properties and renovating them to be used as rentals? Building new construction rentals has become popular with big name builders, but hedge funds prefer flipping houses, and financing rehabs. In some cases, it can certainly be cheaper to build on a vacant lot than to completely gut rehab some old homes. But that isn’t a rule that stays true across the board. There are many variables.

Before jumping into the construction game, it is also worth taking a look at all of the options on the table. You can wholesale worn out existing homes, and brand new construction if you really wanted to.

The Cost of Approach

When it appears that existing property prices exceed what it costs to build new ones, real estate investors get interested in construction. This is especially true when it appears that there is little existing inventory to pick from. Note that we do need more housing stock added to account for population growth and migration, but there are still mountains of distressed properties and loans in America to be taken advantage of. However, many real estate investors appear to be way off on their cost to build in terms of square footage. Remember that construction costs will keep on rising with the market and economy.

If you are seriously considering building, make sure that you are factoring in all costs, including: land acquisition, impact fees, inspections, utilities, etc. Note that the direct square foot cost to build is just a portion of the total costs. What about administrative, and sales costs? The NAHB (National Association of Home Builders) notes that the average builder profit in the U.S. in 2008 was in the negative digits.

Why Most Investors Don’t Build

Even where the spreads are great, and investors have an edge, many don’t build because of the cash requirements. While other types of mortgage lending have come bouncing back, construction loans virtually evaporated, and still need to be resurrected. In addition to land costs, there is the material, labor costs, marketing, commissions, and there are always overages. Don’t forget holding costs either. It often requires a substantial amount of cold hard cash to build houses. Others don’t have the patience for the extended timelines or unpredictability compared to existing homes. A good team can remodel a house in 30 days. It likely takes an average of 10 times that to build a home and get it sold, if not longer.

Don’t forget to think long-term. Will you still be able to compete when other builders are throwing up inferior homes and selling them cheap? What about competing for visibility, and on advertising costs? Remember, builders often have a lot of sweet heart deals with lenders, contractors, real estate firms, title companies, and so on. Plus, many have been holding lots for a long time, giving them a cost advantage even before pouring a foundation.

Building real estate can be very profitable. If it wasn’t, no one would do it. But do pay attention to whether the profit margins and timelines are really a match for your goals. Are they the best you can do? What about the match between your strengths and resources? If building, construction, architecture, and design is something you really love, and participating is more valuable to you than higher profit margins from flipping existing houses, do what you love. Just recognize the difference.

Hybrid Options

For those looking to find a way to enjoy the best of both worlds, there are construction REOs to be found at discounted prices. Those that are really trending towards new properties, but don’t want the time and hassle components, may find deals in buying from builders in bulk. There can be deals to be found by being the first in, or helping builders close out a development. What will you do?


Real Estate Investing in Calgary: 10 Ways to Motivate Yourself

How can more aspiring real estate investors thrust themselves into action and achieve their dreams?

Even knowing the big benefits of real estate, knowing you absolutely need it to survive, and having gained some real estate education simply isn’t enough to move some aspiring real estate investors to the action they need to take. It sounds crazy, but it is true. And without action nothing is going to happen. Nothing will get better. In fact, the opposite it much more likely. Yet, there always seem to be an endless pool of excuses and ‘justifiable’ reasons to procrastinate, if you want them. So how do you increase your propensity to action?

  1. Set Goals

Set goals. Set big goals. Set emotional goals tied to your success in real estate. Keep them visible and refer to them every day. That will help you generate a growing drive to move forward.

  1. Create a Schedule

Goals and a plan are good, but that isn’t always enough. It has to have a timeline, and deadlines. Start laying out milestones with dates. Then starting working real estate into your daily schedule. It may begin small. It could be attending a real estate seminar next month. Then one lunch a week with a new real estate professional, driving neighborhoods one day a week, making 5 offers a day, and so on. Carve out a day a week, or better an hour or two first thing every day.

  1. Tell Others

Telling others creates positive peer pressure. Tell your friends, family and coworkers about your goals in real estate, and that you are in the business. This can create immediate leads. It also means they’ll likely ask you about real estate and how it’s going. Then you’ll be driven to making progress to report. Who knows; they may bring you a whole round of deals fast.

  1. Get a Partner

Two or three are better than one, and they are far less likely to quit. This is why most angel investors and venture capitalists prefer investing in startups with multiple founders. So bring in a spouse, child, parent, cousin, or friend and launch on the journey and propel each other. One may even become a capital partner. That may add some good pressure.

  1. Quit Your Job

This may not be the safest move on the list for everyone reading it, but it is an option that will create a lot of motivation. Keep in mind it may take 30 to 90 days to get your first real check in hand depending on your real estate investment strategy. But if you can make that, then go for it. When you’ve got to, and it isn’t just a nice bonus, then you’ll make faster progress. It quitting your current work cold turkey isn’t a viable option, then consider cutting back over the next 6 months. Stop taking overtime. Go part time. Or stop taking new projects.

  1. Set Up a Reward System

For some the pain and fear is what drives them. For others it is navigating towards more pleasure. So set up ways to reward yourself for each milestone. This might start with arranging meetings at your favorite coffee spots and restaurants. Then it could be carving out a piece of each check to fund a hobby you’ve always wanted to engage in, tickets to a sporting event, or a dream vacation. Create a bonus structure for yourself.

  1. Tune in to Success Stories Daily

Get pumped up with positive and inspiring success stories every day. Find uplifting blogs, podcasts, YouTube channels, or audio books and listen to how others have made it, blew it, overcame challenges and how they are winning now. Joining investor Facebook groups, and local groups can be a good way to augment this too.

  1. Get a Coach

The successful all have coaches. Period. Keeping themselves on track and taking action is one of the main reasons leaders have coaches. Yes, they can help with better ideas, strategy, and more. But having an accountability partner and someone to push you to your best is invaluable alone.

  1. Spend Big

Go get the lease on your dream car, put a down payment on your dream vacation or boat, or buy that home. It’s amazing what you can produce when you need to. It’s also equally amazing how much people underperform when they don’t have the pressure. Be smart, and don’t bankrupt yourself, but adding a little motivation can help a lot.

  1. Get a Vision Board

Visualization can be so much more powerful than text goals alone. So create an oversized vision board at home, make it the screensaver on your laptop or tablet. Keep it in front of you, and you’ll be surprised at how fast you blow through those goals, and on to bigger ones.


How To Become A Rehabbing Expert With Little To No Experience in Calgary

Do you want to be a rehabber but don’t know how to operate an electric screwdriver? As crazy as it may sound you don’t need to be a handy person to be a rehabber. Sure, it is a help but far from a prerequisite in getting started. There are many rehabbers all over the country who got their start without knowing the first thing about home improvement. They gained their skills and experience from every project they were on until they knew enough to run a project on their own. Conversely, most handy people think they know the process well enough to dive right into the world of rehab. What they find is that it takes more than the handy person knowledge to be successful. Regardless if you can operate a SAWZALL or don’t know how to swing a hammer the rehab side of the business is open to everyone. Here are four things you need to do to be a successful rehabber without tool belt experience.

Know The Process. Instead of being an expert on the technical side of things you should start by knowing the process. You don’t need to know anything about home improvement to master the steps of a rehab. While every rehab has their own unique qualities there are similar several steps with every property. You should have an understanding on the big items to look for that are costly and difficult to deal with. Roofs, issues with the structure, windows and electrical items will have a much bigger impact than simple cosmetics. You don’t need to know how to remedy these problems but you should have an idea of the costs. One way to learn the costs is by simply walking around big box retail stores. This will give you some background on the cost of materials and with a few questions what they may be used for. Cost of labor you will learn the more job sites you are on and the more contractors and project managers you talk to. This knowledge will come in time but knowledge of the process is something you can learn before getting started.

Surround Yourself With A Strong Team. If you don’t know what you are doing on a rehab there is a real possibility you can and probably will lose money. Instead of waiting until you master every aspect of the process you can get started by surrounding yourself with a strong team. Start by finding the best contractor you can find. This may not be easy as many contractors only like to work with experienced investors. However, if you reach out to enough you will eventually find one that is a good fit for you and your experience. While you don’t want to blindly give your contractor the keys to a rehab project you should be willing to let them run things the way they see fit. You can certainly get different quotes but let your contractor run the project. In addition to your contractor you should also find a quality project manager, electrician, plumber, drywall expert and painter. Generally speaking, you should try to get at least three quotes on every aspect of the property. This is your rehab but you can make it easy on yourself by having the best possible team around you.

Consider A Partner. If the prospect of talking to people in the trades is difficult without knowing the jargon you can consider taking on a business partner. With a business partner you can handle the financial side of the transaction while your partner runs the rehab project. The upside is that you can feel comfortable knowing that your partner will not get run over by a contractor or handy person. The obvious downside is that you will not make as much on every deal as you expect. As you are just getting going this can be a great way to learn the business without the stress of trying to do everything on your own. You can hang around the property in your free time and see how things are done without everyone turning to you with questions or problems. Your partner will be the buffer and deal with any issues that pop up. A partner may limit your upside on every deal but it can be a great way to learn the ropes and break into the business.

Defer. In real estate it is always best to know what you don’t know. There are many investors who try to fake like they are an expert only to have it come back to haunt them. There is nothing wrong with saying that you don’t know a particular aspect of the business. With rehabbing if you don’t know what you are doing you will eventually get exposed. You are far better off deferring to the people around you as you develop your education. As we mentioned you should seek out a good team or a business partner until you are comfortable with the process. You will still reap the rewards of the deal, maybe not as much, but in the end it will be worth it for you. There is nothing wrong with deferring to the people around you for your first several rehabs.
Some of the best rehabbers got their start without knowing how to swing a hammer. It may be uncomfortable during your first few deals but eventually you will find your way.

The Basic Steps Of A Real Estate Transaction in Calgary

Every new investor wants to dive into the business as quickly as possible. They watch their favorite investing show on TV and think things will be just as easy.  Without knowing what steps to take you will run yourself into circles and not get very far.  Regardless of what type of investing you want to pursue the steps to purchase are basically the same.  It is important that you follow these steps and avoid taking shortcuts on a given deal.  All it takes is one oversight or incorrect figure to turn everything upside down.  Whether you are looking for your first deal or simply need a refresher here are the basic steps for any real estate investing transaction.

  • Property Information. Numbers and data should dictate your buying decisions. You may personally fall in love with a property but if the numbers don’t make sense you need to pass. The first step of any deal evaluation is the actual property. You need to assess the current condition as well as what improvements are needed to maximize your return. Some of the improvements can be cosmetic while others will be more large scale. You need to put a price tag on whatever updates you plan on making. If you are not versed in estimating these numbers you need to reach out to a contractor that can provide real figures. If you notice we did not mention the current list price. That is because this is often just a starting point and not a final number. A homeowner can list for whatever they like but ultimately the market will determine how much it sells for. Only when you are finished evaluating every aspect of the property can you move on to step two.
  • Seller Motivation. There is often a big difference in what you think the property is worth and the estimation of homeowner’s value. Ultimately the homeowner is the only opinion that really matters. You can support your argument with facts and data but if they don’t want to hear it they don’t have to sell. Generally speaking the best real estate deals are done with motivated sellers. These are sellers who have a desire to sell based on a pending short sale, foreclosure, divorce, death in the family or change in employment. As you evaluate the property you need to gauge the motivation of the seller. If they are not ready to sell now there is nothing you can say or do that will change their mind. You can follow up with them from time to time but you shouldn’t devote all of your efforts in trying to get them to change their mind. They will respond when they are ready and you can’t get too caught up or angry with their inability to act. Without motivation you should move on to the next deal.
  • Financing. How you plan on financing the deal often has a huge impact on your offer. There is something to be said for the ease of transaction. If you have access to capital or hard money funds you can offer a little less with the ability to close quickly without having to wait for lender approval. On the flip side if you are using a lender you need to have all of the items for the loan ready to go upon submission of the offer. In most cases you only have 30 to 45 days to get your offer approved and cleared to close. Without financing in place you cannot make an offer and even if you can the seller will not accept it.
  • Offer Amount. Your offer amount should be based on three factors: seller motivation, market demand and comparable listings and sales. You should always know who your competition is and what the demand is like. On properties with little demand you never want to bid against yourself and offer too high. You can always come up but it is difficult to go down. Properties with high demand your offer needs to be as close to asking price as possible. Always run your own numbers and come up with a price that works for you. Keep in mind that you need to have enough room to make a profit. Make your offer and if it is not accepted move on to the next property.
  • Closing Process. Getting your offer accepted is only the first part of the process. Many would argue that your work starts after your offer is accepted. Regardless if you are using hard money or lender financing you need to get an inspection done immediately. Never skip this process just to secure the deal. Even the trained eye of a contractor can miss something with the foundation or structure. If you skip the inspection you are opening yourself up to risk. If you are using a lender you need to submit all loan items as soon as possible. The quicker you supply your lender with tax returns, full bank statements, business licenses and anything else they need the quicker they can start the process. It is important that you find an attorney who practices real estate and knows how to work with other attorneys and lenders. You never want to lose a deal because your attorney dropped the ball.

You should see the deal all the way through closing and be as involved as you need to be. There are always unexpected curveballs in real estate but these are the five basic steps towards closing.


How To Close Your Deals On Schedule

The odds of your real estate transaction closing on time are surprisingly small. So what do you need to do about it?

This is one of the scariest secrets of the real estate industry. It is rarely talked about, and the secrecy that surrounds it is also one of the top reasons that real estate sales people have lost so much trust over the years. Problems will happen. It is those that are transparent about them, and deal with them that will stay in business and get referrals.

Last summer, the headlines said it all when describing “The New Normal: 25 Percent of Pending Sales Don’t Close.” A couple years before, this figure doubled. The National Association of Realtors revealed that another 20% of deals are delayed, but eventually close. That number could now be twice as high. In fact, most real estate pros might report that very, very few transactions ever close on time.

It is critical for all home buyers, sellers, real estate investors, agents, and CFOs to recognize this fact. Homebuyers and sellers can find their lives thrown into havoc if they have to stay in hotels in between closings. It gets even worse if they need the cash from a previous transaction to buy the next home, or if mortgage lenders demand that property is sold before they’ll find the new home loan. Those real estate professionals that don’t prepare their clients for this can find their reputations taking a hard hit too. Business owners need to factor this into cash flow or go broke. Investors need to prevent missed opportunities and capital sitting idle. All buyers need to recognize the threat to their earnest money deposits and potential for lawsuits.

So why are so many real estate closings delayed? How can this be prevented? How should you deal with it when it happens?

10 Reasons Real Estate Closings Get Delayed

  1. Appraisals
  2. Title insurance defects
  3. Parties do not have valid ID at closing
  4. Buyers funds aren’t available
  5. Mortgage companies not ready to close
  6. Credit scores or job statuses change
  7. Property inspection reports
  8. New damage to the property
  9. Declining property values
  10. Delays in obtaining HOA and condo approval

This is just a snapshot of some of the potential delays in real estate closings. There are many more. These can be compounded when there is a chain of real estate transactions reliant on each other.

How to Prevent Closing Delays

How can those involved prevent both closing delays and the potential consequences these delays bring?

The really big threat isn’t just the inconvenience and minor direct costs associated with a delayed closing. Accordingly, if it doesn’t happen on time, there is a good chance it won’t happen at all. This is especially true in a hot market when sellers and their agent ‘think’ they can quickly put the property back on the market and find a new buyer. Of course that isn’t always the case, and there are no guarantees the same issues won’t arise next time. However, some Realtors, attorneys, builders, and other sellers think they can bank more by keeping the buyer’s deposit and just moving onto a new contract.

The first and most important consideration is leaving more than enough time to close. If your mortgage company says they can close in 30 days, make your contract closing date 60 or 90 days out if you can. If you are paying cash, still allow extra time for the title and insurance companies to do their jobs.

Homebuyers may wish to protect themselves further by not making an earnest money deposit in advance. If you must, make sure that deposit is made with your attorney or title company, not with the seller or their agent.

Sellers can protect themselves by minimizing the time buyers have to conduct to complete inspections, by choosing cash buyers, and by accepting backup offers.

How to Deal When it Happens

Real estate professionals need to jump into the mix right away. As soon as there is a hint of a delay, they should be working to get extensions and preparing all parties. The instinct is usually to hide under their desks and avoid answering the phone, but those that choose fight instead of flight will find it pays off.

Normally a contract extension can be worked out. It may cost buyers more in daily charges, or releasing additional deposits, but if the odds of closing are good everyone should be better served by extending versus starting over from scratch.

Whatever side of the transaction you are on, remember how you would like to be treated if in the other person’s shoes. Remember they have families to feed, and that the industry is better off if people can act gracefully


5 Items That Impact Local Real Estate Markets

With all the constant news and information regarding the real estate market it is easy to get confused sometimes. One day you hear that interest rates are going up and housing market is in trouble for 2017.  The next day you hear that there will be an increase in loan programs which will open the door for new buyers.  The reality is that most real estate is done at the local level.  Something happening in Ohio doesn’t have much impact on the market in New Mexico.  It is important that you understand the markets where you invest and more importantly what influences changes in these markets.  Knowing this can put you in front of a growing market or give you the heads up that it may be time to leave a declining one.  Here are five key items that impact local real estate markets.

  • Demographics. As we mentioned every real estate market has its own unique set of qualities. These qualities often determine just how strong, or weak, it is. Many of these qualities can be defined as demographics. Local demographics can be anything from the mill rate to the strength of schools. It can be unemployment figures, crime rates or average household income. To best gauge the strength of a market you need to look at as many of these figures as possible. Relying on just one of these can give you a misleading portrayal of the area. Finding demographics can be as easy as looking at information provided on the local town website. You can easily find the tax rates, crime figures, unemployment numbers, schools in the area, new housing permits and almost anything else you think is relevant. Real estate is done by real people in real towns. Demographics often hold the key for where the market will go next.
  • Inventory. Real estate is also based on supply and demand. This certainly isn’t an earth shattering observation but is important to remember. If there is increased supply buyers are in a stronger position. They can pick and choose the ideal property for them. Since the buyer pool is reduced sellers are more open to negotiation. Buyers in markets with increased inventory can make the offer they feel comfortable with and if it is not accepted move on to something else. The trickledown effect to this is that home prices tend to be lower. Areas flooded with foreclosures and bank owned properties may seem like a goldmine but can actually be fool’s gold. You may be able to get the property at a discount but you will also have trouble getting it sold. On the flip side in markets with limited inventory sellers have the upper hand and can increase the list price of their properties. Buyers know that there are only so many houses to choose from if they want to stay in that market. Before making any offer always ask your real estate agent about the current inventory and changes over the last twelve months.
  • Foreclosures/Short Sales. The overall number of foreclosures and short sales has been greatly reduced over the last five years. That being said there are still many markets that are not completely out of the woods. All it takes is one foreclosed property to have an impact in the market. When a foreclosed property sells it lowers the comparable sales for every other property. This has an impact on properties trying to sell or even refinance their homes. If there are multiple foreclosures it makes it difficult to pull values up. You can find current foreclosure numbers in town hall. Always look to see foreclosure volume as well as changes over the last six months. It is also a good idea to ask your real estate agent to provide you with a foreclosure sales chart. If the sales prices are greatly reduced it can have an impact in the town even if the foreclosures are nowhere near your subject property.
  • Days On Market. Trends are nothing more than a snapshot of what has happened in the past and not a predictor of the future. Flat sales volume over the last year has nothing to do with the next twelve months. What you want to look for is the average number of days on the market. This tells you just how long, or quickly, homes have sat on the market before getting sold. Some of this is influenced by the current state of lending but most on buyer demand. If the average days on market have been shrinking it is a sign that buyers are coming out in full force. If the days on market are getting longer inventory could be poor or buyers are looking elsewhere. Either way it is a poor indicator of things to come.
  • Price. Price is typically the bottom line for any market. As simple as it sounds if prices are rising the market is more desirable. If prices are falling sellers are looking to get out and buyers are looking elsewhere. When investigating price adjustments you need to look at as much data as possible. It is not uncommon for one or two high end sales to completely change the average sales price. This is why a median or a mean price number is more reliable. With these methods they throw out the lowest and highest sales and provide you a more realistic snapshot of the market.

Before diving into any market you need to know where it stands and where it may be headed. Use these five items to help determine the strength of your market.


Business Development: Why Every Good Investor Needs A Plan

If you are considering getting involved in real estate you need to have a plan. Your plan doesn’t need to be elaborate or even overly formal but you should have some sense of where you want your business to go.  Where most investors get in trouble is thinking they know the business simply by watching a few shows or reading as few books.  As they quickly discover the business has a way of taking them to places they would have never expected.  Without a solid business plan it is easy to bounce around from lead to lead without any real direction.  Prior to looking at your first property or researching your first deal you need to start with a plan.  Here are five aspects of writing a good business plan.

  • Know What You Are Getting Into. You should never start investing without some idea of what you are getting into. Without the aid of experience you should start your plan by doing your homework. Most investors in today’s market are infatuated with rehabs and quick flip deals. While these can certainly make sense in the right market they may not work for you and your goals. You don’t need to be an expert in every aspect of the business but you should have some idea of what you want to do and how you plan on doing it. There is a big difference in what is needed for a rehab as opposed to a buy and hold rental. When you do get involved in your first deal it shouldn’t catch you off guard. You will never know everything prior to getting started but you should always do as much research as needed to make you comfortable.
  • What, Why, When, Where. Your business plan should serve as a roadmap for where you want to go and how you plan on getting there. Start by accessing what kind of investing you want to pursue. Do you want to get in to the world of rehabbing or are you looking for long term rental properties? How you answer will partially determine which markets will be your focus. Some markets work better for rehabs while others make more sense for long term acquisitions. You also need to determine the timeframe for your first purchase. Are you looking to buy tomorrow if something presents itself or do you want to wait a few months? Under each answer you should play out the best and worst case scenarios. Most new investors think everything will fall in line just the way they plan. When they are presented with the slightest issue it throws everything off. The more you consider all of the negatives that can happen the better you are at dealing with them.
  • Time Commitment. One of the great aspects of real estate investing is that you can do it on your own terms. If you want to buy one property a year there is nothing keeping you from doing so. Part of your business plan should be recognizing how much time you can commit to the real estate business. There is a lot that goes into being part of a successful transaction. Even though there are websites and apps that make the process easier there are no shortcuts to success. You need to do your due diligence on every deal if you want to truly know what you are getting into. It is important to ask yourself how much time you have available during the work day to focus on real estate. This can be a challenge if you want to hang onto your full time employment. If finding time during the day is tricky you need to be able to work at nights or on weekends. There are ways to invest even with just a few hours a week but you need to map out exactly how you plan on doing it.
  • Strengths & Weaknesses. What parts of the business do you feel you have a pretty good grasp on right now? While you really never know until you get started often times you know which areas you are comfortable with and those you need to work on. You should play to your strengths and look for ways to compensate for your weaknesses. Whatever field you come from should be your focus. If you come from finance, real estate or the mortgage business you should be able to understand the numbers and jargon on a new deal. If you have a tech background you can use that strength to help generate leads and promote your business. Getting into any new business requires some self-assessment. As you write you plan you should take the time to consider your strengths and weaknesses.
  • Lead Generation. Regardless of your background the strength of your initial lead generation often determines the strength of your business. A major part of your business plan has to be how you plan on getting leads. Fortunately it is easier than ever to promote a business and reach people. The internet, particularly social media, make it easy to reach hundreds of people every day. However reaching people is not enough. You also need to think about how you will generate leads. You don’t need to spend thousands of dollars on lead generation but you should have some strategy in mind. Finding the right strategy will take some trial and error but you need to have a plan prior to getting started.

Your business plan can be as short as a paragraph or as long as you want. Having a plan of attack is the best way to approach a new endeavor.


4 Advantages Of Multi Family Investing

There is more than one way to invest in real estate. One of the most intimidating hurdles in the real estate world is taking the leap to multifamily investing.  The common thought is that with increased units comes increased risk.  The reality is that the opposite is often the case.  Sure, multifamily properties can be more difficult to obtain but are often far less risky than single family properties.  In fact the rewards often outweigh the risk. There is nothing wrong with single family investing but multifamily properties should not be blindly ignored.  If you are on the fence as to whether or not multi’s are for you here are four advantages of multifamily investing.

  • Cash Flow. On a single family property you have one rent coming in. With multifamily properties there is almost no limit as to the number of units you can have. When most people think of multifamily investing they usually think of a two or three unit house. Multifamily investing also includes commercial, mixed use and apartment rentals. On a large apartment complex you can have 100 units or more. This increase in units directly increases your cash flow. This doesn’t necessarily improve your net income but your cash flow amount is much greater. Increased cash flow reduces risk. With a single family property if your tenant stops paying you have no cash coming in. On a ten unit property if one tenant doesn’t pay that is only 10% of your total units. While this scenario isn’t ideal it is much easier than dealing with an eviction and trying to offset the entire monthly payment. This alone makes it much more of an attractive investment in relation to a single family property. A single family property may be easier to sell but a multiunit property is less risky partially due to the increased cash flow.
  • Competition. If you have avoided multifamily properties for years you are not alone. In fact you are much more the norm than the exception. Once the extra unit or units are added to the mix many investors run for the hills. This greatly decreases the competition for these properties. Like anything else in the real estate world the less competition the easier the property is to acquire. Instead of competing with a dozen other investors for a property there may only be one or two interested people. On large apartment and commercial complexes there is often little to no competition at all. There are other hurdles to acquire these properties which are largely financial but reduced competition allows you to streamline the process. Instead of wasting time on single family properties that you may not end up getting your due diligence can be rewarded. Anytime competition is reduced it greatly increases the chances you can get a property you really want.
  • Management. One of the most common reasons that investors shy away from extra units is the perception of increased work. As crazy as it may seem you may actually end up working more on a single family property than you would on a ten unit. There are many single family owners whose cash flow is paper thin. Instead of spending money on property management they are forced to do everything themselves. Every time the phone rings or something needs to be fixed they are the ones handling it. Over time this becomes too much to bear and they look to simply get out of the property. With multifamily properties the increased units give you increased cash flow. This gives you the option of hiring a property management company to take care of the property. You will still get the occasional phone call but you don’t need to hop in your car every time the toilet clogs. Your property will pretty much run on autopilot while you focus on other areas of your business.
  • Appreciation Potential. One of the golden rules of real estate investing is never count on appreciation. This is true regardless of the number of units. While your focus with multifamily properties isn’t necessarily on appreciation there is greater upward potential. With a single family property you are at the mercy of the local market. You may have made great improvements and have strong cash flow but it doesn’t necessarily translate to increased value. With most multifamily properties comparable listings and sales are far less important. Buyers look at certain rental formulas and calculations to determine value. If the property is running at maximum cash flow and the local area is on the rise your property will appreciate. In most cases the appreciation levels are much greater with the more units you have. Some of the wealthiest in the world have accumulated their wealth with multifamily properties. Increased appreciation is never a guarantee but the potential is much higher with increased units.

While there are some differences in single and multifamily investing the process is essentially the same. You are still looking to generate rental income which relates to value.  Like anything else you do in real estate you need to be comfortable with how you invest.  If a multifamily opportunity presents itself don’t dismiss it solely based on the additional units.  Once you close your first multifamily deal you will discover that it was often much easier than you anticipated.

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How To Prepare Your Real Estate Clients For Mortgage Mayhem

How can real estate pros prepare their clients to survive the mortgage process?

While some sources suggest that getting a home mortgage loan is getting easier, it will continue to be a quirky and trying process until major innovations are implemented. Mortgage struggles are one of the most common reasons that real estate deals fall apart. With fallout ratios that can top 30% of all contracts signed; mastering this part of the industry can help optimize business, maximize revenues, and build a superior reputation. Acing this not only decreases the chances clients will drop out, but can make all the difference when real estate agents, investors, and others are buying and selling houses themselves. So what’s so difficult about getting a mortgage today? How can these challenges be navigated to a successful closing?

The Issue

For most, getting a mortgage loan is not an easy or fun process. The process is notorious for constant new demands by underwriters and changing terms. The final terms will almost invariably be worse than the original quote. Interest rates and monthly payments will be higher and buyers will have to bring more money to closing than they expected. Original ‘loan approvals’ are mostly worthless. Once a formal mortgage application is made, the real conditions start flowing. Few may appear to make common sense to borrowers. There may be extra insurances, explanation letters to be written, trips to out of area locations to acquire old paperwork, and lots of resending the same documents again. It’s enough to make even a zen monk get crazy. For the average first time home buyer, this is can be an extremely volatile emotional roller coaster. When underwriters ask for tough conditions and a parent has to explain to their spouse and kids they may not get their dream home, it can get ugly. No one wants the stress. The headaches, extra money, and wasted time may all be palatable, but when it comes to causing emotional stress to their family members, many will draw a firm line in the sand. So how can real estate agents, investors, and sellers, help minimize these issues and keep more deals together?

Setting the Right Expectations

All too often, real estate professionals try to make the process of buying a home sound easy. They promise a perfect, glitch free, enjoyable adventure in buying their dream homes. If that ever occurs, it is a miracle, and the exception. This can make it worse when challenges and new demands start popping up. It may well be worth over preparing clients and buyers for the worst. Tell them the process isn’t easy, that the end terms will probably be more expensive, it will take longer to close than expected, and they should expect bizarre sounding conditions from underwriting. If that doesn’t occur, then they will love you and rave about you to others. When it does happen, they won’t panic and will understand that this is what you meant about it getting challenging.  That way, things won’t seem so bad and your clients will be confident that you will help them through the process.  This also helps them to be prepared to ace any hurdles. If buyers get extra documentation ready before they even start, they’ll be ahead of the game. That sure beats being asked for a tax return the day before closing and finding out the IRS is backed up for 90 days.

Help buyers understand and know where they will and won’t draw the line in advance. If they are applying for a loan with 3% down at 4% interest, will they still stay in the deal if rates hit 5% and they have to put 5% down and bring an extra two thousand dollars to closing? At what point will they have to call it a day?

Stress Management

Never underestimate a client’s stress level. For those buying homes they plan to live in, they will often spend many sleepless nights thinking about the deal. Their whole family’s hopes and dreams – and cash – is riding on this. You might not be able to do much, but you can offer a sympathetic ear and encouragement. Simply dismissing their calls and emails is not going to help get things to closing. They don’t do this every day. So take the time to make them feel better.

Other Solutions

Not every deal is a nightmare. Some will close more easily than expected, but it is smart to be over prepared. These issues can also be minimized by working with better lending partners, choosing better qualified clients, and considering alternative sales processes. Can you seller finance, or at least partially seller finance, your properties to avoid these issues altogether?