Hidden Rehab Fees You Need To Look Out For

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

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

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

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

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

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

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

What Is Your Investing Niche?

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

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

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

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

5 Tips To Help You Get A Great Deal On Your Mortgage

There is a lot that goes into buying a property. Regardless if you are buying as a primary residence or an investment you need to find the right type of financing. There are times when the best financing is through a traditional lender. Anyone that has closed a deal with a bank over the past five years knows that the process has changed. The basic steps and requirements are the same but the amount of paperwork and documentation has increased dramatically. This has tacked on additional days to the closing which impacts the interest rate and at times even the loan approval. Getting the best financing deal does not have to be an intimidating process. Here are five tips to help you get the best possible mortgage deal.

Know Your Options. With any loan you should always have a good idea of exactly what you are getting into. Most buyers are so consumed with finding the right property that the mortgage is often the last thing they think about. As you start your property search you should take some time to research your mortgage options. Start with all of the loan program options available. A traditional 30 year fixed mortgage may not make the most sense given your goals for the property. There are times when a short term adjustable rate mortgage (ARM) can be a much better alternative. Even if you plan on using the property as a rental you should at least explore a hard money option. This type of loan may not make sense for the current purchase but you never know when you may need it at some point down the road. The better you know and understand all of your loan options the easier it is to get things started when a good deal comes your way.

Be Ready To Act. If you are thinking about making an offer you need to be ready to act. You never want to have to scramble around with your financing if a good deal comes your way. The best way to avoid this is by having all of your loan items in place well before you start your property search. Items like your tax returns, business license, social security card and driver’s license do not need to be updated regularly. Keep these items in a dedicated file on your laptop or in a secure place in your home. Other items such as your bank statements, rent checks and income documents can be updated on a monthly basis. You should also keep an updated pre-qualification letter on file as well as a copy of your credit report. The more items you can supply your lender or mortgage broker the easier it is to get the process started. Cutting a few days off of the process can speed up the projected closing date which can give you the inside track on the deal.

Shop Around. In a perfect world you would have an established relationship with a lender you can turn to when financing is needed. If you haven’t had a need for lender financing in some time this may not be the case. It is important that you shop around everyone involved in the transaction. Obviously the lending company you use is most important but you can also shop the attorney and homeowners insurance company. Like anything else in business you are shopping for a mix of price, experience and efficiency. If you know that your loan approval may be difficult simply getting it closed is the top priority. You may have to pay and extra point to use a mortgage broker who has access to a certain program with a lender. Don’t nickel and dime everyone in the process but don’t give anything away either. Whatever you do you should give yourself peace of mind knowing that you spoke with at least three people and were able to compare apples to apples.

Lock. All buyers want to get the best possible deal. However you always need to remember that there is another side to that coin. Interest rates are a moving target. They can move every day and at times even multiple times a day. As much as you want to lock at just the right time trying to squeeze an extra eighth of a point may end up costing you if rates go up. Always lock when you are comfortable with the deal you have. Interest rates have a way of going up much quicker than they will go down. On larger loans a quarter point can have a tremendous impact on your monthly payment. Once you lock you cannot get a lower rate but you also eliminate the risk of getting a higher one. Always lock when you are comfortable regardless of where you think the market may be headed.

Ask Questions. This is your transaction and you should be in control of every aspect of it. If you have a question about something or someone in the process you need to ask. Sometimes by simply asking a question you can get a better deal. It is not a stretch to say that you can shave off as much as $1,000 in the transaction by using the right attorney or questioning a fee from your broker. If something doesn’t look or feel right speak up and ask about it.

Any fees with the loan must be disclosed at the time of the application. You can be confident that the deal you sign will be the deal you see at the closing. Use these five tips to help you get the best possible mortgage deal.

7 Steps To Keep Your Rental Property Occupied

It takes great management to run a successful rental property. One of the most important aspects of rental property management is avoiding vacancies.  Every month that rental income is not coming in directly costs you money.  In most cases these vacancies can be avoided with proper marketing.  There are several little things that you can do that will generate interest to your property.  If you wait until the last minute to find tenants you are playing with fire.  Here are seven simple steps you can take to keep your property occupied.

  • Start marketing early.   It is never too early to find your next tenant. You should always keep your ears open for who may be looking for a rental down the road. Stay in contact with local real estate agents and mortgage brokers. Don’t be afraid to ask them if they may have someone looking for a rental. In addition you should give yourself plenty of time to find someone. Once you are under two months you should start making posts on social media and placing bandit signs in your yard. You can also focus on Craigslist, Zillow and any other website that has worked in the past. The longer you wait to get started the more likely you will be forced to pick the best available tenant.
  • Price right. Regardless of your property or the location price is important. It is often the first item that potential tenants look at. Even if you made improvements you need to look at other rentals on the market. A new dishwasher may look great but it probably won’t add the value you are looking for. You need to price your rent according to how it compares to what else is on the market. If the amenities are close tenants will usually opt for the rental that is less expensive. Do some homework on your market and price your rental accordingly.
  • Highlight positives. With whatever kind of marketing you do you control the narrative. A prospective tenant doesn’t know anything about your property other than what you choose to present. It is up to you to put the property in the best possible light. Start by highlighting all of the positives. If you are one of the few rentals in your market with a third or fourth bedroom make that easily known. The same should be done with any amenities. Focus on items that you think a tenant would find appealing. A deck, garage, driveway, fireplace or new appliances should all be highlighted. Think about what makes your property stand out and drive that home throughout your marketing.
  • Pictures/video. Positive features may generate interest but you need to support those with pictures or videos. We live in a visual day and age. It is not enough to simply say something we need to support it with images. You need to do more than just snap off a couple of pictures and put them on a website. The quality of the pictures is important. Start with a picture of the front of your property. This is the first impression they will have. From there you need to include pictures of all the rooms in the house. The angle of which you take these pictures can make the room like big or small. If you don’t have experience with these or don’t have the right camera it is important enough to consider hiring someone that does. If the pictures are poor the response will be equally as bad.
  • Bonus features. Are there any features that make your property stand out? Do you include heat and hot water with the rental? Is snow removal and lawn maintenance included? Are there a washer & dryer on site? These are the seemingly small items that can be put your property to the top of the list. These may not seem like a big deal to you but they need to be mentioned. Something as simple as basement storage can be a big factor. Anything that you can think of that may be considered a bonus should be included.
  • Create action. The closer you are to the end of your current lease the less leverage you have. If you are in this situation you need to create action. One way you can do this is by offering something of value if they act within a certain timeframe. Free cable for a month can be a good way to get your phone to ring. Even if you don’t want to give up anything of value you need to create a sense of urgency. Phrases like “property won’t last long” or “act now” may give you the little push that you need.
  • Contact info. Dealing with tenant phone calls constantly can get annoying at times. This is nothing compared to dealing with a vacancy. On every ad you place either in print or on a website you need to include multiple contact options. Leaving an email address is not enough. You need to include your name and phone number as well. People are more likely to call if they are interested than send an email. When you get incoming calls you need to answer them. You never know who will be the call that turns into a tenant. You can’t wait for a tenant to leave a message and call back when you feel like it. By the time you call they may have already spoken with three other landlords.

Finding a tenant usually does not happen on its own. You need to put some work in to keep your property occupied.  Following these seven steps will greatly improve your chances of never having to face a vacancy again.

 

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.

 

4 Ways to Reduce Your Power Bill This Season

As the days get shorter and the weather gets steadily colder, homeowners across the country will see their power bills increase dramatically. Heating and lighting your real estate investment through the late fall and winter can cost you thousands if you’re reckless. So don’t be! Here are a few steps you can take to help keep your heating and power bills to a minimum:

  1. Pull the plug. Did you know that even when a device or appliance is turned off it’s still drawing power? Things like televisions, home theater equipment and stereos actually run in “standby” mode when you leave them plugged in, and they can draw as much energy as a 100-watt light bulb. If you remember to switch off your power strips or unplug the individual devices, you can easily save $10 a month on your electric bill.
  2. Put your computer to sleep. Much like car engines, a computer uses more energy during startup and shutdown than it does when it’s left to continuously run in a low-power state. Instead of shutting your computer down, try putting it into hibernation mode instead. You’ll save money on your power bill, and because you won’t have to boot up quite so often, you’ll save time too.
  3. Use small space heaters. Don’t crank up the thermostat every time your real estate investment gets a little chilly. Small, portable space heaters can warm a bedroom in minutes, and when used wisely they can save you hundreds a month on your heating bill. You can pick them up at any department store for less than $20 per unit.
  4. Upgrade your windows. Do you have double-paned argon-filled windows in your home? If you don’t, they’re definitely worth considering. Not only will they save you 9.8 tons of heat annually, they’ll also boost your property value significantly.

The weather might be extreme this season, but that doesn’t mean your power bill has to be. If you take the right steps to insulate your real estate investment and remember to unplug your appliances when they aren’t being used, you can keep your wallet stuffed and your property value high.

5 Things You Need To Know Before Making An Offer

Most new investors are in a rush to make an offer. They want to accelerate the process and get things started as quickly as possible.  As great as taking action is you also need to know everything about the deal and property you are making an offer on.  A lack of due diligence in just one of a few key areas can completely change the perception of the property.  Prior to looking at any new property you should have a due diligence checklist firmly in place.  This will help streamline the process and allow you to quickly react and avoid a major oversight.  Here are five things you need to know and have in place before making an offer.

  • Financing. The starting point for any purchase is financing. How you plan on financing the property impacts almost everything you do in the transaction. The terms and price on a property you are paying cash for is different than if one you would utilize lender financing. Either option you chose can work but you need to know which way you are going to go prior to making an offer. If you plan on paying cash you need to have your proof of funds letter updated with any amounts adjusted. If you are using lender financing your pre-qualification letter has to have the proposed purchase price in addition to as much specific information as possible. Your financing can, and probably will, change depending on the specific property. However you need to know which way you want to go prior to making an offer. The type of financing you choose will often influence the decision of the seller.
  • Understand Local Market. Getting an alert about a new listing at a reduced price may seem like a steal but it can end up being fool’s gold. If the property is in a declining market getting it for virtually nothing can still end up doing more harm than good. Prior to making any offer you need to know everything about the market the property is located in. It can be argued that the market is more important than the actual property. You need to understand both the micro and macro view of the property. The micro view looks at properties and trends as close to the subject property as possible. The macro view looks at the town as a whole and the big picture view of the area. It is important that you understand as many trends as you can find and have an idea of what influences them. The local market of the property will often directly influence the property value as well as what your future options are. It is not enough to simply acquire the property and figure things out as you go.
  • Know The Property. If you are going to make an offer on a property you had better know everything about it. Almost every seller will go to great lengths to make their property appear as appealing as possible. If the flaws are not obvious it can be difficult finding them. Prior to making any offer you need to go the extra mile to know exactly what you are buying. Track down the listing history and see if there was any work recently completed on the property. Walk the grounds with your contractor or an inspector to give you an additional perspective of the property condition. In your excitement to make an offer it is easy to gloss over some minor items that can actually have a significant impact. By having someone you trust provide an additional perspective on the property you reduce the risk of finding something unexpected after you take ownership. If you aren’t comfortable with your knowledge of the property you should consider passing until you are.
  • Walkaway Price. There is a lot of work that goes into researching a property and making an offer. There are times when you will do hours of due diligence on a property and not be rewarded with a deal. As difficult as this is it is part of the business. What you can’t do is let one deal influence your actions on the next one. It is important that you have a walkaway number in your head prior to making any offer. Without this number it is easy getting caught up in a bidding war and letting your emotions take over. Sometimes some of the best deals you make are the ones you walk away from. Stand firm with your number and know where to draw the line and walk away.
  • Research Exit Strategies. What do you plan on doing with the property if your offer is accepted? Do you have a backup plan or two in mind if things don’t go the way you anticipate? The longer you are in the real estate business the more you will accept that things won’t always go the way you plan. There will be plenty of times when you need to call an audible and change gears on the fly. If you are not ready to adjust you may find yourself in a situation with a property you desperately want to get out of. Prior to making an offer you need to have multiple exit strategies you can employ in a moment’s notice. The more options you have the more valuable the property is. Never put all your eggs in one basket and assume that everything will go the way you anticipate.

You always want to be confident you are making the right offer on the right property for you and your business. If this means taking a little more time on due diligence than that is what you need to do.  Always know and understand these five areas before making an offer.

Buy And Hold Rental Basics

It wasn’t too long ago that buy and hold rentals were the most popular form of real estate investing. While the popularity of this niche has declined in recent years it is still as profitable as ever.  Finding the right rental property in the right market can supply the perfect mix of short term monthly cash flow along with long term benefits.  For as many investors have taken advantage of rentals there are still quite a few who are on the sidelines.  They have heard horror stories about bad tenants, changing market conditions and nonstop management issues.  Even though these are the exception rather than the rule this is the impression that many non-rental owners have.  Deciding on whether a rental property is for you depends on your real estate goals as well as your resources.  Here are a few pros and cons associated with buy and hold rental properties.

PROS:

  • Monthly Cash Flow. The first benefit of a solid rental property is the monthly cash flow it provides. This should continue for as long as you own the property. What you do with your cash flow is entirely up to you. One month you may allocate some of the funds for property maintenance. The next you can use it to pay down monthly debt. Whatever you choose to do the cash flow received will be higher than the yield you would receive from a savings account. As long as you take care of the property and find good tenants this cash flow should be available for the foreseeable future.
  • Immune To Market Fluctuations. With a long term approach to your rental property you are not as worried about market fluctuations. On a rehab property you are trying to time the market for maximum return. With a rental property you are not as interested in where current property values are. Your goal is to ride out the fluctuations for years until you own the property free and clear or decide the time is right to sell. This allows you to focus on other areas of your business and not stress about the market.
  • Potential Appreciation. With rental property investing the focus is on the future. It is never advisable to buy anything based on the potential value but the possibility is there with a rental property. With your down payment as well as ten years of monthly payments you will eat away much of your principal balance. Most markets have stabilized but still not fully taken off. This means there is plenty of room for future gains and appreciation. This makes for a great retirement vehicle or an avenue of forced savings.
  • Tax Benefits. There are a handful of tax benefits to consider with a rental property. You have the ability to write off a good number of expenses associated with the property. You also can use depreciation in your favor. With the help of a quality accountant a rental property can be a real benefit come tax time.

CONS:

  • Property Management. To run a successful rental property you need to stay on top of it. It is not enough to simply find a tenant, give them a key and wait for rent checks to roll in. There will be maintenance issues, problems with rent collection and trouble finding the perfect tenants. The best way to solve this is by having a dedicated property manager handle everything. This only works if there is enough monthly cash flow left over to fit it in the budget. Regardless of the property management is always a big concern.
  • Down Payment. One of the biggest hurdles to investment property ownership is the amount of down payment. Most one or two family investment properties require a down payment of anywhere from 20-25%. This is in addition to the closing costs and prepaid property tax requirements. Once you get into the property you still need funds for repairs, applications and monthly maintenance. With a long term approach you may not get your money out for several years.
  • Vacancy Concerns. As a rental property owner you are only as good as your tenants. You can do everything else right but if your tenant stops paying you are in trouble. The threat of a vacancy is always in the air with a rental property. You are only one month away from things getting turned upside down. If you are forced to deal with an eviction not only do you lose the current monthly income but it changes the way you view the property. One bad tenant can have an impact that lasts several months.
  • Cash Investment. There is an old expression in real estate that cash is king. When you have a rental property your cash is tied up and at the mercy of the market. Even putting down a large down payment does not necessarily give you the option of taking it out if you need to. Many lenders have made second mortgages or refinancing very difficult to obtain. Plus, there is no guarantee that property values will rise in the future. If you are thinking about a rental property be prepared to have your cash tied up for many years.

There are many investors who have made great amounts of income through rental properties. These investors are more concerned about ten years from now rather than what will happen in the next 60 days.  Rental properties can truly change your portfolio for the better but are not without some downside.  Before you commit to a buy and hold property you should know exactly what you are getting into

– See more at: http://www.cthomesllc.com/2016/04/buy-and-hold-rental-basics/#sthash.YBf0j29h.dpuf

How To Help Determine A Property’s Value

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

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

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

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

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

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