What To Look For From A Hard Money Lender

One of the fastest growing areas in real estate over the past decade is private financing. When the market collapsed many of the traditional lenders went out of business. This created a new market for financing and the demand for hard money financing exploded. What was once a niche sector of the market that catered only to unique situations has since turned mainstream. You can find a hard money lender in almost any market with just a few phone calls. These lenders have business cards, websites and market their services just like anyone else.

If you have any interest in quick flips and rehabs, access to hard money is a must. A traditional lender financed offer, even at a higher price, does not hold as much weight as one with a quick cash closing. Hard money lenders are a necessity, but you still want to make sure you are getting the best possible deal. Here are five important items to look for when working with a hard money lender.

  • Approval. Not every hard money lender is a good fit for every investor. The starting point for any lender is approval. Just because you want capital and have a plan, doesn’t mean you will get it. Some lenders have strict lending criteria that in some cases can be stricter than your local bank. Others are based solely on the property and personal collateral isn’t as important. Whatever the approval items and methods are you need to know them up front. If your adjusted gross income is low, you may need to document your income. If the funds are based on the value of the property you should know where they are coming up with the value. The approval methods determine almost everything else in the transaction from rate to terms to available funds.
  • Terms. Even though you are looking for capital, it doesn’t mean you should accept a bad deal. When reviewing the terms of the deal there are a handful of important items you should look for. On the surface most people think that interest rate is the end all, be all. The rate is important but not the most important thing. You need to know you are protected in the event of an unforeseen event. There are times when your project will run longer than you anticipate. When it happens, do your terms allow for an extension? If so, how much will the extension cost you? Do you have a prepayment penalty and are you on the hook for a minimum number of payments? The best remedy is to have an attorney review your contract and discuss any red flag items with you. If the lender is hesitant in providing a contract it should be taken as a sign they may have something to hide. There are too many hard money options to get involved with a lender you don’t fully trust.
  • Fees. A hard money loan is not the same as a traditional lender. There is a reason you are looking for hard money in the first place. You may not have the income to qualify or your credit score may be too low. You may want the access to quick capital and don’t want to deal with the red tape from most lenders. Whatever the reason, you are the one looking for capital, not the other way around. Because of this you can expect to pay a premium in the way of increased fees. Since the market collapse there have been some regulations put in place regarding financing. Some hard money lenders, and specific loans, apply and others are on a case by case basis. When using hard money you can expect to pay 2-5% of the loan amount in fees. This is certainly steep but when you consider the alternative coupled with the potential return it is usually worth it.
  • Rates. Interest rate and fees usually go together when talking about a hard money loan. With increased fees there are also increased interest rates. But, in much the same way with increased fees, higher interest rates may not be as big a factor as you think. With most hard money loans you are only using the money for a short period of time. The interest rate is always important, but if only hold the funds for six months it isn’t as big of a factor as if you held the loan for 30 years. You can expect to pay more in the short term, but if you are making a profit, you may not even feel the impact.
  • Access. With a hard money lender you should always try to build a long-term relationship. One off deals can be timely, but what happens the next time you need funds? When initially talking to a hard money lender it is important to ask what kind of access to funds you will receive. Unless you have an established relationship for many years you will not have a blank check to make offers. However, you should have some leeway to pursue deals and properties you think are a good fit. You should simply ask what the process is on every new deal you get. If you have to start back from square one all the time, you may want to look elsewhere.

Every investor should have access to a hard money lender whether you think you need them or not. Use your personal contacts to find at least three local lenders and go from there.

 

Are You Still Managing Your Own Properties?

There are legitimate pros and cons to almost every action you take in business. If you talk to ten people, five will be staunchly in favor of your action and the other five will have a completely different opinion. Thus is the case with property management. There is no disputing the value of a dedicated property manager, the only issue is whether the cost supports it. Most property managers take 10% of the total monthly rent received. On properties with thin cash flow margins this can wipe out most, if not all, the residual cash flow. However, even if that is the case it may be all the more reason to have a professional handling the property. With such a thin margin for error you need all the help you can get. Self-managing can work in some situations but for the most part you are better off with a property manager. Here are five reasons to stop managing your own rentals.

  • Time value of money. Time is the most precious commodity we have. There are only so many hours in a day to accomplish all the tasks you want. This is especially important in the world of real estate. Regardless of where you are in your business there is a good chance you wear many hats. One day you may focus on lead generation and marketing and the next you are running a rehab project. If you must get pulled from what you are doing to deal with a tenant, it not only sets you back but can get you off track. A property manager allows you to spend your day on the tasks that really matter without worrying about your rentals. It is simplistic to say that you can’t put a price on this, but in some cases is really is true.
  • No more midnight phone calls. It is very rare that a landlord will knowingly rent to an annoying tenant. Anyone who has ever owned a rental property, even for a short period of time, knows that some tenants can be a real handful. There is a big difference in dealing with legitimate property issues and having a tenant call every time a lightbulb needs to be fixed. If you get the wrong tenant, you will quickly become frustrated and annoyed. The problem is that you can’t completely ignore every call that comes in. In the midst of requesting a lightbulb change they may tell you that the toilet won’t stop running. When you get the water bill you will have wished you listed a little better. A property manager handles all these petty and annoying calls often without you even knowing. It is good to be kept in the loop and know what is going on with your rental, but you don’t need to do so at midnight twice a week.
  • Tenant retention. One of the keys of rental property ownership is keeping your property constantly filled. This sounds simple enough but, in some markets, can be a real challenge. The starting point for finding tenants should always be the current tenant. With a property manager there is a better chance they feel comfortable with the property and if everything else is equal would rather continue living there. Additionally, a good property manager also knows where, how and even when to start looking for new tenants. They will handle the time-consuming aspect of showings and answer and follow up phone calls a prospective tenant may have. You always want to give yourself plenty of time to find your new tenant without having to compromise your terms. With a good manager they will find your next tenant with months to spare.
  • Simple maintenance. A good property manager has the ability to handle many tasks. For starters, they often have a rolodex of people they can reach out to in the event something is needed with the property. This saves you time in not having to call ten plumbers to see if they can fix your toilet. You also don’t have to change your day to meet the plumber at the house and hang out there while the work is being done. They also are typically able to handle simple property maintenance tasks. This can be invaluable to you and the property. It is more difficult than you think finding someone you can rely on and trust to change a lock or unclog the toilet. Having your property manager wear multiple hats saves you time, and money.
  • Rent collection. Everything in a rental revolves around rent collection. Your property can be in great condition and offer top notch amenities, but if your tenants stop paying it won’t make a difference. A property manager gets paid based on the rent received. Because of this they have a vested interest in making sure your tenants not only pay but pay on time every month. They will set up methods of rent collection that may be easier for your tenants rather than simply sending a check. If they sense there may be an issue they will get out in front of it, so it doesn’t become a bigger problem.

Property managers don’t necessarily work for every property, but in the right situation is a no brainer. They may not work for every property but should at least be a consideration.

3 Key Components Of A Property Evaluation

One of the most tedious and time-consuming aspects of real estate investing is due diligence. It is not a stretch for a good investor to look at dozens of properties without getting an offer accepted. In fact, they may not even make an offer if the property and numbers don’t make sense. After a while driving to new listings can feel like a waste of time. However, the property you get lazy on is the one that will get you in trouble. Instead of lamenting the fact that you can’t get more deals, you should refine your system to streamline the process. The quicker you are in deal evaluation the quicker you can make a decision and move forward or move on to the next property. Here are three key components of deal evaluation.

MARKET

  • Comparable sales. All markets are not created equally. A great property in a poor location is not as valuable as a poor property in a great location. The market will dictate demand, which impacts your end sales price. You should always look at the last 60-90 days of sales. Anything further out doesn’t give you a realistic snapshot of the market. Look to see which way the market is trending, and what has influenced any moves. This is what buyers and real estate agents will look at when considering an offer.
  • Activity. What is the current sales volume like? The more robust the sales numbers are the more buyers in the market and the more likely you can sell your property quickly. On the flip side, if there have only been a handful of recent sales you may be in a sagging or declining market.
  • Inventory. Market inventory is one of the most important predictors as to which way the market is headed. All sales are driven in part by supply and demand. If you are in a market with an overflow of supply buyers have the upper hand. They can dictate terms and if they don’t like your property simply move on to the next one. If there is a small number of properties on the market buyers may not be as selective. They will be open to looking at almost any new property on the market and in some cases be willing to overpay in the right situation.

PROPERTY

  • Cost of repairs. If you plan is to rehab the property you need to create value. The current condition really doesn’t matter, the cost to transform the property does. On your initial walk through you should make a list of all necessary repairs and if you are able assign a dollar amount to them. You will probably need your contractor on your first several deals but eventually it becomes easier. It is critical that you are have accurate estimates and don’t miss anything. The cost of repairs directly impacts your offer.
  • Room count. Rehabbing a property may not be as easy as it appears on TV. Knocking down walls and adding rooms is possible, but not a slam dunk on every property. As simple as it sounds you want properties that have appeal to buyers. In a perfect world the property will have at least three bedrooms and at least one bathroom. You can get creative with other rooms, but you will have a tough time selling a property with two or less bedrooms.
  • Street/Neighborhood. In high demand markets buyers will look at every little thing with the property prior to making a decision. You may have a great property and have done great work but if the property has a steep driveway or is on a busy street it may not make a difference. The street traffic and the area immediately around the property can influence a buyer. Some of these items, like the pitch of the driveway can be changed but you can’t change the street or the noise from a nearby highway.

PURCHASE

  • Numbers. You don’t need to be a rocket scientist to know that numbers are critical in any real estate deal. With a fix and flip transaction there are several key numbers that should influence your decision. The cost of repairs, after repair value, carrying costs and purchase price all play a key role. You should have a spreadsheet template you can use to plug these numbers to give you an exact idea of what you are getting into.
  • After repair value. It is only human nature for a rehabber to think their property is better than the comparables on the market. Because of this there is an instinct to think the property is worth more than it really is. On every property you need to rely solely on the data without letting your emotions get in the way.
  • Timeframe. When you are able to buy and then sell is almost as important as the numbers themselves. A great deal six months out may not be so great when it finally happens. If you can’t turn the property over for five months you are banking on the market staying the same, or improving, during that time. This is always a tricky gamble and there is no guarantee you will be right. You need to consider the timeframe on every side of the transaction.

Like anything else the more properties you evaluate the easier it becomes and the better at it you will be. In the meantime, focus on these three key areas to help expedite the process.

Improve Your Negotiation Skills With These 5 Simple Tips

Negotiation is a direct part of almost everything you do in the world of real estate. In addition to negotiating the best possible price on every offer you make, you negotiate with your contractor, property manager and possibly even tenants without even knowing it. The better you are at negotiation the greater impact you will see on your bottom line. On the flip side, if your negotiation tactics and approach are poor you will not only lose credibility you will lose money.

Improving your negotiation is more about the little things than drawing a line in the sand and not being flexible. Changing your mindset and doing your homework prior to any negotiation will help you win more small battles that effect your business. Here are five simple tips that will help improve your negotiation skills.

  • Do your homework. A majority of negotiation battles are won even before they are started. By doing your homework and knowing what the other side wants you are squarely ahead of the game. Every negotiating party is motivated by something. If you are buying a house the seller may be motivated by money, but they may also be motivated to close quickly or to close on the property as-is. The clearer the motivation of the other party is the easier it is for you to build your plan of attack. It is also a good idea to know everything about your subject as possible. If you are negotiating with a painter you should do some homework on the cost of paint, supplies and comparable work done in the past. Walking into any negotiation without some data behind you not only makes you look foolish but will immediately put you on your heels and leave you willing to take the best offer you can get and run.
  • Let other person make first offer. In any negotiation there must be a starting point. It is important for you to let the other person say what they want first. This gives you a reference point and helps know where you stand. There is a fine line in any negotiation between asking for what you really want and insulting the other side with a lowball offer. An outlandish first offer or price gets things started on the wrong foot and can bring negotiation to a halt before it even gets started. By letting the other party go first you now know what they want and can work your argument from there. If you are thrilled with their offer you can’t show your hand. You need to let them think you are taking it all in and considering it. If their offer is not even in the ballpark you should immediately lay out the reasons why. The more data you have behind you the easier it is for them to see they may be way off.
  • Stop talking. Regardless of whether you have the upper hand or not you need to learn to stop talking. In any argument or negotiation it is best to let the other side get out what they need to. This is important for several reasons. First, let them feel that they are in control of the situation instead of listing to you rattle off facts and data at them. Secondly, by talking too much you will end up giving away the farm and boxing yourself into a corner. Most importantly, by listening you will hear valuable information you may be able to use against them down the road. A seller may secretly disclose their motivation or let you know what they really want out of the property. A contractor will tell you what they need to pay their guys, giving you an idea of how to structure your bid. If you listen without thinking of what you will say next you will set yourself up to counter intelligently.
  • Be willing to compromise. The best negotiations are the ones where both parties walk away happy. Steamrolling may feel like ultimate victory but if you overplay your hand it will eventually come back to haunt you. An attorney or real estate agent will form a negative opinion of you that may hurt on a future deal. This doesn’t mean you can ask for what you want but you should always be willing to compromise. Prior to entering negotiation think about what is really important to you. There is most likely one sticking point that is non-negotiable and several other items you want, but can live without. These items you must be flexible with and be willing to bend on if you have to.
  • Attach firm deadline. If you make an offer to someone you should never put them on the spot, but you must attach a firm deadline to respond. It is no secret that deadlines always spur action. By giving the other party 24 hours to respond you put their feet to the fire while keeping negotiation moving. Even if they counter at least you have kept the dialogue going and are closer to getting what you really want. On the flip side, without putting pressure on the them you increase the likelihood they will look elsewhere or put things on the back burner.

Negotiation is everywhere in real estate. Getting the upper hand on just a few negotiations a year will have a positive impact on almost every aspect of your business.

5 Tips To Help Get Started (Successfully) In Real Estate

Real estate investing success is available to anyone who wants it. All over the country there is a growing number of people who have turned to real estate as a means of income. Despite the growing numbers, simply diving into the business does not mean you will flourish. There are several important steps and actions you must take if you want to be successful. As you are just starting out it can be quite overwhelming knowing what to do and who to listen to. Instead of trying to master every area of the business there are a few basic tips you should focus on. Here are five key tips to help you get started in real estate.

  • Know the process. With the boom in interest there has also boom in real estate investing programming. Many of these shows are quite entertaining and can even be educational, but don’t always tell the whole story. The investor you see on your favorite show has most likely been in the business for years and has multiple systems and lead funnels in place. What they do in their market may not work for you and the market you choose. The first thing you need to do if you want to invest in real estate is to study the process. Whether you want to focus on quick flips or buy and hold rentals you need to know, and understand, how everything works. Too many investors get started without knowing what steps to take and end up boxing themselves in a corner. They end up scrambling just to make a small profit, or worse. Knowing what to expect keeps you one step ahead and gives you the best chance of making a good decision with the property.
  • It’s ok to walk away. With the increase in competition it is very rare to get a slam dunk, too good to be true deal. This doesn’t mean there isn’t profit to be made, but you need to find a way to outsmart your competition. Whether you are looking for your first deal or have had some time from your last one you need to know that it is ok to walk away. Some of the best deals you will ever make are the ones you don’t make. It is easy to bend the numbers or imagine everything breaking right if you really want it to. If you need to rely on the best-case scenario you may be taking on more risk than the property is worth. There are always other properties out there. You may need to change up how to find them, but it is always better staying patient rather than forcing the issue on a property you know isn’t worth it.
  • Consider all options. Even if you are laser focused on one specific area of the business you still need to keep all your options open. You never know when you will be presented with an opportunity that is too good to be true outside of your comfort zone. As you are just getting going you should become familiar with as many different ways to earn as possible. If you get a deal that you can’t do, you may be able to pass it along and make money wholesaling it. There may be a property that fits better as a rental than a flip. A good rental property can help generate short term monthly cash flow as you figure out what you want to do with the property. Perhaps you are not into flips and rehabs right now, but you may be at some point down the road. The more you know about each different area of the business the easier it is to not only make money but figure out where you want to hang your hat.
  • Join a club/local investing group. If you want to invest in real estate, you need to commit to it. You can learn valuable skills and education online but that is only part of the process. You should talk to as many people who are actively investing in your area as possible. The best way of doing this is by joining a local investing club. In most markets you can find a REI club or something similar. These clubs have monthly meetings where you can network with people in different areas of the business as well as guest speakers on a particular niche. You can learn more simply from talking to people than any book you will read.
  • Make a plan. Never do anything in real estate without a plan. By making offers on properties you don’t know everything about you will end up facing an uphill battle. As simple as it sounds start by mapping some short and long-term goals. What do you want from the business? Do you want to invest part time or are you looking for a way to supplement your full-time income? Do you want to generate funds for the short term, in the way of flips and rehabs, or do you want to invest for the long term with rental properties? The more defined your plan is the easier it is to market for the kinds of deals you want and act when they become available.

By focusing on these five areas you will be comfortable acting when a new deal comes your way.

5 Valuable Lessons Any Investor Should Follow

If you have been in real estate for some time take a minute and think back to when you started. There is a good chance some of the decisions you made are downright laughable even just a few years later. Every day you are in the business should be a learning experience. Everybody makes mistakes, the key is never to make the same mistake twice. The knowledge you gain must be acted on or it is essentially useless. It is always better, and far less expensive, learning from the mistakes and missteps of others rather than constantly banging your head against the wall. Regardless whether you are new to the business or a seasoned vet, there is always something you can learn. Here are five valuable lessons any investor should follow.

  • Listen to opinions (but don’t necessarily act on them). It feels like everybody has an opinion on the real estate business. The minute you proclaim yourself a real estate investor, you will be inundated with opinions and strategies on how you should invest. Instead of blindly dismissing these opinions you should actually take a minute and listen to them. You never know when you will hear an idea that sparks action. This doesn’t mean you shouldn’t have personal convictions but the more information you hear the easier it is to make decisions. Some ideas and opinions will be outrageous that may only sink in when you hear them from other people. Some opinions can work, but not for your personal business and your market. There is no such thing as too much education. By hearing as many people and voices as you can it will help narrow your focus and help choose the best path for your business.
  • Take calculated risks. Everything you do in business, and in life, carries some kind of risk. Driving to work may not seem like much of a gamble, but if you dig deep enough it is. The key to real estate is knowing when to take risks and when to walk away. There is no such thing as a slam dunk deal. Every deal you are part of will have risk attached to it. Before getting involved you need to do your homework and make yourself comfortable enough to make a decision. Once you have an opinion you need to act on it. There is a thing in the real estate world known as paralysis by analysis. Simply put you know what your gut is telling you to do, but you look at the deal from every possible angle until the negatives slowly outweigh the positives and you fail to act. You go back and forth for days and when you are finally ready to do something the property is off the market. You don’t need to make over-aggressive moves with limited upside, but when an opportunity presents itself you need to be willing to take calculated risks.
  • Be willing to change. It is impossible to know if what you are doing now will work a year down the road. In any business there is a balance between sticking to your guns and knowing when the change. Change is never easy, but it could help save your business. Before making any changes, you must be willing to see whatever your initial plan is through to completion. This could be sticking with a marketing idea or trying a new lead generation service. It could be working with a new business partner or trying out a new real estate contract. Changing does not mean prematurely jumping ship until you are 100% certain you have given it a fair chance. At that point, you need to make quick, decisive, well thought out actions that prompt change. You may have thought something was going to work, but if the data shows something different you need to be willing to shift gears and change things.
  • Find a voice of reason. In real estate there are literally dozens of decisions to be made every day. Knowing what to do all the time can be difficult. To ease the burden and help you sleep at night you should find someone you trust to bounce ideas off. This can be a trusted mentor, a long-time networking partner or someone you are considering partnering up with. They shouldn’t be someone who says yes to every idea you have or every plan you come up with. Someone who is willing to tell you no can be a great ally to have.
  • Success is easy, sustaining it can be difficult. If you follow sports you see it all the time. A team will go on a good run, win some games they are not supposed to and eventually win a championship. The next year, with all the same pieces still in place, they do not get back to the same point. Essentially the same players do not have the same success from one year to another. The biggest reasons is because getting to the top of the mountaintop is the easy part, staying there can be difficult. As hard as you work to achieve success you need to work twice as hard to keep it. There are always distractions when you are on a good run. You feel like you don’t need to work as hard because you think you have it made. Anyone successful can tell you that things can change on a dime. If you stop working you will be left wondering what happened.

Every day in real estate you should learn something new. Start by focusing on these five valuable business lessons.

How Real Estate Agents Can Boost Income

How can real estate agents and other professionals slash their wasted time in half and boost incomes by 13% in just six weeks?

Effective time management is one of the biggest issues for real estate agents, investors and other industry pros. Unfortunately, many of the ‘solutions’ that these individuals buy into become their worst enemy and compound the problem.

Sadly, this applies to personal assistants, apps and expensive new software technologies. This doesn’t mean that these things can’t be valuable or good investments. In fact, some may be essential, it is the execution that renders them useless, or makes them into an even bigger time suck.

It is crucial to invest in real estate education. Get your hands on good tools and leverage technology. Use available resources to find a new and efficient way of doing business. If not used well, however, they won’t deliver on their promises.

When first getting into the business, real estate agents are slammed with dozens of products and services promising to help, but most fail to deliver because they are not used effectively.

Michelle Bullock, of Office Snap Inc. in Naples, FL, has found a profitable and in demand niche in helping real estate agents overcome this. She does so by helping them to eliminate redundant filing systems, get the most out of software, implementing systems, and helping them to get more out of their assistants by better defining job responsibilities.

By incorporating cloud storage systems like Dropbox or Google Drive, establishing better training for real estate assistants and keeping real estate agents more organized, she claims Realtor offices and individual agents can slash administrative labor hours in half and add over 10% to the incomes of six figure earners in a matter of a few weeks.

So the real lesson here is that before you run out and buy more software or sign up for a new service, make sure you are really getting something that you’ll use and that you are maximizing what you already have. If you can free up 5 hours of your time and your assistant’s time each week, you could potentially yield several more deals a month.

5 Rules To Buying Great Properties

To be a great real estate investor you need to follow rules. The rules you create will help guide you in everything you do.  Without rules it is easy to jump at every new property that hits the market.  Without a set of defined rules you can end up with properties that aren’t really profitable.  Instead of working on quality properties you will waste time, and money, trying to scratch out a small profit.  Before you make any offer you need to see that the property fits your criteria.  It may be more difficult in finding properties and deals that are a match but the ones you do will be much more profitable.  Here are five golden rules to buying great properties.

  • Buy Properties That Create Value. To make money in real estate you need to be able to buy low and sell high. This isn’t exactly breaking news but it often gets lost on new investors. Buying a property and making some upgrades is no guarantee that you will make a profit. The single most important factor in any real estate purchase is the ability to create value. This can be done with buying in the right market or making the right improvements. Buying in the right market certainly helps create value but is far from the only factor. You need to be able to solve a problem. The seller may have a problem finding willing buyers and is ready to sell for a discount. A seller may not have the capital to complete all of the improvements and is ready to move on from the property. Before you make any offer you need to ask where and how you will create value.
  • No Emotions. It is important that you take all emotions out of your investing decisions. There will be times when you follow a property for weeks and feel you have the inside track to purchase it. When you find that there is competition the natural reaction is to do everything possible to make sure it is yours. This often leads to irrational behavior and poor decisions. Regardless of how long you have pursued a property once the price gets too hit you just need to let it go and move on. Like the old saying goes there are other fish in the sea. The longer you stay attached and consumed with a property the longer it will take you to find your next deal. Letting go and moving on can be difficult at times but it is the best thing you can do to ensure you only pursue quality deals.
  • Numbers. A major part of letting go is trusting the numbers. The market and the numbers should be the ultimate guide for choosing which properties to pursue. Not only do you need to look at the numbers but you need to make sure they are realistic. If you really want a property you can adjust the figures and data to make a property look as appealing as you like. By doing this all you are only hurting yourself. The goal of any real estate investor is not to acquire any property but to purchase the right one. It is critical that you let the numbers guide you with everything you do. It is not enough to take the seller or selling real estate agents word for it. Spend a little time and do your own due diligence on everything associated with the property. You never want to be caught off guard by something you should have found before you closed. If the numbers don’t work or if too much has to happen for the property to be successful you need to walk away and wait for the next one.
  • Expect The Unexpected. Regardless if you focus on rehabs or buy and hold rentals unexpected items always happen. The best investors acknowledge and brace for these events to happen. It doesn’t mean they are consumed by negativity but they have systems in place to handle unforeseen events. There is nothing that can wipe a business out quicker than not having ample reserves in place. Without them you are walking a tightrope without much of a net. Your great tenants today could stop paying their rent tomorrow. The kitchen floor you want to replace may need to be dug up and started from scratch. There are many examples of unexpected items happening in every area of the business. Whether you have reserves in place or simply have the mindset to prepare for them you always need to expect the unexpected.
  • Have A Good Team In Place. Most investors feel they can do everything themselves. When they realize this isn’t the case they often struggle. Before you move forward with any purchase you need to surround yourself with people you can trust. It is not enough to work with the first able person that presents themselves. You need to be fully comfortable with everyone on your team. Whether you know it or not but you will lean on your team more than you know. Not only will your team help get the job done but they will also make your life that much easier. Instead of handling tenant disputes your property manager will deal with them. If there is a problem with a rehab property your contractor will be first in line. Over time you will learn to trust your team more and your business will benefit from it.

By following a firm set of rules you are less inclined to veer off track every now and then. Recovering from a bad deal can take months, if not years.  Before you get too far in your business make a set of rules you can follow on every potential deal.

 

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.