Archive for Investing
Real Estate Investing Mistakes – 5 Expenses to Include in Your Property Analysis
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Positive cash flow means that you have money left over after you’ve collected the rent, paid the mortgage, taxes and utility bills right? That’s the common misconception for first-time real estate investors. The reason it’s a misconception is because the true cost of owning a rental property includes many additional expenses that are often overlooked.
Insurance
This may be the most obvious monthly expense but one that is regularly missed in the initial analysis. Buying insurance on your property is a must, especially since you are generally allowing strangers to live in your huge investment.
Depending on what type of property you own and where you are located, you can expect to pay between $25 and $75 per month for an average property. To make a general calculation, I usually use 0.02% of the total purchase price for the monthly cost; which will work for standard rental homes.
Condo Fees
A $100,000 condo with rental income of $1,000 per month and PIT (Payment, Interest and Taxes) of $800 looks great until you add that small $300 per month condo fee! Make sure you know EXACTLY what the condo fees will be before you buy the property. This also means that you should check the reserve fund and any recent decisions made by the condo board.
Vacancy
Now we’re getting into the expenses that don’t show up as a monthly withdrawal but will knock a dent in your dreams of early retirement. The first question is: do you know the vacancy rate in your area?
To get these numbers check with local realtors, business groups and even other landlords. If you’re confident that you will have not trouble renting the unit, I’d suggest you still leave at least 5% (approximately two weeks) as a minimum and include it as a monthly expense. This does not mean that you write it down; it means that you keep it in the bank! Once you have the equivalent of about 1 month’s rent saved, then you can consider other uses for the money.
Maintenance
Here is yet another expense that thrives on Murphy’s Law. If you are diligent and keep an ongoing account for maintenance and repairs, you’ll probably rarely need to use your reserve; however, if you do not plan ahead there’s a good chance all the appliances will break in the same week!
The maintenance fund is a crucial part of your real estate management strategy. I would suggest you put aside between 2% and 8% of the monthly rent depending on the age and condition of your property. As this reserve fund grows you can feel more secure and not need to pay high interest when the roof needs repair or the bathtub goes.
Management Fees
I leave management fees to the end because this seems to be the least likely expense people are willing to set aside. The common reaction is, “I manage the property myself, why would I need to set money aside for management?” My reply is based on the theory of duplication. If you are planning to start a real estate empire (and not end with just one property) then you will need to have good quality managers running your buildings.
If you only have a positive cash flow without factoring in any real estate management expense, then your plans better include carrying costs as your portfolio grows. Based on my experience, management of single or smaller units will run about 10% of the monthly rent; dropping to 5% or less as the buildings increase in size and value.
Final Thoughts
The list of property expenses above means that, as a good rule of thumb, you should include a premium of between 10% and 20% of the total expected rent for non-PIT costs. While this may seem like an extremely high number at first, a solid property that will give a continuous monthly cash flow will almost always support this adjustment.
Scottsdale Real Estate Market
Real Estate Bird Dog – Tips to Find Real Estate Investors
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Finding real estate investors to birddog for is part and parcel of real estate bird dogging. You should not have trouble finding investors to work with you as most of them will gladly accept your offer to work and generate new leads for them. Below are some of the more common ways of finding them:
a) Classified ads – pay attention to ads such as “we buy houses for cash”, “we buy ugly houses”, ” we will buy and lease your house” & etc. Call these ads and tell them you are providing real estate bird dog services and see whether they are interested in working with you. This method requires you to have good communication skills and therefore, you are advised to brush up your skill in communicating.
b) Investment Clubs – real estate investment clubs are beneficial and is very useful in networking for live real estate training. So, start joining your local investment clubs and introduce yourself to them as a real estate bird dog.
c) Advertise your service – you can consider advertising your real estate bird dog services if you have a small budget for advertisement. Put up a classified ad in your local paper and if possible mention about your specialization. Say if you are good at generating leads in foreclosure, then say so in your ad. By doing so, you will increase the chances of attracting the investors that you want to work with.
d) Seminars and events – knowledge is power and real estate investors are constantly improving their knowledge. Attending these seminars and property events provide you an opportunity to meet them and you can take the chance to introduce your bird dog services.
Aside from the above, there are other various methods of locating investors such as real estate websites, forum, chat room, foreclosure auctions and etc. Try to be creative and you will find that it is not difficult to find investors to offer your services.
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Real Estate Investing: Statistics Challenge Murky Media Coverage
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Is real estate investing a bad bet in today’s economy or does the media just love doom ‘n gloom stories? Take a look at what leading economists say about the real estate market.
Statistics Challenge Murky Media Coverage
We’ve all been bombarded recently by reports in the various media about how the real estate boom of the past few years is over. Whether you read it in the newspaper or a magazine or see it on television, it seems as if the media has decided the real estate bubble has burst and the housing market is in the initial stages of a major swoon. Not so fast, say a number of leading economists who are challenging the negative view being portrayed in the media.
If you look at the numbers, they seem to back the opinion of the economists. For instance, the median home price across the country has dropped only 1.7 percent in 2006. That statistic certainly doesn’t signify a bust in the real estate market. They way property values have been increasing over the past decade, that figure is more of a bump in the road than a major disaster. Most homeowners are still far ahead, even with the slight decline in home prices they experienced this year.
According to most economists, America’s housing market is simply undergoing a badly needed price correction after five years of record-breaking sales and double-digit appreciation. It’s really more of a confirmation of the soundness of our supply and demand economy than the catastrophe being reported by the media.
Even the Federal Reserve’s vice chairman, Donald L. Kohn, recently told a group of New York analysts that the Fed expects the recent housing correction to be much less dramatic than the media would have us believe, and that the correction will be relatively short-lived.
Interestingly, Kohn’s speech received hardly any mainstream media coverage. Kohn told his audience that the current downturn may actually be good for the economy as a whole, because it represents a chance for America’s supply and demand system to rebalance in areas that have seen dramatic increases over the past few years, allowing buyers who may have been priced out of their desired neighborhoods to begin looking for homes again.
Encouraging Economic Factors
There are other factors that may also spur a fairly quick market recovery, including the number of new households being formed and an increasing population. Kohn believes that the inevitable turnaround should begin relatively soon. Statistics from the National Association of Realtors (NAR) also would seem to back up Kohn’s optimism. Kohn’s same optimism is also supported by the fact that long-term mortgage rates are only about a percentage point above historic lows.
The recent decline in both gas prices and the country’s unemployment rate both indicate that Americans are better positioned to make their house payments. To further debunk the doom-and-gloom predictions of a housing swoon, the Fed has stopped raising interest rates, as well, which indicates that they are comfortable with the situation.
So the next time you turn on your television and hear about the catastrophic condition of America’s housing market, remember that you can’t believe everything you hear. The actual figures simply don’t support what the media is reporting.
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Real Estate Investing Trends
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Considering real estate investing? Or looking for the next big idea in real estate? People nationwide are continuously searching for new ways to sink their teeth into the lucrative market that is real estate investing. Before you choose your next big move in real estate be sure to analyze current market trends and choose a strategy accordingly.
There are several avenues to take within the rather large realm of real estate investing. Whether you execute more traditional types of real estate investing such as buying low and flipping or accumulating rental properties, there are several profitable routes to take. Consider using a combination of strategies in order to diversify your real estate portfolio and ultimately maximize profits.
One significant trend forecasted for the coming years is the rise of foreclosure investing. Due impart to exotic loans and the rise of interest rates, the amount of foreclosures nationwide is predicted to skyrocket in the coming year.
Perhaps you’re more interested in a preemptive move? Along the same vein as foreclosure investing is the trend of pre-foreclosure investing. Some of the same sites that offer foreclosure lists also offer pre-foreclosure listings. You can even get helpful tips on approaching owners who are in a financial bind. With pre-foreclosure investing you can avoid the auctions and wield more control over your transaction. Most importantly you would be helping the homeowner avoid a credit disaster.
With all the resources available online, foreclosure and pre-foreclosure investing is much easier than once considered. Some websites such as Foreclosure.com provide listings for foreclosures and pre-foreclosures. Foreclosure listings services also have helpful tools and resources making them a one-stop real estate investment shop.
Along with foreclosure and pre-foreclosure investing seems to be the strategy of holding the property as opposed to flipping and selling it right off the bat. Because the market has seen a rather abrupt slowdown, the profit is no longer in the flip but in the hold. Consider other options such as residual income from a rental property. Or it may be wise to invest more time and money to improve the property seeing as though there is no longer a need for conveyor belt housing.
Whatever your real estate flavor of the month may be, one thing is certain, real estate investing will always be a safe bet.
Real Estate Investing For Newbies – Intro To Note Brokering
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The concept of note brokering, or converting a stream of payments, secured by a mortgage, to up-front cash can be done with discounted notes.
The main reason why an owner of a property will sell with owner financing is to earn more money on their money. The most common reason is when a buyer can not qualify for traditional financing. The benefit to the seller is that they can often get a higher rate of return on his/her money.
Another option is that a seller can have a buyer qualify for a traditional first mortgage on part of the sales amount, and then offer to take back a second mortgage to cover the balance. This often lets the seller get a higher price for his property, while letting the buyer still qualify for a mortgage.
If an owner sells a property with owner financing the owner is basically considered the mortgage company. But what happens if the seller who is holding a note and collecting monthly payments from his buyer decides that he/she wants to now use the money for something else, some other investment or financial need, or simply decides that collecting payments is not all that fun? Often times they want to sell the note.
Some note-owners have no idea that they can get cash for their note (discounted of course) or they do not know where to start. As a note broker your job is to introduce note buyers and note sellers and collect a fee for your service.
Popular ways to find those holding mortgages is to
1) Run a classified ad (in the Real Estate Services section of your newspaper) looking for note holders or
2) Direct mail or
3) The World Wide Web.
Use the public records of recorded mortgages to find those who are carrying a note. Since all mortgages and trust deeds are filed in the county clerk’s office this information is available to the public. Next, where do you find buyers for these notes? The same way actually; use ads, direct mail, and the web.
Lastly, the internet has made research in general and this whole process even easier now than ever before. You can simply type note holder or note buyer or note broker into your favorite search engine. Look through the results, read and find out how each of their programs work. You can find buyers, find sellers and of course make sure you know how you (as the note broker) will get paid when you broker a successful deal.
