What has changed in Real Estate over the last 24 months?...nothing but fear. The house you bought for $300,000 2 years ago is probably worth about $225,000 today. Nothing has changed about the home or the land it sits on, but there is a very menacing emotion that can destroy the most valuable asset you own...it's called FEAR.
The "MEDIA" is notorious for instigating this fear. In it's attempt to provide material worth viewing and reading, the MEDIA can single handedly destroy any and all confidence people have in purchasing a home. It actually starts when things are going extremely well in the housing market. The media will flirt with the idea that rising home prices can't continue forever and that a bubble in housing "appears' to be on the horizon. Then they focus on unsustainable percentage gains people are realizing when they sell their homes. Once you hear that repeated over and over again, you can be sure that the "_ hit" is about to hit the fan. People start to become fearful when they constantly hear of the potential of a bubble bursting in real estate. They start to second guess their decision to buy a home and eventually this fear spreads to the masses causing an exodus out of the home buying experience. This domino effect is completely fear driven causing trillions in lost asset value throughout the country.
As values sink, people become "upside down" in their mortgages forcing many into foreclosure when their homes are worth less than they owe. Adjustable rate mortgages only compound the problem because when they adjust, the interest rate can add hundreds of additional dollars to each payment even though the home is now worth far less. The correction in house values also takes a toll on all those homeowners who took out Home Equity Lines of Credit (HELOC's) when their homes were worth far more than they're worth today.
Unfortunately, logic in housing is trumped by the emotion called fear. It doesn't matter that nothing materially changed in the home you bought or the land you had it built on...if the bulls (the frightened home buyers) are running you better get out of the way...or should you?
I still believe that when fear causes home prices to drop to ridiculous levels, this becomes an opportunity of a lifetime time to buy Real Estate. Smart investing is about buying low and selling high. What better time to buy real estate when there are discounts of up to 50% in some areas. If you're able, start adding to your real estate portfolio during this period of the cycle. Your rewards will be great in the long run.
Saturday, December 29, 2007
Thursday, November 15, 2007
Home Builders...Some Good...Some Bad
Some builders have lost sight of their life-line...the customer. I'm currently adding 2 new homes to my investment portfolio. One home is being built by the home builder "Pulte Homes" and the other is being built by "Richmond American". It's amazing how different the experience can be from builder to builder.
The Sales Associates for both builders are nice, professional, and make an effort to accommodate within their limits. I call the Sales Associates "Foot Soldiers" because they're on the front line and understand the "buyers" needs more so than the big wigs above them.
The biggest difference between Pulte Homes and Richmond American is how the superintendents and their superiors interacted with me during the construction of the homes.
Pulte Homes is by far the best of the 2 builders. I've purchased several homes from Pulte in the past because of my favorable experience with them. Pulte makes sure the buyer is satisfied and happy with their service.. Pulte has consistently made sure that all issues of concern were addressed and taken care of in a timely manner.
Richmond American, (sales associate excluded), has taken on a very arrogant attitude during the construction of my home. A kind of "take it or leave it" attitude that absolutely has no place in the home buying and construction experience. A "Quality Build" should be the priority of any home builder, but my experience with Richmond American leads me to believe that production time lines are their priority...not quality. I've spent countless hours on the construction site making sure poor quality issues were uncovered and formally addressed (basically doing the superintendents job). You would think the superintendent would want to prove just how qualified they were by catching problems before the home buyer, but unfortunately that was not and is not the case with this new build.
I could literally write a small book on how disappointed I've been with the Richmond American home buying experience which leads me to the point of this post. When buying a home from a builder you have no history with, knock on the doors of people who live in the community or subdivision built by that builder. Ask the hard questions like, "Were you happy with the builder?", "Were you satisfied with the construction of your home?". The answers, if negative, could save you the stress of working with a builder that has no interest in making sure your buying experience is pleasant. In my case, it was the Lot and location that sold me...not the builder Richmond American. If the location is phenomenal, and you have no choice over the builder (as was the case with me) you may have to roll up your sleeves and fight the good fight to make sure your investment is built with the quality and workmanship you would expect.
The Sales Associates for both builders are nice, professional, and make an effort to accommodate within their limits. I call the Sales Associates "Foot Soldiers" because they're on the front line and understand the "buyers" needs more so than the big wigs above them.
The biggest difference between Pulte Homes and Richmond American is how the superintendents and their superiors interacted with me during the construction of the homes.
Pulte Homes is by far the best of the 2 builders. I've purchased several homes from Pulte in the past because of my favorable experience with them. Pulte makes sure the buyer is satisfied and happy with their service.. Pulte has consistently made sure that all issues of concern were addressed and taken care of in a timely manner.
Richmond American, (sales associate excluded), has taken on a very arrogant attitude during the construction of my home. A kind of "take it or leave it" attitude that absolutely has no place in the home buying and construction experience. A "Quality Build" should be the priority of any home builder, but my experience with Richmond American leads me to believe that production time lines are their priority...not quality. I've spent countless hours on the construction site making sure poor quality issues were uncovered and formally addressed (basically doing the superintendents job). You would think the superintendent would want to prove just how qualified they were by catching problems before the home buyer, but unfortunately that was not and is not the case with this new build.
I could literally write a small book on how disappointed I've been with the Richmond American home buying experience which leads me to the point of this post. When buying a home from a builder you have no history with, knock on the doors of people who live in the community or subdivision built by that builder. Ask the hard questions like, "Were you happy with the builder?", "Were you satisfied with the construction of your home?". The answers, if negative, could save you the stress of working with a builder that has no interest in making sure your buying experience is pleasant. In my case, it was the Lot and location that sold me...not the builder Richmond American. If the location is phenomenal, and you have no choice over the builder (as was the case with me) you may have to roll up your sleeves and fight the good fight to make sure your investment is built with the quality and workmanship you would expect.
Saturday, September 8, 2007
The POT OF GOLD In Today's Housing Slump
This is one of the most amazing buying opportunities in over a decade. If you've ever considered investing in real estate but were afraid to pull the trigger because of high prices, YOUR DAY HAS COME!
Have you seen the housing data lately? Talk about blood in the streets, almost every home builder that is publicly traded in the stock market has hit a new 52 week low in their stock price this week. There is even talk that Beazer homes may go bankrupt. These are absolutely brutal times for home builders and for homeowners trying to sell their properties. There is another side of the coin however...a side that can make the participants a boat load of equity (CASH)!!! I've said this over and over, buy low and sell high. This market is priced to perfection for the investor with limited investment capital. Home builders have such high inventories, that they are practically giving them away. I've seen incentives that would just blow your mind...I'm talking about offers of a new car with home purchase, a swimming pool, first 6 months of your mortgage paid for you, it just goes on and on.
I'm starting to see home builders open up their doors to investors once again. During the appreciation cycle or "seller's market", investors were having doors slammed in their faces and were looked at as pariahs, responsible for the destruction of neighborhoods and the cause of overinflated pricing that kept families from being able to afford an entry level home. Investors, however, have always made up 25% of the buying public and when you say no to the investors, you're really allowing a potential 25% correction that in time will hurt the builders, as we see today. Saying "no" to the investors is not the only cause for a drop in home sales but it does make a substantial impact over the long term market cycle. Those investor bashing days appear to be behind us in this equity crushing sign of the times. Investors are now looked at as saviors and are welcomed with open arms with hopes of saving the day....which they will.
Miss this real estate buying opportunity, and I guarantee you will regret it. The if I would've, could've, should've mantras will ring loud 6 to 7 years from now when all of today's purchases have produced double and even triple digit percentage returns. History has shown that property values typically rise 3 - 5% per year but properties purchased in desired locations during the lowest part of a market correction can see values rise 100% to 200% in the following up cycle. You can either be in it to win it, or sit back and watch opportunity depart into the fog of ignorance.
Have you seen the housing data lately? Talk about blood in the streets, almost every home builder that is publicly traded in the stock market has hit a new 52 week low in their stock price this week. There is even talk that Beazer homes may go bankrupt. These are absolutely brutal times for home builders and for homeowners trying to sell their properties. There is another side of the coin however...a side that can make the participants a boat load of equity (CASH)!!! I've said this over and over, buy low and sell high. This market is priced to perfection for the investor with limited investment capital. Home builders have such high inventories, that they are practically giving them away. I've seen incentives that would just blow your mind...I'm talking about offers of a new car with home purchase, a swimming pool, first 6 months of your mortgage paid for you, it just goes on and on.
I'm starting to see home builders open up their doors to investors once again. During the appreciation cycle or "seller's market", investors were having doors slammed in their faces and were looked at as pariahs, responsible for the destruction of neighborhoods and the cause of overinflated pricing that kept families from being able to afford an entry level home. Investors, however, have always made up 25% of the buying public and when you say no to the investors, you're really allowing a potential 25% correction that in time will hurt the builders, as we see today. Saying "no" to the investors is not the only cause for a drop in home sales but it does make a substantial impact over the long term market cycle. Those investor bashing days appear to be behind us in this equity crushing sign of the times. Investors are now looked at as saviors and are welcomed with open arms with hopes of saving the day....which they will.
Miss this real estate buying opportunity, and I guarantee you will regret it. The if I would've, could've, should've mantras will ring loud 6 to 7 years from now when all of today's purchases have produced double and even triple digit percentage returns. History has shown that property values typically rise 3 - 5% per year but properties purchased in desired locations during the lowest part of a market correction can see values rise 100% to 200% in the following up cycle. You can either be in it to win it, or sit back and watch opportunity depart into the fog of ignorance.
Tuesday, September 4, 2007
The SECRET Dance Between The Stock Market And Real Estate
The Secret...I've spent a considerable amount of time studying current and past Real Estate trends, economic statistics, and all facets of the Stock Market. As a result of years of study, I've found something that I think my readers will find very interesting. There is an absolute inverse relationship between the Stock Market and the Real Estate Market.
The rich get richer for a reason. They understand money better than the masses and make financial moves that typically yield the highest returns possible from their investments. The #1 way to accomplish this in the Stock market and the Real Estate Market is to buy low and sell high. I'm sure this concept isn't new to most of you but did you know there is a predictable cyclical shift of cash out of the stock market which goes directly into the real estate market? Did you also know there is a predictable cyclical shift of cash flow out of the real estate market back into the stock market?
The stock market like the real estate market goes up and down. Some may find it a coincidence that the stock market is usually at its highest high at the same time the real estate market starts to crash and that the real estate market is at it's height when the stock market is experiencing a substantial correction. I'm here to tell you that it is no coincidence. When the stock market surges to higher highs, the smart money starts to liquidate their positions thus locking in their profits before the market corrects and takes it back. When you're sitting on a lot of cash, your money isn't growing. The wealthy will then look for alternative investments that will produce the highest potential returns. A down real estate market presents a great opportunity to buy low and eventually sell high in the next real estate up cycle. So that's where their capital goes. This will in turn result, over time, in a stock market correction. By the time the stock market hits it's bottom, the real estate market begins to hit it's highest high in the cycle. Properties are then sold at the high for a substantial return and placed back into the stock market because the stocks are trading at a huge discount. This is the Secret dance between the Stock Market and Real Estate.
The rich get richer for a reason. They understand money better than the masses and make financial moves that typically yield the highest returns possible from their investments. The #1 way to accomplish this in the Stock market and the Real Estate Market is to buy low and sell high. I'm sure this concept isn't new to most of you but did you know there is a predictable cyclical shift of cash out of the stock market which goes directly into the real estate market? Did you also know there is a predictable cyclical shift of cash flow out of the real estate market back into the stock market?
The stock market like the real estate market goes up and down. Some may find it a coincidence that the stock market is usually at its highest high at the same time the real estate market starts to crash and that the real estate market is at it's height when the stock market is experiencing a substantial correction. I'm here to tell you that it is no coincidence. When the stock market surges to higher highs, the smart money starts to liquidate their positions thus locking in their profits before the market corrects and takes it back. When you're sitting on a lot of cash, your money isn't growing. The wealthy will then look for alternative investments that will produce the highest potential returns. A down real estate market presents a great opportunity to buy low and eventually sell high in the next real estate up cycle. So that's where their capital goes. This will in turn result, over time, in a stock market correction. By the time the stock market hits it's bottom, the real estate market begins to hit it's highest high in the cycle. Properties are then sold at the high for a substantial return and placed back into the stock market because the stocks are trading at a huge discount. This is the Secret dance between the Stock Market and Real Estate.
Friday, August 31, 2007
A Win-Win Situation
Real estate investments not only deliver profits in an up market, but down markets can yield attractive returns as well.
During an appreciation cycle, it's quite easy to make a profit. As the demand for housing goes up and inventories run low, upward price pressure follows. Successful investors understand the up and down cycles of real estate and use this predictable movement in the market to capitalize on buying and selling opportunities. Note: It can be risky to buy too late into the up cycle because real estate corrections are inevitable...what goes up will come down...so timing is the key.
THE BEST TIME TO BUY IS IN A DOWN MARKET. Investing is all about buying low and selling high. A down market provides the most opportune time to find and buy properties that have the greatest potential for appreciation. The most successful investors understand and implement this strategy to get the highest returns on their investments. This is a strategy I've personally used and have benefited greatly from it's execution. Another benefit of holding property in a down market is the increased demand for rentals. As foreclosures rise, banks lose a tremendous amount of money resulting in tighter lending practices. As it becomes harder to borrow money to buy homes, many families are forced to rent until the lending environment improves. This is a great opportunity for investors to get premium rents for their rentals and reduce their vacancies. Interestingly enough, the rich are buying property when the masses are selling, and the rich are selling when the masses are buying. These contrarian buy and sell moves by the rich should be followed by all. The rich get richer for a reason...follow their actions and you too can be on the right side of the buy and sell transaction.
Saturday, August 25, 2007
The Best Time To Buy Or Sell Is When You Don't Have To.
This may seem like a strange position to take when investing in real estate, but the best time to buy or sell (from a negotiation point of view) is when you don't have to. When you invest in real estate, it is crucial that you negotiate the best price you can. If the price is non-negotiable, it's probably best that you move on to a deal with more favorable terms. Emotion has no place in real estate. Every move you make should be based on objective data, logic, due diligence, and a position of power...not weakness. This approach will yield you the best potential return on your investment and should never be sacrificed to get the deal done.
The best deals of my life have been made when I didn't need to make the deals in the first place. When you have nothing to lose, there is simply no pressure at all to give in to the terms of the person sitting across from you. In a very nice way, you are basically negotiating from a position of take it or leave it. This take it or leave it attitude will cut out 90% of the "chest puffing" you will endure from your opponent (home seller or buyer). Caution: If you do walk away from the investment due to the terms of the deal, know that you may not get a second chance to re-negotiate. Timing is everything in this game, and there may be an investor lying in wait to take that deal from you. Have a price in mind based on your research not based on the discount you've negotiated off the list price. If the price is pretty close, don't lose the deal over a few dollars.
It never hurts to submit a low offer no matter how discounted it may appear to be. What's the worst that can happen? You don't get a counteroffer or you do at a higher price? Big deal....that didn't hurt, but what if they accept? You may have just saved yourself tens of thousands of dollars. Most sellers will "pad" the price of their home anyway, expecting the investor to negotiate. This is where a Comparative Market Analysis comes in to level the playing field. You can't possibly negotiate a great deal if you don't know the value of the area and surrounding homes. The CMA will give you an idea of what a below market price might be thus giving you a basis for your offer.
One very important note: An Appreciation Cycle and a Correction Cycle will have a huge impact on your ability to get the best deal possible. When pricing is moving to the upside, know that the seller tends to have more control, and when pricing is falling, the buyer tends to be in the driver's seat. Good negotiating however can be had in both an up or down cycle. Just remember, if you don't have to buy or sell a property, you will have a greater opportunity to capitalize on either side of the coin.
The best deals of my life have been made when I didn't need to make the deals in the first place. When you have nothing to lose, there is simply no pressure at all to give in to the terms of the person sitting across from you. In a very nice way, you are basically negotiating from a position of take it or leave it. This take it or leave it attitude will cut out 90% of the "chest puffing" you will endure from your opponent (home seller or buyer). Caution: If you do walk away from the investment due to the terms of the deal, know that you may not get a second chance to re-negotiate. Timing is everything in this game, and there may be an investor lying in wait to take that deal from you. Have a price in mind based on your research not based on the discount you've negotiated off the list price. If the price is pretty close, don't lose the deal over a few dollars.
It never hurts to submit a low offer no matter how discounted it may appear to be. What's the worst that can happen? You don't get a counteroffer or you do at a higher price? Big deal....that didn't hurt, but what if they accept? You may have just saved yourself tens of thousands of dollars. Most sellers will "pad" the price of their home anyway, expecting the investor to negotiate. This is where a Comparative Market Analysis comes in to level the playing field. You can't possibly negotiate a great deal if you don't know the value of the area and surrounding homes. The CMA will give you an idea of what a below market price might be thus giving you a basis for your offer.
One very important note: An Appreciation Cycle and a Correction Cycle will have a huge impact on your ability to get the best deal possible. When pricing is moving to the upside, know that the seller tends to have more control, and when pricing is falling, the buyer tends to be in the driver's seat. Good negotiating however can be had in both an up or down cycle. Just remember, if you don't have to buy or sell a property, you will have a greater opportunity to capitalize on either side of the coin.
Sunday, August 19, 2007
Ready To Buy?..........OK, Now What? Cont...
Part 3 of 3
Where you buy is as important as what you buy in the real estate game. There are several reasons why I moved to Arizona from Los Angeles, California. The reasons pertinent to this blog involve investments in the Arizona real estate market and my desire to be close to the properties I own (it's much easier to manage your rental properties when they're in driving distance from you). Compared to the West Coast, Arizona real estate is a steal. You can find properties in AZ for as little as $55 per square foot. The median price per square foot in Los Angeles is well over $300 and in the nicer neighborhoods you are looking at $600+ per square foot. Looking over the numbers, It's easy to see why AZ is an ideal place to buy real estate.
I would not be as successful at doing my due diligence if it weren't for the Internet.The Internet is an amazing tool for research. When I started looking for properties to buy, I was able to research the location, builder, subdivision, pricing, and community amenities all from the the comfort of my Desk chair. I can't imagine how many miles were spent flying and driving to scout properties before the wide spread use of the Internet. Tools like Virtual tours on the Internet allow you to see video of the interiors of homes you're interested in without the hassle of driving to the actual home. Floor plans and property detail pages also give you greater insight into the style and layout of the home. As I did my research, Queen Creek, AZ kept popping up as an awesome place to invest in. The size of the homes coupled with the price per square foot was just unheard of. The icing on the cake was how "new" the area was to residential construction. It was truly virgin territory and the land developers were just starting to catch on.
The best locations of all to invest in are the locations that will bring you the highest and fastest return on your investments. A strategy that has worked for me is finding areas that aren't on anyone's radar. I look for places that no one is talking about YET but the potential of the area is just oozing dollar signs. Let me give you a real life example of such a strategy. I found this little subdivision in Queen Creek, AZ, on the Internet, while I was still living in Los Angeles. I almost fell out of my chair when I saw what the homes were going for. I'm talking about Golf Course homes for $75,000 - $95,000, yes that's right....$75,000 - $95,000. I called a couple of friends and basically said, "I'm jumping on a plane to AZ to pick up a couple of fantastic investment properties....anyone want to come?" Well, we took that flight, drove to the subdivision and checked it out for ourselves. The subdivision looked like a Ghost town. A Tumbleweed literally rolled right across my foot while crossing the street and my two buddies looked at me like, "what in the heck did you get us into." I laughed pretty hard and said, "Trust me, if this was a well established and sought after neighborhood, the homes wouldn't be going for $75,000. It's new, and no one knows it's here...YET!...build it and they will come, to steal a line from a movie, and trust me, they will come." Well, my two friends were not convinced and decided to pass on buying in such a remote location. I, on the other hand, did sign a contract that day. The neighborhood had over 20 newly built Spec. homes, and I had my pick of whatever I wanted. I chose a smaller single story home with a few nice upgrades like tile floors and a covered back patio. Within 6 weeks of my purchase, all of the newly built Spec homes had been purchased. 3 months after my purchase, the same sized home in the community was selling for 50% more than what I paid, and in 8 months, I had made a 100% return on my purchase. Yes, I doubled my money in 8 months. I did keep my two friends updated on how well the investment turned out. I think you can figure out how that went.
Where you buy is as important as what you buy in the real estate game. There are several reasons why I moved to Arizona from Los Angeles, California. The reasons pertinent to this blog involve investments in the Arizona real estate market and my desire to be close to the properties I own (it's much easier to manage your rental properties when they're in driving distance from you). Compared to the West Coast, Arizona real estate is a steal. You can find properties in AZ for as little as $55 per square foot. The median price per square foot in Los Angeles is well over $300 and in the nicer neighborhoods you are looking at $600+ per square foot. Looking over the numbers, It's easy to see why AZ is an ideal place to buy real estate.
I would not be as successful at doing my due diligence if it weren't for the Internet.The Internet is an amazing tool for research. When I started looking for properties to buy, I was able to research the location, builder, subdivision, pricing, and community amenities all from the the comfort of my Desk chair. I can't imagine how many miles were spent flying and driving to scout properties before the wide spread use of the Internet. Tools like Virtual tours on the Internet allow you to see video of the interiors of homes you're interested in without the hassle of driving to the actual home. Floor plans and property detail pages also give you greater insight into the style and layout of the home. As I did my research, Queen Creek, AZ kept popping up as an awesome place to invest in. The size of the homes coupled with the price per square foot was just unheard of. The icing on the cake was how "new" the area was to residential construction. It was truly virgin territory and the land developers were just starting to catch on.
The best locations of all to invest in are the locations that will bring you the highest and fastest return on your investments. A strategy that has worked for me is finding areas that aren't on anyone's radar. I look for places that no one is talking about YET but the potential of the area is just oozing dollar signs. Let me give you a real life example of such a strategy. I found this little subdivision in Queen Creek, AZ, on the Internet, while I was still living in Los Angeles. I almost fell out of my chair when I saw what the homes were going for. I'm talking about Golf Course homes for $75,000 - $95,000, yes that's right....$75,000 - $95,000. I called a couple of friends and basically said, "I'm jumping on a plane to AZ to pick up a couple of fantastic investment properties....anyone want to come?" Well, we took that flight, drove to the subdivision and checked it out for ourselves. The subdivision looked like a Ghost town. A Tumbleweed literally rolled right across my foot while crossing the street and my two buddies looked at me like, "what in the heck did you get us into." I laughed pretty hard and said, "Trust me, if this was a well established and sought after neighborhood, the homes wouldn't be going for $75,000. It's new, and no one knows it's here...YET!...build it and they will come, to steal a line from a movie, and trust me, they will come." Well, my two friends were not convinced and decided to pass on buying in such a remote location. I, on the other hand, did sign a contract that day. The neighborhood had over 20 newly built Spec. homes, and I had my pick of whatever I wanted. I chose a smaller single story home with a few nice upgrades like tile floors and a covered back patio. Within 6 weeks of my purchase, all of the newly built Spec homes had been purchased. 3 months after my purchase, the same sized home in the community was selling for 50% more than what I paid, and in 8 months, I had made a 100% return on my purchase. Yes, I doubled my money in 8 months. I did keep my two friends updated on how well the investment turned out. I think you can figure out how that went.
Wednesday, August 15, 2007
Ready To Buy?..........OK, Now What? Cont...
PART 2 of 3
Should you buy new or old construction? When I started investing in real estate, I lived in Los Angeles, California. The available homes for sale were typically 50 to 80 years old. The option of buying new in the area was very limited and very expensive due to shortages in residential lots to build on. Here in Arizona, the opposite is true. There are new subdivisions popping up every day with huge inventories of new homes. Having invested in both new and old construction, it is my opinion that "new" is the only way to go when possible.
Think about the following before you buy: New homes typically have a 2/10 warranty attached to them. That means if anything goes wrong with the home in the first 2 years, the builder will make the repairs at no cost to you. The "10" in the 2/10 warranty refers to the structural components of the home. If you have structure related issues, the builder is obligated, under the warranty, to correct the issue(s) for up to 10 years. The 2/10 warranty is something you won't find offered on older homes. An older home may come with a 1 year warranty such as American Home Shield, but if you read the details of the warranty, you'll find their liability is very limited and there are deductibles you'll have to pay with each and every service call.
New construction has the advantage of very attractive entry points into the market. In a down real estate market, builders become desperate to unload their inventories of homes. It is not unusual to see price reductions of 20% to 30% when inventories rise, not to mention other incentives like paid closing costs and discounts on upgrades. The typical homeowner selling his or her home just can't compete with that. Builders can sell their homes for just about whatever they want as long as there's a profit in it for them. The typical homeowner has a mortgage that limits just how low they can price their home. Most homeowners see the builders as the enemy in a down real estate market because of the constant downward pressure on pricing. This, however, is music to the ears of the investor. Correcting real estate markets mark the sign of frenzied buying by those investors sitting on cash looking to find a bargain. Down cycles are a time of massive real estate accumulation for most investors as they yell to the heavens "load up and buy as much as you can afford". Homeowners on the other hand are not as full of glee and optimism. No, for them, it's pretty much doom and gloom.
Older homes do have their place. If you want that one of a kind view home in the hills overlooking the city, you may be quite content with it's age, especially if it's in good condition. You may have a specific neighborhood in mind or area you favor investing in that's completely built-out. In that case, an older home may fit the bill. Just keep in mind, older homes usually mean older plumbing and electrical components that may need updating, greater chance of pervasive termite infestation, leaky roof possibilities, and antiquated decor. Make sure you hire a licensed inspector to reduce your chances of buying an unsound property. The cost of hiring an inspector is well worth the money and may serve to help you keep your money from falling into a money pit of repairs.
Should you buy new or old construction? When I started investing in real estate, I lived in Los Angeles, California. The available homes for sale were typically 50 to 80 years old. The option of buying new in the area was very limited and very expensive due to shortages in residential lots to build on. Here in Arizona, the opposite is true. There are new subdivisions popping up every day with huge inventories of new homes. Having invested in both new and old construction, it is my opinion that "new" is the only way to go when possible.
Think about the following before you buy: New homes typically have a 2/10 warranty attached to them. That means if anything goes wrong with the home in the first 2 years, the builder will make the repairs at no cost to you. The "10" in the 2/10 warranty refers to the structural components of the home. If you have structure related issues, the builder is obligated, under the warranty, to correct the issue(s) for up to 10 years. The 2/10 warranty is something you won't find offered on older homes. An older home may come with a 1 year warranty such as American Home Shield, but if you read the details of the warranty, you'll find their liability is very limited and there are deductibles you'll have to pay with each and every service call.
New construction has the advantage of very attractive entry points into the market. In a down real estate market, builders become desperate to unload their inventories of homes. It is not unusual to see price reductions of 20% to 30% when inventories rise, not to mention other incentives like paid closing costs and discounts on upgrades. The typical homeowner selling his or her home just can't compete with that. Builders can sell their homes for just about whatever they want as long as there's a profit in it for them. The typical homeowner has a mortgage that limits just how low they can price their home. Most homeowners see the builders as the enemy in a down real estate market because of the constant downward pressure on pricing. This, however, is music to the ears of the investor. Correcting real estate markets mark the sign of frenzied buying by those investors sitting on cash looking to find a bargain. Down cycles are a time of massive real estate accumulation for most investors as they yell to the heavens "load up and buy as much as you can afford". Homeowners on the other hand are not as full of glee and optimism. No, for them, it's pretty much doom and gloom.
Older homes do have their place. If you want that one of a kind view home in the hills overlooking the city, you may be quite content with it's age, especially if it's in good condition. You may have a specific neighborhood in mind or area you favor investing in that's completely built-out. In that case, an older home may fit the bill. Just keep in mind, older homes usually mean older plumbing and electrical components that may need updating, greater chance of pervasive termite infestation, leaky roof possibilities, and antiquated decor. Make sure you hire a licensed inspector to reduce your chances of buying an unsound property. The cost of hiring an inspector is well worth the money and may serve to help you keep your money from falling into a money pit of repairs.
Thursday, August 9, 2007
Ready To Buy?.......... OK, Now What?
PART 1 OF 3
You're ready to buy, you know what kind of property you want, your credit is good (or you have substantial reserves), and you've been pre-approved by your lender. So what's next? Remember, LOCATION, LOCATION, LOCATION is important, but there's a twist on that. Most novice investors do not have the capital to buy property in a prime location like the beach or a hillside home with a view. "Value" can be a great substitute if your location choices can't be top notch. When I use the term "value", I'm referring to the price per square foot I'm paying for the property. This is an extremely important investor measure which when used properly can help you determine whether you are paying below market value, at market value, or above market value.
Using the price per square foot measure to determine value is very easy. You take the price of the property and divide it by the livable square footage. FOR EXAMPLE: Home #1 is a 3 bedroom 2 bath home selling for $200,000. The home has 1,700 Square Feet. Home #2 has the same # of bedrooms and baths and is selling for 150,000 measuring 980 Sq. ft. Which is the better value assuming the neighborhood is the same, and the condition of the homes is identical? Well, using the the fore mentioned formula, House #1 is the better value because it is selling for $117.65 a square foot, and house #2 is selling for $153.06 a square foot.
As you can see, a cheaper selling price does not always relate to the home's value when compared to other homes in the same neighborhood. Part of buying your first investment property will involve getting a Comparative Market Analysis (CMA) on the homes that are selling in the location of your choice. This will help you make a more informed decision. Sites Like http://www.zillow.com can show you the values of homes around the property you're interested in.
You're ready to buy, you know what kind of property you want, your credit is good (or you have substantial reserves), and you've been pre-approved by your lender. So what's next? Remember, LOCATION, LOCATION, LOCATION is important, but there's a twist on that. Most novice investors do not have the capital to buy property in a prime location like the beach or a hillside home with a view. "Value" can be a great substitute if your location choices can't be top notch. When I use the term "value", I'm referring to the price per square foot I'm paying for the property. This is an extremely important investor measure which when used properly can help you determine whether you are paying below market value, at market value, or above market value.
Using the price per square foot measure to determine value is very easy. You take the price of the property and divide it by the livable square footage. FOR EXAMPLE: Home #1 is a 3 bedroom 2 bath home selling for $200,000. The home has 1,700 Square Feet. Home #2 has the same # of bedrooms and baths and is selling for 150,000 measuring 980 Sq. ft. Which is the better value assuming the neighborhood is the same, and the condition of the homes is identical? Well, using the the fore mentioned formula, House #1 is the better value because it is selling for $117.65 a square foot, and house #2 is selling for $153.06 a square foot.
As you can see, a cheaper selling price does not always relate to the home's value when compared to other homes in the same neighborhood. Part of buying your first investment property will involve getting a Comparative Market Analysis (CMA) on the homes that are selling in the location of your choice. This will help you make a more informed decision. Sites Like http://www.zillow.com can show you the values of homes around the property you're interested in.
Monday, August 6, 2007
Inspiration * Motivation * Action * Execution
Very few people become financially secure doing something they hate. The average person wakes up to start a work day that lacks passion and interest. The one thing I can say about real estate as it relates to me is that I'm very passionate about it. I have no problem eating, drinking, sleeping, and talking about real estate all day long. I believe success first comes by being inspired by someone or something. Once inspired, you become motivated to act on and execute a plan to become successful.
INSPIRATION - When I was a very young child, my mother and I would spend holidays like Thanksgiving and Christmas at my Grandparent's house. My grandfather was a very successful business owner with a big beautiful house and a Rolls Royce in the garage. My mother and I lived in a lower middle class neighborhood, so I was always in awe when I went to visit my grandparents. I would always ask my grandfather questions about making money to the point of probably annoying him, but he always encouraged me to do what it took to be successful. My grandfather was my greatest source of financial inspiration.
MOTIVATION - At the age of 5, inspired by my grandfather, I was motivated to find my own ways to make money. I would do things like sell my old toys to friends and neighborhood kids, and I was known to sell a gallon or 2 of Lemonade from a corner stand. Bottom line, I did whatever it took to put cash in my pocket. I had an extremely strong work ethic from a very young age. My mother wasn't too thrilled about this behavior at first, but slowly warmed up to the idea that her little man was becoming quite the entrepreneur. As I grew older, I continued to find ways to make money having very little interest in working for someone else.
ACTION - Once you've been inspired and have become motivated to become successful, the next step is to put a plan into action. You have to be willing to "pull the trigger" on an idea you feel has potential. As I say in my August Thought of The Month, " Opportunities to make money come and go. The greatest losses of all are those from missed opportunities. The Rich explore those opportunities, while the poor and middle class assume they’ll have a second chance."
EXECUTION - The success or failure of your actions will be determined by how well you execute the details of your plan. Some Real Estate investors have been nothing more than lucky with their investments, but an investor who executes his plans well can make money in an up or down real estate market. This is what separates the weekend investor from the multimillionaire.
INSPIRATION - When I was a very young child, my mother and I would spend holidays like Thanksgiving and Christmas at my Grandparent's house. My grandfather was a very successful business owner with a big beautiful house and a Rolls Royce in the garage. My mother and I lived in a lower middle class neighborhood, so I was always in awe when I went to visit my grandparents. I would always ask my grandfather questions about making money to the point of probably annoying him, but he always encouraged me to do what it took to be successful. My grandfather was my greatest source of financial inspiration.
MOTIVATION - At the age of 5, inspired by my grandfather, I was motivated to find my own ways to make money. I would do things like sell my old toys to friends and neighborhood kids, and I was known to sell a gallon or 2 of Lemonade from a corner stand. Bottom line, I did whatever it took to put cash in my pocket. I had an extremely strong work ethic from a very young age. My mother wasn't too thrilled about this behavior at first, but slowly warmed up to the idea that her little man was becoming quite the entrepreneur. As I grew older, I continued to find ways to make money having very little interest in working for someone else.
ACTION - Once you've been inspired and have become motivated to become successful, the next step is to put a plan into action. You have to be willing to "pull the trigger" on an idea you feel has potential. As I say in my August Thought of The Month, " Opportunities to make money come and go. The greatest losses of all are those from missed opportunities. The Rich explore those opportunities, while the poor and middle class assume they’ll have a second chance."
EXECUTION - The success or failure of your actions will be determined by how well you execute the details of your plan. Some Real Estate investors have been nothing more than lucky with their investments, but an investor who executes his plans well can make money in an up or down real estate market. This is what separates the weekend investor from the multimillionaire.
Thursday, August 2, 2007
Getting To The Good Stuff...A Change In Direction
As with any education, a good foundation is crucial to moving forward. I covered the basic fundamentals of Real Estate Investing in the launching of my Blog site in July of 2007. I'm going to now change the direction of this Blog site and get into the material that makes me so passionate about what I do. I'm talking about the Blood & Guts of real estate investing.
The tone of my future posts will read more like an investing diary of my past and current experiences. I'll give you the unfiltered reality of "the game" and how it can change your life for the better. There are lessons to be learned from my mistakes and triumphs, and my hope is that it will make you a better investor.
I would like to address a question I've been asked on several occasions. Question being, "Why are you doing this and what are you getting out of it?" Human nature is funny to me at times. It's very predictable for the most part. I don't find it unusual to be asked such a question because we live in a world where people feel that you don't just get something for nothing...there must be a catch or an ulterior motive. I'm guilty of sharing that opinion at times, but I know for a fact that it is not always true. I'm truly doing this for altruistic reasons. Many of you, who know me, can attest to the fact that I willingly give information on investing without expecting anything in return. I actually enjoy helping people better themselves, and I get great satisfaction in giving back in any way I can.
Enjoy the site and tell a friend who might have an interest in the material. Once again, I look forward to your feedback.
The tone of my future posts will read more like an investing diary of my past and current experiences. I'll give you the unfiltered reality of "the game" and how it can change your life for the better. There are lessons to be learned from my mistakes and triumphs, and my hope is that it will make you a better investor.
I would like to address a question I've been asked on several occasions. Question being, "Why are you doing this and what are you getting out of it?" Human nature is funny to me at times. It's very predictable for the most part. I don't find it unusual to be asked such a question because we live in a world where people feel that you don't just get something for nothing...there must be a catch or an ulterior motive. I'm guilty of sharing that opinion at times, but I know for a fact that it is not always true. I'm truly doing this for altruistic reasons. Many of you, who know me, can attest to the fact that I willingly give information on investing without expecting anything in return. I actually enjoy helping people better themselves, and I get great satisfaction in giving back in any way I can.
Enjoy the site and tell a friend who might have an interest in the material. Once again, I look forward to your feedback.
Investment Ownership Review
Hopefully, after a dozen posts or so, you have a greater understanding of the basic fundamentals involved in Real Estate Investing. We've gone over why you should invest in real estate, the types of real estate you can invest in, the advantages and disadvantages of each type of real estate (I purposefully didn't get into commercial and trailer/mobile home forms of real estate for obvious reasons), how important your FICO score is to your success, and the importance of building an ample cash reserve.
Those of you reading my Blog are welcome to post questions or comments. The questions or comments you have may be of interest to other readers, and I will will promptly answer any question you may have. Just look for the "comments" link at the end of each post.
Those of you reading my Blog are welcome to post questions or comments. The questions or comments you have may be of interest to other readers, and I will will promptly answer any question you may have. Just look for the "comments" link at the end of each post.
Monday, July 30, 2007
Buying LAND...Advantages & Disadvantages
Ever thought about buying land as an investment? A favorite saying in the real estate industry is, "Location, Location, Location," known as the 3 L's of real estate. The location of real estate will dictate it's value more than any one factor.
I've mentioned on more than one occasion, that God isn't making any more land here on earth. There is a finite supply of land that we can build on, and the population is growing exponentially. This is a very good thing for the land investor but is it the right investment for a novice investor? Here is a list of advantages and disadvantages to consider when buying land:
Advantages:
1) Supply & demand will always put upward price pressure on land.
2) The cost of land is relatively more affordable when there are no improvements, (structures built on the property), on the land.
3) Due to the relatively lower cost of land, expenditures like Property taxes, and all around maintenance are less.
4) Unlike Rental property, you'll never have to worry about finding tenants, have to evict anyone, or worry about city regulations that could restrict your income.
5) Choices. You can buy land in varying sizes, from several thousand square feet to acres. You may not have enough money to buy or build your dream home today, but you may be able to afford and secure the land you'd like it to be built on in the future.
Disadvantages:
1) You will not have immediate cash flow from the purchase of land. Profiting from land could take years. If you need investment income now, rental property would be a better investment choice.
2) Geological surveys can be expensive and are recommended to ensure your land is free from any condition(s) that would make it unsuitable for development. Conditions like earth fissures, chemical contamination, flood zone status, to name a few, can have an adverse effect on the value of your land and your ability to sell it.
3) Zoning. City government can step in at any time and re-zone the land for a different use. If you bought land for future residential prospects, you may find that your land in now zoned for commercial use. This may or may not adversely affect your land's value.
I've mentioned on more than one occasion, that God isn't making any more land here on earth. There is a finite supply of land that we can build on, and the population is growing exponentially. This is a very good thing for the land investor but is it the right investment for a novice investor? Here is a list of advantages and disadvantages to consider when buying land:
Advantages:
1) Supply & demand will always put upward price pressure on land.
2) The cost of land is relatively more affordable when there are no improvements, (structures built on the property), on the land.
3) Due to the relatively lower cost of land, expenditures like Property taxes, and all around maintenance are less.
4) Unlike Rental property, you'll never have to worry about finding tenants, have to evict anyone, or worry about city regulations that could restrict your income.
5) Choices. You can buy land in varying sizes, from several thousand square feet to acres. You may not have enough money to buy or build your dream home today, but you may be able to afford and secure the land you'd like it to be built on in the future.
Disadvantages:
1) You will not have immediate cash flow from the purchase of land. Profiting from land could take years. If you need investment income now, rental property would be a better investment choice.
2) Geological surveys can be expensive and are recommended to ensure your land is free from any condition(s) that would make it unsuitable for development. Conditions like earth fissures, chemical contamination, flood zone status, to name a few, can have an adverse effect on the value of your land and your ability to sell it.
3) Zoning. City government can step in at any time and re-zone the land for a different use. If you bought land for future residential prospects, you may find that your land in now zoned for commercial use. This may or may not adversely affect your land's value.
Saturday, July 28, 2007
What is a REIT? The Advantages & Disadvantage of owning them
What is a REIT?...you may ask. REIT stands for Real Estate Investment Trust. Defined as a corporation or trust that uses the pooled capital of many investors to purchase and manage income property (equity REIT) and/or mortgage loans (mortgage REIT). REITs are traded on major exchanges just like stocks. They are also granted special tax considerations.
Advantages:
1) Liquidity... unlike traditional real estate, REITs can be bought and sold like stock.
2) Most REITs pay dividends quarterly. A well run REIT can provide consistent income without having to lift a finger. This is perfect for the investor who doesn't have the time to manage his or her own property.
3) REITs offer ownership in not only residential property but other real estate such as malls, hotels, commercial and industrial property.
4) Like stocks, REITs value can increase substantially.
5) Buying REIT shares/units requires far less capital than traditional real estate.
Disadvantages:
1) Like stocks, REITS value can decrease substantially.
Advantages:
1) Liquidity... unlike traditional real estate, REITs can be bought and sold like stock.
2) Most REITs pay dividends quarterly. A well run REIT can provide consistent income without having to lift a finger. This is perfect for the investor who doesn't have the time to manage his or her own property.
3) REITs offer ownership in not only residential property but other real estate such as malls, hotels, commercial and industrial property.
4) Like stocks, REITs value can increase substantially.
5) Buying REIT shares/units requires far less capital than traditional real estate.
Disadvantages:
1) Like stocks, REITS value can decrease substantially.
Friday, July 27, 2007
Condominium Advantages and Disadvantages
Not interested in the SFR or Multi-Unit investment? Buying a Condo might be right up your alley. Basically, a Condo is an apartment like dwelling that you can own.
Advantages:
1) Very low maintenance requirements (the Homeowners Association [HOA] dues cover the majority of maintenance in the building).
2) Typically are less expensive making for a more attractive entry point for the first time investor.
3) Utility costs like water and gas are often included in the HOA dues.
4) Can have comparable market appreciation in a seller's market.
5) Views are more likely due to multiple floors (penthouse for example), thus adding value and appeal.
6) Smaller square footage available. This may appeal to elderly tenants who want to keep the amount of house they have to clean to a minimum.
7) Some Condo buildings offer concierge services comparable to some fancy hotels.
Disadvantages:
1) People do relate Condos to apartments thus reducing their appeal to many.
2) HOA dues can be very expensive. This adds to the investor's overhead.
3) The square footage is typically on the low side when compared to a home. Large families do not favor Condos over the SFR. This reduces the marketability of your investment.
4) Parking is limited. A Condo is likely to have Tandem parking due to space constraints. This can be a major inconvenience when you have to move your car so the other vehicle can get out.
5) Privacy can be a big issue. Since you share walls with your fellow Condo owners, you will hear the sounds of daily living coming through the walls. Homes (SFR's) offer much more privacy
6) Neighborhood congestion is more prevalent in condominium communities. The density of units in the neighborhood can sometimes make it impossible for friends and family to find a parking spot on the street. There is also data that suggest that there is an inverse relationship between population density and crime. The more dense an area, the greater the crime rate.
Weigh out the Pros and Cons and decide for yourself if the Condo investment is for you. In my opinion, the SFR is the better investment.
Advantages:
1) Very low maintenance requirements (the Homeowners Association [HOA] dues cover the majority of maintenance in the building).
2) Typically are less expensive making for a more attractive entry point for the first time investor.
3) Utility costs like water and gas are often included in the HOA dues.
4) Can have comparable market appreciation in a seller's market.
5) Views are more likely due to multiple floors (penthouse for example), thus adding value and appeal.
6) Smaller square footage available. This may appeal to elderly tenants who want to keep the amount of house they have to clean to a minimum.
7) Some Condo buildings offer concierge services comparable to some fancy hotels.
Disadvantages:
1) People do relate Condos to apartments thus reducing their appeal to many.
2) HOA dues can be very expensive. This adds to the investor's overhead.
3) The square footage is typically on the low side when compared to a home. Large families do not favor Condos over the SFR. This reduces the marketability of your investment.
4) Parking is limited. A Condo is likely to have Tandem parking due to space constraints. This can be a major inconvenience when you have to move your car so the other vehicle can get out.
5) Privacy can be a big issue. Since you share walls with your fellow Condo owners, you will hear the sounds of daily living coming through the walls. Homes (SFR's) offer much more privacy
6) Neighborhood congestion is more prevalent in condominium communities. The density of units in the neighborhood can sometimes make it impossible for friends and family to find a parking spot on the street. There is also data that suggest that there is an inverse relationship between population density and crime. The more dense an area, the greater the crime rate.
Weigh out the Pros and Cons and decide for yourself if the Condo investment is for you. In my opinion, the SFR is the better investment.
Sunday, July 22, 2007
Advantages & Disadvantages of owning Multi-Unit property
Multi-Unit properties can be a Duplex, Triplex, Quadplex or Apartment building.
NOTE: Let me just say this upfront, I am not a proponent of multi-unit properties. Many investors, usually very seasoned, find them substantially beneficial to their real estate portfolio. My experience has found them to be a headache at best but they do have their advantages. I believe REITs are a better way of dealing with multi-unit properties, (I'll get into REITs in a future post), but here are some advantages and disadvantages:
Advantages:
1) If you keep it long enough, it's equity will rise especially if you pick a great location.
2) There are substantial tax benefits to owning multi-units (very similar to the SFR rental benefits).
3) Greater land appreciation potential due to the typically larger land footprint (when compared to the SFR).
4) You can live in one of the units and have the tenant's rent cover the mortgage for you (thus living mortgage free with respect to it coming out of your pocket).
Disadvantages:
1) Typically, the Multi-Unit property will be far more expensive when compared to a SFR in the same neighborhood. This can be cost prohibitive for most beginning investors.
2) With a SFR, it is not uncommon to have the tenant take care of the yard, but the multi-unit property is a different beast. Your tenants will expect you to keep the yard well maintained, and this can be an expensive part of your overhead... ranging from hundreds of dollars a month to thousands depending on the size and complexity of the landscaping.
3) Types of tenants: In my experience, tenants who seek multi-unit dwellings can differ from tenants who seek a home in the following ways: Multi-unit tenants tend to be more nomadic (more likely to stay for shorter periods of time). Income levels tend to be less than those seeking a home. Credit history is often sub par which may account for them not being home buyers. Education levels and how that relates to income can have an impact on what the tenant is able to pay, thus making them more likely to rent an apartment than a pricier SFR. You are more likely to have to evict an apartment renter, in my opinion and experience, than someone renting your SFR.
4) Rent Control: Many cities enforce what they call Rent Control. When you own a multi-unit building, the city will actually restrict how much you can raise the rent each year (usually restricted to 3% per year but can vary city to city). This is a terrible thing for the investor because you are now limited on how much of a return you can make on your investment.
5) Systematic Code Enforcement: Many cities impose this on owners. The city basically inspects your properties every year and can fine you for problems they find whether you knew it was a problem or not. This can really add up and cost a bundle to remedy.
6) To evict or not to evict.....Many cities will not let you evict a tenant unless you can prove they have not paid their rent with substantial notice to cure the breach of their contract or prove they are involved in illegal activities. Other than the fore mentioned, you could be responsible for up to $10,000 in relocating costs and you still can't raise the rent when the new tenant takes their place! Talk about BIG government in our business....that is just ridiculous...which is why I sold all my multi-unit property.
7) Property Management is almost a must with multi-units unless you're retired and have the time to manage them yourself. Management companies can charge up to 15% of the rent plus other fees leaving you with yet another expense which will reduce your net return.
NOTE: Let me just say this upfront, I am not a proponent of multi-unit properties. Many investors, usually very seasoned, find them substantially beneficial to their real estate portfolio. My experience has found them to be a headache at best but they do have their advantages. I believe REITs are a better way of dealing with multi-unit properties, (I'll get into REITs in a future post), but here are some advantages and disadvantages:
Advantages:
1) If you keep it long enough, it's equity will rise especially if you pick a great location.
2) There are substantial tax benefits to owning multi-units (very similar to the SFR rental benefits).
3) Greater land appreciation potential due to the typically larger land footprint (when compared to the SFR).
4) You can live in one of the units and have the tenant's rent cover the mortgage for you (thus living mortgage free with respect to it coming out of your pocket).
Disadvantages:
1) Typically, the Multi-Unit property will be far more expensive when compared to a SFR in the same neighborhood. This can be cost prohibitive for most beginning investors.
2) With a SFR, it is not uncommon to have the tenant take care of the yard, but the multi-unit property is a different beast. Your tenants will expect you to keep the yard well maintained, and this can be an expensive part of your overhead... ranging from hundreds of dollars a month to thousands depending on the size and complexity of the landscaping.
3) Types of tenants: In my experience, tenants who seek multi-unit dwellings can differ from tenants who seek a home in the following ways: Multi-unit tenants tend to be more nomadic (more likely to stay for shorter periods of time). Income levels tend to be less than those seeking a home. Credit history is often sub par which may account for them not being home buyers. Education levels and how that relates to income can have an impact on what the tenant is able to pay, thus making them more likely to rent an apartment than a pricier SFR. You are more likely to have to evict an apartment renter, in my opinion and experience, than someone renting your SFR.
4) Rent Control: Many cities enforce what they call Rent Control. When you own a multi-unit building, the city will actually restrict how much you can raise the rent each year (usually restricted to 3% per year but can vary city to city). This is a terrible thing for the investor because you are now limited on how much of a return you can make on your investment.
5) Systematic Code Enforcement: Many cities impose this on owners. The city basically inspects your properties every year and can fine you for problems they find whether you knew it was a problem or not. This can really add up and cost a bundle to remedy.
6) To evict or not to evict.....Many cities will not let you evict a tenant unless you can prove they have not paid their rent with substantial notice to cure the breach of their contract or prove they are involved in illegal activities. Other than the fore mentioned, you could be responsible for up to $10,000 in relocating costs and you still can't raise the rent when the new tenant takes their place! Talk about BIG government in our business....that is just ridiculous...which is why I sold all my multi-unit property.
7) Property Management is almost a must with multi-units unless you're retired and have the time to manage them yourself. Management companies can charge up to 15% of the rent plus other fees leaving you with yet another expense which will reduce your net return.
Author's Note...
I'm sorry I've been away from the keyboard so long, but I've been very busy with several projects that have commanded much of my time. I'll try my best to post more frequently. This "Blogging" is far more time consuming than I had anticipated.
I want to thank all the readers for the positive feedback. I'm glad to hear you find the blog informative, useful and educational in just the several posts to date. That was and will be my ongoing goal.
I want to thank all the readers for the positive feedback. I'm glad to hear you find the blog informative, useful and educational in just the several posts to date. That was and will be my ongoing goal.
Monday, July 16, 2007
Advantages & Disadvantages of owning the SFR
SFR (Single Family Residence): In my opinion, this is the best investment you can add to your portfolio.
ADVANTAGES:
1) You can live in it and enjoy home ownership.
2) You can lease it out to tenants for added income.
3) It can be flipped for a quick profit.
4) It can qualify for a long term capital gain (taxed at 15% if you own it for more than 12 months).
5) You can defer taxes using the IRS's 1031 exchange (I'll explain this in future posts).
6) You can receive TAX FREE profits of up to $500,000 if you're married, and $250,000 if single when the property is sold.
7) It can be left to family when you pass away tax free assuming the Estate falls beneath the Death Tax threshold (I'll explain this in future posts).
8) You can depreciate it....reducing your taxable income and write off all expenses incurred while using the property as a rental.
9) It offers a great return on your investment. The value of Real Estate will more than double every 15 years
10) You can pull money out of a property that is worth more than you owe (a Home Equity Line of Credit or HELOC).
DISADVANTAGES:
1) Maintenance is required to keep your property in good condition.
2) You will have to pay Property Taxes and insurance.
3) If you pick bad tenants, you may need to seek legal assistance to evict.
4) If you have a mortgage, a vacancy can cost you monthly until it's rented out.
There are many more advantages and disadvantages to owning a SFR, but in my opinion, the advantages outweigh the disadvantages.
In my next post, I will go over the advantages & disadvantages of the Multi-Unit property (Duplex, Triplex, etc...)
ADVANTAGES:
1) You can live in it and enjoy home ownership.
2) You can lease it out to tenants for added income.
3) It can be flipped for a quick profit.
4) It can qualify for a long term capital gain (taxed at 15% if you own it for more than 12 months).
5) You can defer taxes using the IRS's 1031 exchange (I'll explain this in future posts).
6) You can receive TAX FREE profits of up to $500,000 if you're married, and $250,000 if single when the property is sold.
7) It can be left to family when you pass away tax free assuming the Estate falls beneath the Death Tax threshold (I'll explain this in future posts).
8) You can depreciate it....reducing your taxable income and write off all expenses incurred while using the property as a rental.
9) It offers a great return on your investment. The value of Real Estate will more than double every 15 years
10) You can pull money out of a property that is worth more than you owe (a Home Equity Line of Credit or HELOC).
DISADVANTAGES:
1) Maintenance is required to keep your property in good condition.
2) You will have to pay Property Taxes and insurance.
3) If you pick bad tenants, you may need to seek legal assistance to evict.
4) If you have a mortgage, a vacancy can cost you monthly until it's rented out.
There are many more advantages and disadvantages to owning a SFR, but in my opinion, the advantages outweigh the disadvantages.
In my next post, I will go over the advantages & disadvantages of the Multi-Unit property (Duplex, Triplex, etc...)
Friday, July 13, 2007
Types of Real Estate
When your credit is where it should be and you have a little money in the bank, it's time to decide what type of Real Estate you want to invest in. For the first time investor, that can be a daunting decision.
Types of Real Estate:
1) SFR (single family residence)
2) Duplex (2 units in one building)
3) Triplex (3 units in one building)
4) Multi-Unit ( 4 or more units)
5) Condominium
6) Townhome
7) Commercial
8) Land
9) REITS (Real Estate Investment Trusts)
10) Mobile / Trailer
The advantage and disadvantage of each will be discussed in my next post.
Types of Real Estate:
1) SFR (single family residence)
2) Duplex (2 units in one building)
3) Triplex (3 units in one building)
4) Multi-Unit ( 4 or more units)
5) Condominium
6) Townhome
7) Commercial
8) Land
9) REITS (Real Estate Investment Trusts)
10) Mobile / Trailer
The advantage and disadvantage of each will be discussed in my next post.
Thursday, July 12, 2007
How much house can you afford?
It is important that you invest within your means. The following link, http://www.bankrate.com/brm/rate/calc_home.asp , will provide you with the necessary calculator to determine just how much house you can afford.
Wednesday, July 11, 2007
Your Credit Score and Bank Account
90% of the largest U.S. banks use FICO scores. When you buy Real Estate, you will most likely seek a loan from a lending institution. Your FICO score is your credit rating. It's basically your Credit History Report Card and it follows you wherever you go.
On the low end of the FICO score range is 300 (bad credit falls between 300 - 600). On the high end, 850 would be perfect (excellent credit falls between 750 - 850). Average to good credit falls between 600 -750. Banks look at your FICO score to determine whether you are credit worthy. If your credit score is too low, you will be most likely declined for the loan. If your FICO score is high, you will not only qualify for the loan but will be rewarded with a lower interest rate. Lower interest rates can save you tens of thousands of dollars over the course of a loan.
FICO scores are calculated based on your rating in five general categories:
Payment history - 35%
Amounts owed - 30%
Length of credit history - 15%
New credit - 10%
Types of credit used - 10%
Lenders will give you preferred loan terms if your credit score is high. Good credit may qualify you for a low down payment, and if your score is in the 800's, they may not require a Down Payment at all. You can actually get a loan with NO INCOME VERIFICATION if your credit is outstanding. Excellent credit is the most powerful tool you'll have in the Real Estate game.
Have poor credit?......all is not lost, just fewer options. Sometimes, your credit score doesn't give an accurate picture of how responsible you are. Maybe you went through a divorce, and the Ex-spouse was the irresponsible one. Maybe you went through a health crisis, or a death in the family. Banks know bad things happen to good people. It is very important that you continue to pay your current bills on time and re-build your credit history if you want to be a success in Real Estate.
Money in the bank- If you're a good saver, you may offset your credit challenges with a substantial down payment. Lenders are primarily concerned with one thing when they loan you money........"Is the home worth more than we are lending you". If the answer is "yes", you have a good shot at securing a loan. People with average to poor credit, can expect to pay 20% of the purchase price. This gives the Lender a comfortable equity position in your property should you default on the loan. The more money you can put away in the bank each month, the greater your chances are to meet the down payment you'll have to pay to offset your less than perfect credit.
On the low end of the FICO score range is 300 (bad credit falls between 300 - 600). On the high end, 850 would be perfect (excellent credit falls between 750 - 850). Average to good credit falls between 600 -750. Banks look at your FICO score to determine whether you are credit worthy. If your credit score is too low, you will be most likely declined for the loan. If your FICO score is high, you will not only qualify for the loan but will be rewarded with a lower interest rate. Lower interest rates can save you tens of thousands of dollars over the course of a loan.
FICO scores are calculated based on your rating in five general categories:
Payment history - 35%
Amounts owed - 30%
Length of credit history - 15%
New credit - 10%
Types of credit used - 10%
Lenders will give you preferred loan terms if your credit score is high. Good credit may qualify you for a low down payment, and if your score is in the 800's, they may not require a Down Payment at all. You can actually get a loan with NO INCOME VERIFICATION if your credit is outstanding. Excellent credit is the most powerful tool you'll have in the Real Estate game.
Have poor credit?......all is not lost, just fewer options. Sometimes, your credit score doesn't give an accurate picture of how responsible you are. Maybe you went through a divorce, and the Ex-spouse was the irresponsible one. Maybe you went through a health crisis, or a death in the family. Banks know bad things happen to good people. It is very important that you continue to pay your current bills on time and re-build your credit history if you want to be a success in Real Estate.
Money in the bank- If you're a good saver, you may offset your credit challenges with a substantial down payment. Lenders are primarily concerned with one thing when they loan you money........"Is the home worth more than we are lending you". If the answer is "yes", you have a good shot at securing a loan. People with average to poor credit, can expect to pay 20% of the purchase price. This gives the Lender a comfortable equity position in your property should you default on the loan. The more money you can put away in the bank each month, the greater your chances are to meet the down payment you'll have to pay to offset your less than perfect credit.
Tuesday, July 10, 2007
Why invest in Real Estate?
God isn't making any more land.....two-thirds of the earth is covered in water.....and our population is growing exponentially. How's that for an answer? Now that I have your attention, there are many more reasons why real estate will most likely be your single best investment you'll ever make. Lets look at one fact that makes a good case for making real estate your first investment choice. Did you know that every 15 years the cost of goods and services DOUBLE! Remember when gas was 30 cents a gallon in the 1970's, then 60 cents in the 1980's, $1.50 in the 1990's and now in 2007 we see prices over $3.00 a gallon. Whether it's College tuition, cars, or Real Estate, the doubling effect has been a fact of history.
Real Estate, however, has been known to double in 2 - 3 years in a seller's market. The strategy you must learn when buying your first piece of property is WHEN TO BUY. Learn this, and you will be quite successful. Fail to learn this, and you'll put yourself in the poor house. I will explain the strategy in greater detail in future postings.
In tomorrow's Blog, I'll get into how much money you'll need to start investing and how your credit score can save you thousands of dollars or cost you thousands when you're ready to buy.
Real Estate, however, has been known to double in 2 - 3 years in a seller's market. The strategy you must learn when buying your first piece of property is WHEN TO BUY. Learn this, and you will be quite successful. Fail to learn this, and you'll put yourself in the poor house. I will explain the strategy in greater detail in future postings.
In tomorrow's Blog, I'll get into how much money you'll need to start investing and how your credit score can save you thousands of dollars or cost you thousands when you're ready to buy.
Monday, July 9, 2007
Warning for new investors...beware!
Have you ever stayed up late and watched a Real Estate Info Commercial? There are many out there that guarantee you can buy property with no money down or bad credit. They often suck you in with promises of getting rich without using any of your own money. They'll then convince you to spend $300 on their Audio Cassettes or DVD that will show you how to achieve this remarkable feat. DON'T FALL FOR IT! They're in the business of separating you from your hard earned money. Most of the information in their literature isn't even relevant to the Real Estate laws in your state. What about the money back guarantee you say...These companies know that 95% of their buyers will never take the time and effort to send the tapes back. Shipping and Handling, (which is usually non-refundable), for those programs can exceed the cost to produce the Real Estate Guru's tapes (so he has already made a profit even with a refund......how do you like those apples?).
The point is, nothing worth having comes easy but with the right information you can succeed. In tomorrow's Blog, I will give you the first of many pieces of the puzzle that will help you successfully get your very first piece of Real Estate.
The point is, nothing worth having comes easy but with the right information you can succeed. In tomorrow's Blog, I will give you the first of many pieces of the puzzle that will help you successfully get your very first piece of Real Estate.
Sunday, July 8, 2007
Welcome to the life of a Real Estate Investor
Wherever I go, I inevitably get into conversations with strangers about what I do for a living. Maybe it's the vehicle I drive, or that I'm working out in the Gym in the middle of the day, but the question will be asked, "What do you do?" After literally spending hundreds of hours over the years telling people what it is that I do and how I do it, I've decided to create this Blog to give people insight into the world of Real Estate Investing. I hope you, the reader, will find it educational, entertaining, enlightening, and useful in your quest to increase you net worth through Real Estate investing.
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