Posts in Category: Real Estate

Creative Ways to Finance Investment Property

Most investment properties don’t qualify for the traditional loan programs that are so attractive to home buyers.  And besides that, lending standards have become much more difficult now that banks have been forced to deal with lots of foreclosures and declining property values.  These two factors make it more and more difficult to get financing for your investment property.  However, if you are creative and willing to do some asking around, there are still plenty of creative ways to get the financing you need.  Here are our some of the best.

Use a Mortgage Broker to Find Traditional Lenders But Creative Programs

While it’s true that many traditional banks and lenders may turn you away, there are plenty of banks throughout the country that are still looking to lend money to certain types of investors.  So despite your local bank not wanting to invest in property because they are already overloaded, there may be a bank or lender on the other side of the country that is looking for exposure to a different real estate market.  Sometimes these lenders are national and sometimes they are regional.  The hardest part about getting a loan from these lenders is finding them.  That’s why it often pays to find a mortgage broker to help you search for a creative loan.

Mortgage brokers have access to dozens, hundreds or even thousands of lenders and can search their database to help you find the best loan available.  They are especially useful when you are looking for non-traditional loans.  That’s because non-traditional loans are not as competitive and therefore the rates and terms can vary dramatically.  By having a broker shop around for the most appropriate type of loan and for the lowest rates, you can often find the most ideal loan for your real estate investment.  And if you’re worried about having to pay the broker, don’t be.  Mortgage brokers get paid an origination fee by the lender.  The same fee that would be getting paid to any other banker or lender that would give you a loan.

A final reason that mortgage brokers are a great and creative way to find a loan is because of all the knowledge they carry.  At a bank, the banker knows only about the loans that his or her bank offers.  However, a broker has to be savvy on all types of loans.  You may have to ask around for a mortgage broker that specializes in investment property, but once you find a good broker, they can help you find the right loan by asking you the right questions, and matching your needs with the loans available.  For example, mortgage brokers can find loans that require no income verification, loans that are based on the cash flow potential of the investment, and loans that are specialized for your type of investment.

Unfortunately, not everyone will be able to find a loan from a traditional lender.  In that case, it pays to get even more creative.  Here are your next best opportunities.

rising-home-prices

Use Seller Financing To Buy an Investment Property

If you can’t get the loan that you want from a traditional lender, consider asking the seller of the property to help you finance it.  While it’s true they are looking to cash out of their investment, they are often open to the idea of a partial payment in cash and then an annuity of loan payments until the property is refinanced.  If you’d like to pursue this course of action, you’ll have to become your own salesperson, as most sellers will have to be sold on the idea.  To get them to bite you can offer them a higher overall payment for their property than others are offering, or even higher than they were asking.  You could also offer them a favorable interest rate that matches what they would earn on the money they loan you if they were to invest it themselves.

Seller financing used to be a much easier sell, because years ago many mortgages could be rolled over into a new owner’s name, however, that is not the case anymore.  If you want the seller to help, be creative with your approach.  Put together several financing options that include different payment levels, interest rates, and loan lengths so that the seller can choose an option that is favorable to him or her.  Once you agree on terms, you’ll have to draft a loan agreement and sign it with a notary.  To get a loan agreement you can either find a copy of a generic agreement and modify it, or you can have an attorney or title company help you draft one.

Hopefully, you can get your seller to help you buy the income property, but if not, there are still other ways.

Withdraw Equity From Your Home to Buy a Property

I’ve know people that have used their credit cards to finance entire apartment buildings.  They would pull out 10 to 20 percent of the value of their investment and then finance the rest with an adjustable rate, no income verification loan.  This may have been the riskiest investment I’ve ever seen but it proves that if there’s a will there’s a way.  In other words, if you’re sure that your investment will pay dividends (and the mortgage) down the road, you can consider withdrawing money from your home equity or other assets to help you finance it.  For example, if you already own a few properties and need a 25% down payment for a new investment, you could potentially open up a line of credit or home equity loan on one of the properties or your own home.  You could also refinance other properties in order to take cash out and use it for the new property investment.

Withdrawing equity from your home is risky and even riskier in times when home prices have been falling.  Before you do this, make sure you have enough income to be able to face any setbacks that may happen over the next several years.

Ask Friends or Family to Invest With You

Another source of funding for you real estate could potentially come from your friends and family.  The important thing here is that you do not try to coerce or take advantage of your friends and family.  If you are going to borrow money from them, then you need to offer them a fair rate of return.  If you want them to invest with you, then you may have to offer them an ownership share of the property you are buying.  Once you find someone that is interested in your investment idea, there are lots of both small and large details to work out.

For example, you have to figure out how much money they are going to lend you.  You’ll also need to come up with an interest rate.  Then, you’ll need to figure out a term for the loan. Is it a loan for five years at which time you will refinance it to more traditional financing?  Are you offering them an ownership percentage?  If so, you’ll need to make sure that they know that you are the sole and primary manager of the property and that they are only a passive investor.  You’ll also have to come up with a plan on how to pay them back.  Once you have all the details agreed upon, you’ll need to get an attorney or an experienced real estate or title agent to help you draft an agreement or loan contract.  These types of loans are risky because mixing money and family often causes troubles that no one could have anticipated.

Consider a Hard Money Loan to Buy Your Property

If you’ve tried all of the other techniques but have had no luck raising any money, then you could consider a hard money loan.  Hard money loans are given based almost entirely on the “hard” asset, or in other words, the value of the property.  Typical hard money loans are for up to 70% of the value of the property you are buying.  Hard money loans are not given by banks, but by private lenders, and they carry interest rates that are significantly higher than traditional loans.  More importantly, hard money loans are for short periods of time, usually only up to five years.  That means that if you are considering a hard money loan, you will have to have a plan in place to refinance the property in a few years in order to pay off the hard loan.

These are the most expensive loans and are risky for obvious reasons, but the biggest risk is that you can’t refinance the hard loan into a new loan when the time comes, and may have to give up the property.  Hard money loans are best in cases where there is a problem with the property that can be fixed within a short period of time.  Sometimes a simple problem such as having a kitchen or bath that doesn’t function will prevent any traditional lenders from giving you a loan, because the house is deemed “unliveable”.  Another case would be for a new construction property that came for sale and is not fully completed.  Whereas traditional lenders may not lend in these cases, a hard money loan could be used to acquire the property, fix the defects, and then refinance the loan and pay back the hard money.

In conclusion, while we’ve discussed several creative ways to finance an investment property, there are many other creative ways that you could use that include things like sale leasebacks and even personal lending.  If you search around enough and keep your options open, there is probably a way to finance any realistic investments that you have in mind.

401K Investing: Is It Viable for Income Property?

There are different ways to engage in retirement account and/or 401K investing.

Before we dive in, I must say that I’m clearly not an accountant, so a detailed discussion around this is beyond the scope of this site. You absolutely, positively must consult with an accountant prior to executing any strategies involving IRA or 401K real esate investing.

With that said, we can at least discuss the concept in a general way to spur your creative juices.

BENEFITS OF 401K REAL ESTATE INVESTING
In general, the main advantages are access to “non-cash” sources of investment capital, and the ability to avoid income and
capital gains taxes

if done properly. For investors experienced at this sort of thing, the tax benefits could result in a savings of up to 25%.

The tax benefits can be substantial because you can avoid capital gains tax when you sell for a profit, and if your account receives monthly rental income from a property purchased with cash from the account, there is no income tax.

OPTION #1: TAKE OUT A LOAN AGAINST YOUR 401K
A loan against your 401K can be used to fund your down payment requirement, effectively giving you a
zero down option.

This is yet another method of minimizing your out-of-pocket acquisition costs, and is clearly preferable to simply making a withdrawal (triggers a 10% penalty, plus taxes owed on the withdrawal amount).

You’ll have to pay interest on the loan, typically 1-2% above the prime rate, and you’ll generally have 5-10 years to pay it back. You start repaying right away, in equal installments that are taken directly out of your paycheck.

I would recommend looking into this option only if you are executing a
fixer upper strategy

because you can do a post-rehab

property refinance

Real-Estate-Market

to pay back the loan quickly. But even in this scenario, there are some downsides:

There is an opportunity cost of not earning money on what you take out.
If you lose your job or change employers, many plans require all 401K loans to be paid back within 60 days (if you can’t pay the full balance, you’ll default and will have to pay taxes on the loan balance plus a 10% penalty for early withdrawal).
You can only borrow a maximum of $50K (or less depending on the size of your nest egg).
Your tax benefits may change. For example, you may not be able to count your mortgage interest payments as
rental tax deductions.

Your employer-sponsored plan may not allow this.
Late payments may subject you to substantial penalties

Bottom line: proceed with extreme caution.

OPTION #2: COVERT TO AN IRA & BUY PROPERTY OUTRIGHT
Here, you can rollover your 401K to a “self-directed IRA” or a Roth IRA. The benefit is that you’ll dramatically expand your investment options to pretty much anything you can think of. Another benefit is that you are not limited by the $50K cap inherent in 401K real estate investing loans.

If you have a large enough balance, you could use it to purchase a property outright. In this case, your monthly
rental income

goes right into the IRA. And this monthly income, along with the profit you’ll make when you
sell,

is tax-free as long as you do not take the cash out until you are 59.5 years old.

Here are some things to keep in mind:

You may incur a penalty when doing this type of rollover

You’ll need to find an experienced account custodian if you’re considering a self-directed IRA. This is critical because you could jeopardize your tax-free status if you make errors regarding prohibited transactions, rules of self-dealing, etc.
You can’t sell your primary home to your account or use the account to buy property that you plan to live in at some point in the future.
There can be restrictions on family members’ use of your investments (for example, your child can’t rent an apartment in a building owned by your IRA).

Bottom line: proceed with extreme caution.

OPTION #3: LEVERAGE PROPERTY THROUGH YOUR IRA
In this scenario, you could use your IRA balance to fund the down payment, and then have your IRA assume the remainder of the purchase price in the form of a mortgage to complete the transaction.

As you might imagine, this option has a lot of complexity. First, you’ll need a “non-recourse” loan so that the property is the security interest, not the IRA itself. You may find it difficult to find a lender willing to do this.

Also, there may be some weird tax consequences, like unrelated business income tax or unrelated debt financing income tax. This can run as high as 35% on the income from the financed portion of the property.

Bottom line: proceed with caution when executing 401K investing.

SUMMARY
As you can see, this strategy is not limited to just 401k real estate investing. IRAs are the more favorable option, and there can be tremendous tax benefits if this is done properly. However, you must heavily lean on your accountant to navigate around all the pitfalls.

10 Things You Need to Know Before Buying Property Overseas

You are on a vacation to a European or South American destination, and you love everything about the place. The weather is nice, food is great, people are hospitable and friendly, it is not crowded like New York or London, plus the prices are comparatively low by American standards. You like the place so much, that you’ve considered living here. If not that, at least buy a decent apartment or a condo, so that you can visit whenever you like.

Purchasing a property overseas is exciting, but only after you are clear about one rule – the heart should never rule the head where money is concerned. Also, it is essential that you follow the right procedure, and avoid using any unfair means in securing real estate. Consider doing all the things you would do if you were buying real estate in your homeland. Here are some tips that you can follow.

Know the Market Thoroughly

Be aware of rising and falling trends of the market. Knowledge about the rates can be helpful if you want to buy when prices are down, and sell as soon as the market sees an upward trend. Also, some countries have strict rules that prevent or limit property ownership to foreigners. Hence, it is good to know whether or not you have the legal right to purchase property in that country, to avoid any scams or disappointment. It is important to do your homework before stepping in the market of an alien country.

Beware of Impostors

The global real estate market is filled with impostors who con people, and often get them involved in a financial and legal mess. Even so, this doesn’t mean that everyone you come across is a thug, but being aware of what is right and wrong is a smart move. If you are dealing with a real estate agent who does not carry business cards, and does not have an office, he/she is probably someone you should avoid. Also, there are certain countries that don’t regulate their real estate industry; hence, agents don’t even require a valid license. Be extremely careful here, and proceed only after doing thorough research.

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Only Purchase What You See

Real estate agents are idealists. They will make you dream about well-built roads, world-class amenities, and other facilities that are nowhere in plain sight. The catch here is, once you have signed the contract, you are the owner of the area and the illusions surrounding it. I have nothing against agents here, but it sounds risky to invest your hard-earned money for just barren land. Consider all the things that can go wrong here. Hence, only buy what you see.

Always Seek Professional Assistance

Great deals at an affordable price can be achieved if you buy a property directly from the owner. Nevertheless, don’t forget that you are in a foreign land, and taking the help of a reliable professional can be useful to avoid various pitfalls when buying property in a foreign land.

Signing a Contract

Never sign a contract that you don’t understand. Always ask for two versions of the contract – one in English, and the other in the local language. Bring along your legal adviser to confirm that the English version is a true translation, and does not contain any errors, extras, or omissions. Read the contract thoroughly, and ensure that you and the seller both agree to the different terms and conditions decided.

Try to Pay Cash

If you really like the property and know that this is the final deal, try paying the owner cash. It is a tough decision to take, but it is important to understand that financing mechanisms, like mortgages, aren’t as stable in foreign countries as they are in the US. In most European vacation spots, property transfers are mostly done in cash. For those who can’t do without a mortgage, seek the help of your real estate agent and lawyer to know more about such destinations.

Verify the Title

In the US, if you acquire a property you get a warranty title that states you are the legal owner. However, in countries outside the States, this title can create quite a problem. This is highly possible in European countries. You see, World War II had created many boundaries in the world, and it is quite possible that once you purchase the property, a recent descendant of the family can suddenly appear to claim his/her property. The situation sounds dramatic, but it can surely happen. This crisis can be avoided by taking the help of a notary. A notary can help verify legal documents, and also ensure that there are no gaps in the property’s history, and you are the rightful owner.

Knowing the Native Language

Relocating to a country without knowing its native language can get quite difficult. The best thing to do is to join a language course, and get things in motion soon. However, if you are not up for this challenge, a better idea would be choosing a country where English is spoken in large numbers.

Valuating the Property

Property valuation is an important step, especially in a foreign land. You need to know all the pros and cons of the property before signing the papers. Hence, ensure that an independent valuation of the property is carried out in your presence.

A Local Bank Account is Necessary

You will have to open a bank account in the country where you have chosen to live, and apply for a Certificate of Importation, so that bringing in money from your home country won’t be a problem. Also inquire about online money transfer facilities, so that you can pay the bills and taxes associated with the house from time to time.

Try to bargain if you are good at it; chances are you might get a great deal at a low price. Also, don’t shy away from seeking professional services that can ensure a smooth transaction overseas.

7 Ways to Buy Commercial Property

Commercial property ventures are not included in all the new homeowner protection laws and regulations about financing that are in the residential market. The financial area of real estate seems to be in chaos…HOWEVER…Commercial Real Estate is a hidden niche that’s ripe for awesome deals.

Here’s How to Buy Right:

Most of the massive changes do not include commercial loans. The Uniform Commercial Code (UCC) controls commercial property loans and other transactions.

The tight money market does affect the commercial investor in the same way.  Sometime there are very good deals that come on the market because of the tight money.  If you do not have other ways to buy the good deals then you are in the same situation as everyone else.

In a down economy and a tight money market it is up to the investor to find ways to capitalize on what is available.  In the tight money market the alternate lenders and investors come out of the woodwork and do well. 

7 Ways to Finance Your Commercial Real Estate Venture

Management Syndication:  You could offer a private money lender a guaranteed net from the rental property with management in place for 3-5 years, with an option to buy the property.

Like Kind Exchange:  Section 1031 of the Internal Revenue Code deals with like kind exchanges, either personal or real property, excluding personal use property and inventory held for sale in the normal course of business. With this strategy, you will need to have another commercial property to sell (and not pay taxes on at that time) then purchase another property.  This is a very good strategy when you are trying to upgrade to a more suitable or more profitable property.

Commercial Property

Trading:  You may have some asset or expertise that would be valuable to the seller of a property.  The seller may be willing to exchange the down payment or make better terms with you for some exchange. There is almost no limit to the different ways you can trade (including using regular stocks in your real estate trade). Example; my friend wanted a property on the beach but could not afford anything but he kept looking for something that might work.  He found an owner who had a large family in Japan.  The owner wanted to keep the property to pass down to his family. The owner was willing to give my friend a 30 year lease with the first right to buy the property.  Although my friend did not own the property, he has total control of the property for the next 30 years.  He found what he wanted, (to work on the beach) and the owner got a permanent manager partner arrangement. Do a goolge search for “real estate exchange’ and you’ll find various online places you can swap property or equity.

Use your IRA money to buy commercial property:  You could have a sizable amount of money in your IRA account. You may not have enough money for your new venture and your IRA is not getting much income/interest.  This may be a good option for you but you should not do anything without consulting your real estate attorney. The government puts a lot of restrictions on all transactions that involve retirement accounts. 

Syndicate the transaction:  One way to syndicate the transaction is to find a really good deal and get the purchase contract signed.  Then you find other cash investors to go into the deal with you for a % of ownership in the property or a % of the profits without ownership while you run the business.  This is different than all investors being partners. (see training video on Syndication on the videos page Syndication Video) Many commercial property deals are purchased using syndication, it’s definitely a way to share risk, raise capital and get others involved.

One payment a year financing:  My father often did this type of financing.  He bought big tracks of land for framing or development.  With one payment a year financing he was able to harvest a crop or build houses enough to pay the once a year payment.  He accumulated tracks of land and other properties all over the county using this strategy.

Option commercial property with a management agreement:  Not to be confused with lease-option.  With this strategy you would take control and manage the property (like an office building). At some point you may have increased the occupancy and be able to finance the property.  There are several advantages to this strategy. The first is you will find out what it takes to improve such a property.  The second is you do not have to invest all your money up front. (See Master Lease Video)

Find Private Money Partner: Similar to Syndication, except you’re typically only using a single person or entity to become a ‘silent partner’ in the deal in exchange for a guaranteed return on their money at 8-12%. (could be any %, this is just typical). (How to Find Private Money for Commercial Properties)

The bottom line is this. Right now is a terrific time to get into Commercial Real Estate Investing. If you’ve never done a commercial deal, you need to get boned up on some specifics. Check out the free video series and a free email series on how to profit in commercial real estate.

How to Sell Your Investment Property

Sometimes you need to sell your investment property.  Perhaps its to pay off debt, to raise cash, or because of some other circumstance.  Whatever the case, there are a few things that you should consider when deciding how to sell your property.  Here are the most important:

Determine the Value the Investment Property

Depending on what type of investment property you have, you should be able to come up with a valuation fairly easily, or at least come up with a range for the valuation.  Assuming you know a little about the real estate market, you’ll know that different properties are valued based on different valuation methods.  For example, a single family home is valued by looking at comparable sales and by looking at assessed and appraised values.  However, an income property, which is a property that is purchased primarily for its ability to earn money each month, is typically valued based on its cash flows.  The more complex your property is, the more ways you can find to value it.  Do what you can on your own to get a range of the possible value of your property.  If you’re not fully comfortable doing this, you can hire someone to do it for you.

Decide if You Want Help Selling The Invesment Property

Now that you have a valuation in mind you have to decide how to sell your real estate.  Do you want a realtor to do all of the work for you?  Or do you want to try to sell it yourself by listing it on the MLS for a flat fee?  Besides those options you can also try to sell it yourself by FSBO.  Sometimes, if you know you are going to buy and sell a lot of properties, you can get your real estate license and then your broker’s license.  This can save you several thousand dollars per transaction.

For example, if your investment property is worth $500,000, then the commission you would have to pay to sell it would be somewhere around $30,000.  Although you can negotiate the sales commissions, most realtors will not show your property unless they are promised a substantial piece of the pie.  That means that you’ll at least have to pay any brokers for bringing a buyer to the table, even if you sell the property yourself.

If you decide to hire a realtor, make sure you do ample screening.  Find a realtor that will work for a slightly reduced commission or on a sliding scale and that is well versed in the type of property you are selling.  Also, look for someone that is responsive and aggressive and that will work for you to get the best price.

Once you decide how you want to sell it, it’s time to get the property ready for sale.

for-sale-real-estate

Get the Property Ready to Sell

Depending on your property, this task could be fairly easy or very difficult.  You’ll want to start with the outward appearance of the property and make sure everything is aesthetically pleasing.  Make sure the grass is kept up and that there are no visible imperfections.  Clean up any of the landscaping that looks outdated or overgrown.

Then, turn your attention to the inside of the building(s).  Do whatever you can to make the interior more attractive.  If you have tenants, you may not be able to do anything substantial, but you can still call them and ask them (or bribe them) to keep their unit in prime condition.  If the unit is empty, you could consider getting a stager but I’m not so sure that it would really make a difference.  A fresh coat of paint and new carpet isn’t very expensive but can make the property look much better.

You’ll want to take high quality pictures of each unit, building and room so that you’ll have it ready to show to any prospective buyer.  Work out a time with your tenants, if you have them, to enter and take pictures.

Finally, get all of your paperwork in order.  Gather all of your rental agreements, tax documents, appraisals and anything else that the propsective buyer would like to know.  Have everything ready for when a buyer emerges.

Get Your Property Listed

It’s time to list your property.  If you’ve chosen a realtor they will do this for you.  If you are using flat fee MLS, craigslist, or doing it yourself with local FSBO sites, you’ll need to get your property listed yourself.  Write a thorough description and have at least a hundred pictures ready to go.  While you can only post so many on a website, create your own website for the property that has all of the pictures with captions and descriptions.  This will save both you and your buyer a lot of time in the long run.  It is a fact that the more pictures you have, the more buyer interest you provoke.

Advertise Your Investment Property

Finally, advertise the heck out of your place.  Don’t just stick to the MLS service.  Look into every classified and online service available, including craigslist, zillow, fsbo and any local or national real estate sites.  Run free ads in your local neighborhood and find relocation services that you can work with.  You can even use social networking such as facebook so that your friends and colleagues can help you find a buyer.

How to Make Money On Your First Deal

There’s Good News About Property Investing for Beginners…In-Spite of the Government and the Economy

Although Congress has enacted new tax legislation making it more difficult to make a decent profit on real estate transactions….manyo f thoese changes ONLY APPLY to Residential Real Estate…There’s  good news for you the new commercial real estate investor!

Here’s How to Get Started Off on the Right Foot:

Interest rates are low and prices have fallen…This alone more than makes up for any negative tax implications congress throws our way.

Even better, there is a HUGE demand for commercial property leases. People who can’t buy want to lease. Business downsizing buildings are leasing not buying.

Cheap prices, low intrest and a high lease rates? What could be better…

In this economy you have to be much more careful about how you choose your investment.  Obviously you’ll need to buy at the best price and favorable terms.  Many investors will choose to select one or two niches to focus on when first starting out. (i.e. office buildings, self storage, restaurant, retail, etc.)

Commercial Property owners (like any property owner) always  think their property is worth more than it really is.  It’ll be up to you to do some due-diligence to show them why (by the numbers) their property is worth far less than they think.

For the beginning property invester this may seem like a lot of work and it can be.  Remember the saying, know before you go;. However,  the pay-offs can be huge even for beginner investors.  I’ve seen brand new investors go in and make $3,000-$4,000 per month positive cash-flow on their first deal. Or flip the property for $50,000 profit right out of the gate. They did their homework, they did not rush in to a bad deal and they took the time to get properly trained. Commercial property investing for beginners can be a VERY lucrative business!

Of Course, there’s no promise that your first deal will produce massive profits, (although it can if you do it right)

Beyond price and property evaluation, You’ll need to be certain you want to do the operation side of the property once you close. Nothing worse than buying something and figuring out it’s a lot more work than you planned on.   Learning is a life long process. Don’t forget to get all the facts about what’s involved in ‘running’ the ‘business’ and what sort of improvements to the operation may be able to bring that will increase profits even further.

HouseStock

In the old days, investors used to rely on Appreciation to make money. This is no longer a viable strategy. The property needs to cash-flow or be a good enough flip NOW without any appreciation.  What ever appreciation you do realize is just a bonus.  Depending on your financial status,  You actually may even need to consider property depreciation into your equation.

As a new investor, The value of a commercial property needs to be a lot more dependent on the operation or sale of the current business rather than the value of the land.  When you do your calculations be sure to separate the two.

If this is your first commercial property business venture you may think that it is similar to owning residential property.  You may think, “How hard can this be”. The core is similar but there are many very big differences that you need to know.

The tax laws are different; the county codes are different, even stricter.  You can get fined for something that you didn’t even know about.  The environmental standards are different. 

You may buy a property with the plan of expanding the building or services and you only find out AFTER you buy that the county will not give you permission. Be sure to check with local codes and planning commissions if this is part of your strategy.

I know of a number of people who brought a piece of property with the idea of keeping it a few years and then find the money to develop the property.  When they do get enough money to develop the property the zoning had changed, the building and environmental codes had changed and they had to totally change their plans which usually resulted in less profit than their original plan.

 Look at what is happening in the commercial market in your part of your state and county.  Where is the business flow trending, location and type?  What federal, state, and local laws are changing? Or can change.  What about environmental impact. This seems to be one area of investing that beginners seem to leave out the most. Bad idea!

One easy way to get an idea of how a community may be expanding is to see what the county has already OK’d to build on, what is the county plan. (check out your local planning commission or future development dept.)

Believe it or not, just because you own a property and it is already zoned commercial, does not mean that you can build any type of commercial business.  The county plan may state that they want a shopping plaza in that area and you wanted to put a storage unit facility on that property.

Even though it is your property and your money the planning committee can determine if they will let you put your business on your property.

I am not suggesting that you forget the idea of investing in the commercial property.  I am suggesting that you analyze everything.  Look up what is happening in your area.  Talk to other businesses.  Find out the environmental issues.  Check regarding what kind of businesses are being financed.

There are groups and associations at the local, state and national level for about every part of commercial real estate that you can think of.

Do not depend on only one source of information.  Introduction or beginners courses will give you a lot of information to help you decide if you even want to invest in the commercial area.  If you pay a high price for an advanced course before learning the basics you could get into something where you are missing some vital information and you could have wasted a lot of money.

Even if you pay an expert to coach you, if they are not in your area they do not know the environmental and political situation of your local area. 

There is one rule about all investing and especially investing for beginners; the more you know the more you make, and the less you know the more you are going to need to pay someone else who does know.

The best thing that you can do is to learn for yourself.  Remember, knowledge cannot be taken away from you.  Experts can disappear or become less interested in you.

Do extensive research and a very thorough analysis before you decide on a commercial real estate business. In the long run it will help you make more money or loose less. It is real easy for the beginner property investor to lose a lot of money.  Others tend to take advantage of you.

To start you off on the right foot, before ANYTHING else is to choose a niche. You cant’ become an expert overnight on every type of commercial property. Retail is different than office buildings; Self storage units are different than Apartment buildings. Pick one, THEN move forward with step 2.

To help you choose a niche, we’ve got several Free ‘General Overview’ videos for the new investor about the pros and cons of different types of commercial property investments.

How to Find a Below Market Value Property

 

How to Find These Owners
So now that we know they types of owners who are most likely to be flexible with the price of their property its time to learn how to find a below market value property. We’ll start with an obvious but largely overlooked method for finding bargain properties.

Word of Mouth
Yes I know it should be obvious, but tell people you are looking to invest in property, ask them to keep an ear open for anything that sounds like it might be right for you. Ask who? Everyone, ask your friends, your family, your co-workers, the person standing in front of you in a line, the random drunk who sat himself down at your table last night when you were having after work drinks, it doesn’t matter who they are, they all have connections and it only takes one connection to give you the inside scoop. It’s not often you hear a friend tell you they have just bought a home they first heard about from another friend or a co-worker who just started working at her office. Due to the effectiveness of this technique it surprises me that so few people use it, but at the same time there is something

about human nature that is afraid or too embarrasses about asking for help.
So bite the bullet and ask, you don’t even have to ask just tell people you are looking and see how long it takes before you find out that your cousins, friends, co-workers daughters teacher’s grandmother is selling her old rental property and is willing to take the loan on herself.

Classifieds
Turning to the newspaper has been the bread and butter of the real estate market practically forever, you scan the For Sale section with highlighter in hand marking anything that looks promising. Then you spend the afternoon ringing lead after lead after lead until the disappointment and frustration becomes too much and you throw the classifieds into the bin before you’ve even exhausted your list. While this technique may work for some, for me it’s just an unwanted hassle that takes up too much of my time.

If newspapers are the way you want to go then a better option would be to write your own ad and place it in the Wanted To Buy column. Here you can outline exactly what it is that you are looking for, size, bedrooms, location, price. Smart sellers tend to start here when looking for a buyer—if they can sell a property privately they can save on sales commission—before approaching a realtor to professionally sell their property. Doing it this way the seller’s will actually call you, and if you have outlined precisely what you are looking for in your ad most of these leads will become possibilities that you can look into further.

Another trick to finding quality leads is to look under the rental column and look for something like “for rent or sale” or “for rent to sale” these types of ads are a good sign that the owner may be willing to sell you the property outright.

Real-Estate-Law

Looking Beyond the Classifieds
Another great section of your local newspaper you should keep an eye on is the Public Notices, in particular the births, deaths, divorces, bankruptcy and foreclosures.
These people see selling their properties as a way of moving on, whether is to sell a deceased parents home or to move to a larger home to accommodate a new born. While at first it can be difficult, feeling like your intruding in someone else’s private matters cold calling these sellers can be a quick and profitable method for finding available homes.

Mail Drop
We’ve all flicked through the mail when it arrives and found a small pamphlet or postcard from a local realtor asking if we would like to take up an offer for a free property evaluation or if we are contemplating selling in the near future. Realtors do this to put their name, or at least the company name they work on behalf of into to into your mind so when you do decide to sell you will think of them or may have kept the pamphlet and call them as your first point of call.

The simple fact that realtors have used this technique the world over proves that it is a successful technique and one that you too can harness to improve the quality of the leads you receive. All you need to do is follow their example, write a short letter outlining exactly what is it that you are looking for and that you would love to purchase a home in the local area. Add that you would like to buy the property privately rather than going through all the added costs and hassles that come with working with real estate agents. Add your phone number and your email at the bottom of the postcard or pamphlet and print some copies—make sure you include an email, you can even create one especially for this task because some interested sellers will be too shy to call you but will be more than willing to send you an email and let you make the first real contact.

Expiring Listings
When you agree to let a realtor sell your property you are agreeing to give that realtor exclusive rights to seel the property for a specified time period, if the home is not sold prior to this time expiring you are free to find another agent, stick with your current one, hold onto your home or even sell it yourself privately. This agreement gives the realtor the confidence to market your home knowing that if they find a willing buyer you and the buyer wont come to a private deal and undercut the realtor.

If you find a home you are interested in but it’s currently listed by a realtor don’t despair, secretly slip the owner a note and wait. Because the realtor has exclusive rights to the property the owner cannot sell it without paying the realtor sales commission even if the owner finds the buyer themselves. If it can be proved that a buyer and seller were working towards a private sale at this time, even if the transfer does not take place until after the listing has expired the realtor is still legally entitled to commission.

All you have to do is send the owners a letter telling them that you are interested in purchasing the property and tell them how much you are willing to pay—offer a lower price than you are prepared to pay to leave room for negotiation. Also tell them that if the house does not get sold and the listing expires for them to contact you, impress upon them that they are not to contact you until the property is no longer listed.

If the house does not sell within the listing period the owner will have two choices they can either call you or relist the property and try again. The fact that you are a willing buyer should make you the front-runner because they could list the property again and still not sell it. Think about it, you are trying to sell your family home for $500,000 through a realtor who will accept a commission of 5% this is the lower end of the national average. This means that you will get $475,000 and the realtor will make a $25,000 commission on the sale. If someone privately offers you $475 000 for the home would you take it? Not only do you get what you were expecting but the buyer also wins because they have saved themselves $25,000 on the home. Of course the more astute buyer will offer them a lower price of say $450,000 and see what happens. The owner will either go for the firm sale thought it means selling for $25 000 less then they had hoped or they could relist the property with no guarantee that it will sell for the asking price or that it will sell at all. In this situation so long as you offer a fair price more times than not they will go for the firm sale and move on with their lives.

Internet
As with everything else in our lives properties can now be found on the internet. Not only do realtors have their own sites displaying available properties but there are also sites that show available properties from across the different realtors allowing you to search for everything from the comfort of one site. An added bonus of the internet age is that real estate sites are becoming more niche orientated, focusing on particular types of properties such as listing of foreclosure sits within a specific city and For Sale by Owner (FSBO) properties.

Bankruptcy
When a person files for bankruptcy the case it is put on the public record making publicly available all the properties that must be sold as part of the bankruptcy process.
The need to satisfy the creditors means that properties associated with bankruptcy are almost always heavily discounted.

You can access details of local bankruptcies from your local bankruptcy court where a quick skim of the papers will tell you if the proceeding will include properties.

Repossessions
While the media makes it seem like it is only the banks that are repossessing family homes, if you scratch the surface a little you will find a long list of government departments that can offer you a bargain if you know where to look.
Federal Saving and Loans Insurance Corporation (FSLIC)
Originally set up to insure deposits made at saving and loan association. When a saving or loan is failing the FSLIC steps in. Over time they become the owner of many unwanted properties that they need to sell.

The Federal Deposit Insurance Company (FDIC)
The FDIC is similar to the FSLIC but they insure deposits made at banks. Just like the FSLIC they end up with many properties from failed or struggling banks.

The Veterans Administration (VA)
They also insure some loans that are made by banks and mortgage companies. Once a loan turns sour the relevant bank or mortgage company takes possession of the unwanted property. These properties sometimes end up in the possession of the VA.

The Federal National Mortgage Association (Fannie Mae)
Fannie Mae buys loans from banks and other mortgage companies. Once they have foreclosed on these properties the need to sell them.

Internal Revenue Service (IRS)
Haven’t paid your taxes? Well if the amount owed is large enough you could be saying goodbye to your home and other possessions that the IRS feels appropriate. For the keen investor it can signal a bargain. For information about these properties simply contact your nearest district office of the IRS.

Realtors
Finally don’t forget about realtors. Reading the above you may get the feeling that I am in some way against realtors and that I’m against using them but a realtor can be a big help, especially if you are just starting out in investing. Lets face it a realtor makes it much easier. They will often know the local area better then your do and for a nominal fee they will do all the legwork to find you a property letting you focus on other more pressing issues. A realtor can also handle all the legal work saving you on legal fees.
When working with a realtor you must have a clear, quantifiable idea of what you are looking for and once you have outlined what you are looking for you need to stick within those parameters.

If a realtor spends their time looking for a property that fits in with your requirements but upon viewing the property you change the parameters—you decide you now want a four bedroom home not a three bedroom—the realtor will quickly lose interest in working with you as they can find easier money working with someone who has a concrete idea of what they want.

For the same reason you need to give the realtor a clear picture of what you are looking for. Don’t just tell the realtor you want to buy an investment property for less than $250,000 and it must be in a nice suburb. The scope is so wide it would encompass a large proportion of listed properties, meaning you will constantly reject everything the realtor brings to you, which again will frustrate the realtor.

Instead give the realtor a description such as “I’m looking for a three bedroom, one bathroom single family dwelling that is close to an elementary school and has a below average crime rate.” I like to find properties that are close to elementary schools because they tend to attract younger families looking to live near a reputable school, as opposed to a property that is within walking distance of a college which is likely to attract college students who would prefer to live off campus.

Buyers Brokers Agreement
Just as a seller who lists their property with a realtor gives exclusive selling rights to the realtor, when you enlist the help of a realtor to find you a new investment property you will often need to sign a Buyer’s Brokers Agreement which state that you cannot work with another realtor on a specific property for a predefined time. As with the sellers this is to ensure that you will not undercut the realtor once they have found you a property that meets your needs.

Realtors fear putting in the hard yards and then watch as unscrupulous investors undercut their earnings. Once you have signed the agreement realtors are much more likely to go the extra mile to get you the best deal that they can.

Warning
In property as is the case with most thing a bargain is not always a bargain, sometimes the reason an owner is willing to offer you such a cheap price is because that’s what the property is actually worth. There are renovator delights and there are health hazards, there a nice and neat little homes and there are homes infested with termites—if you know where to look.

Outside of inspecting the property as best as you can—most of us aren’t electricians, structural engineers or plumbers—another option you have to learn about any problems the property may have is to ask the owner for a Product Disclosure Statement. These are a great way to find out about issues that may not become obvious to you through a simple visual inspection. A product Disclosure Statement is a written statement whereby the owner outlines all the problems and faults with the property that they are aware of, these statement do not cover you for problems that the seller genuinely does not know about.
In many states the seller is legally obligated to sign a Property Disclosure Statement, but in states where there is no mandatory requirement to do so you can still ask the seller to fill one out. Copies of blank statements are available from most good realtors or you can search online.

If you are looking to purchase a property in a state that does not mandate these statements and the owner refuses to fill one out for you I would become suspicious of them and be very cautious about further negotiations. This is not to say every seller who refuses to sign a statement does so to hide problems but it does destroy trust and that makes doing business with them harder.

Investing in property is not a short term business, you must have a long term goal and plan in place before you can begin, but that does not mean you can’t save yourself some cash in the short term by targeting the right buyers. If you can save yourself $30 000 on a new property through negotiation think of it as profit, a profit you never have to pay tax on.
Happy Investing

Thinking of Buying Investment Properties

Buying investment properties has been proven over a long period of  time to be an excellent source of additional income and also as an asset whose value increases each year. When you decide to retire selling these properties is better than money in the bank. Most people who have never invested in property see renting as an easy process: buy the house and sit back as the each week the rent pours into your bank account uninterrupted. Sadly there is a lot more to investing than that. For most first time investors their biggest fear is not the process of owning a rental property buy rather being able to find the financier to fund the first property. Quite often however this is a lot easier than they would think. What you need to consider when you buy your first investment property is what are the issues and costs involved in renting a property.

A simple mistake made by investors entering the property market is to assume that the mortgage repayments that will be owed on the new property will be easily covered by the rent paid. Buying a rental property without first researching to see if the rent will cover your mortgage repayments is the first step to disaster. As with any investment the first step is to research, research and research again. You should decide on the area you want to buy the property and then check the local real estate agents to see what they are charging for rent and the types of properties they are renting. Take note of the type of property and the features, such as number of bedroom, bathrooms, renovated kitchen and keep these at the forefront of your mind when looking for a property to purchase. It is also a good idea to contact the area’s local landlord’s association to find more information about rental rates.

sell-you-house-fast

A potentially big hidden problem owners can face is not having an emergency fund for the property. This fund is needed for the repair and upkeep of the property, and more worryingly can be needed to pay the mortgage during periods where the property is vacant. Ideally you will have money set aside to pay the mortgage for a few months before you purchase the property.  You need to keep this in mind when you are looking at potential properties and how much you can charge for them, will the rent paid cover the mortgage, the cost of insurance, taxes and ongoing maintenance to the property?

It is also important to imagine your perfect tenant, not just one who pays their rent on time but also ones who will be respectful to the property, the neighbours and the local community. For example a small home might attract a young family and although you may expect that they will pay the rent on time they do have children and possibly pets which would be more likely to damage the property than a young couple in a upmarket apartment complex.

Also the facilities in that community can also dictate the type of clients you can expect to get. If there is a University or College nearby there is a good chance that the property will be rented to students. Buying in a community with a large number of students almost guarantees that your property will rarely be vacant but also means maintenance costs could skyrocket.

If you haven’t been scared away from investing after reading all that then renting could be the investment for you. Once you understand and accept some of the financial issues involved in the rental market it is time to look at the law, in particular what are the rights and responsibilities of being a landlord. Each state has its own set of laws pertaining to this so it’s definitely outside the scope of this article but understanding your responsibilities can save you a lot of money and maybe even jail time.

Renting properties can be a great way to secure your financial future but it is full of potholes waiting to catch the unsuspecting investor. Before you invest you must do your homework, understand all of the financial and legal considerations before signing off on your first property. Before you buy your first property go out and talk to local landlord associations, talk to your local real estate agents and tell them I’m thinking of buying a rental property, what do I need to know?

If you are still eager to get involved with buying investment properties, I congratulate you and welcome you to the wonderful world of property investment.

Property Investors 7 Secrets to Writing a Solid Contract

As a property investor in real estate it is not just about having access to money or finding good deals. Real Estate Contracts can make or break deals. With the mountains of paper and all manner of forms you would think that you have to be a Philadelphia lawyer to be able to understand the real estate contract, residential or commercial.

The standard contract that a real estate broker wants you to sign mainly first protects the agency and then the seller (your protection is last on the list).  As a buyer you need to protect yourself.  Understanding and changing things in the contract are ways you can turn the contract to YOUR ADVANTAGE!

Obviously, you would put different things into a contract when you are buying than when you are selling a property. Here are some ways to protect YOUR interests as the Buyer and to make the contract more profitable for you.

Read the Contract:  Ok ‘property investors’ this sounds obvious but you would not believe the number of property investors who have never read a real estate contract. They skim it over and rely on the real estate agents to properly wright it up. BAD IDEA!

You are signing away things that you would never do if you really understood the contract. Investors do make money in spite of not knowing a thing about contracts, but it’s when things come up or go wrong that you can get blindsided.  And, when it’s in the contract you signed but didn’t read or understand….you have no recourse.

Also read the contract you sign with the listing agent, if you are the seller.  Do not forget, who ever makes up the contract has the best advantage.  You need to protect yourself from the realtor, even if they are your friend.

Environmental, EPA Survey and Clearance: As the buyer, have the seller obtain an EPA survey and clearance prior to closing, at seller expense.  You can require this even if you are leasing or lease option the property.  This is most important when you are buying small commercial properties because you do not have an army of attorneys and consultant types that may have environmental issues on their lists.    If the seller gets the EPA clearance done then if you do not buy the property the seller has the documents already done for the next potential buyer.

As the Seller, If You Give Up Something, Have the Buyer Give Up Something: When you are the seller and the buyer offers a lower price then you change the terms.  If you are offering some seller financing, put in a higher interest rate and/or shorter period.  You could even find out what the buyer may have, such as a boat or RV, golf membership, radio advertising, or even services.  This sounds a little off the wall but think of it this way, you are essentially making a trade, something of value for something else of value, not just money for property. Many sellers are savvy. They’ll test you. If you don’t do this, if you don’t tit-for-tat everything, they’ll keep nibbling away till you’re too deep into it to back out. Then bight off another huge chunk at the closing table when it’s ‘too-late’ to do anything about it. Don’t get fooled by this one. It will happen, be prepared for it. (This is a little property investor negotiation ninja trick that is very effective)

Deed Restrictions: If there are deed restrictions that a former owner put on the property that you do not like, then have the seller have the restrictions taken off at his expense.  Getting the deed restrictions changed can be a problem but the seller is very motivated. If you want to add some deed restrictions then you could have them put on the deed at the time when you buy the property.  This can be very useful when friends or others what to do something on your property such as park their old trucks or equipment on your property and it is hard to say no.

Split Out the Personal Property From the Real Estate: This is frequently done in larger commercial properties. It is sometimes done in small commercial properties.   It is rarely done in residential property sales. This is a good way for the buyer to negotiate a lower price for the property.  It can make a difference when it comes to property tax.  When it comes to income tax, the depreciation of personal property has a much shorter depreciation period than buildings.

Get a Quitclaim Deed From Everyone:Anyone can give a quitclaim deed for anything to anybody.  What a Quitclaim Deed really does is to convey any and all rights the grantor may have had.  It can be used to clear up potential claims that other people may have had against the property title such as a former occupant, lessee, a previous contractor or workman or even other family members. In general, a quitclaim Deed will solve most problems in real estate title issues and is a definite property investing secret you can’t afford to forget.

Close Without a Completed Contract: This strategy is also used by large commercial property investors.  The advantage is that the parties are not bound by the contract.  There is no law that requires a completed contract to buy or sell property.  I often use this strategy in small and large transactions. Bottom line, just close the deal.

There are so many ways you can arrange a real estate contract to your advantage. Standard contracts are for people who do not know what they are doing. If you accept a Realtors contract as is, you’ve just told them you don’t know what you’re doing and that will be there cue to rake you over the coals.

When making money in real estate as a property investor, it is important to write and understand a contract that will give you the best benefit.  As a property investor you need a whole arsenal of tools to improve your position, good contract knowledge is one of them and it’s a biggie!

Property Investing For Beginners

Rental properties can be a great source of wealth creation but unlike many other investment options it can be difficult to get in to. The costs involved to enter the sector are much higher than the start-up costs of other investment sectors. For someone looking to purchase their first rental property finding investment property loans can be a daunting task. Getting a loan to purchase an investment property is usually a bit harder than getting qualified to buy your first home. The requirements for investments properties are more stringent than those of a standard home loan

You can become qualified for a standard home loan without even having a deposit in some situations while most lenders for an investment loan require a minimum of a 15% down payment. That means you should have at least a 15% deposit saved before you even bother to look for a property.

While there are many options when it comes to finding the finances to buy an investment property, the four main options are:

  • Mortgage broker
  • Bank
  • Private Lender
  • Federal Housing Association (FHA)

No matter which lenders you choose to approach they will all want more than just a down payment to give them the confidence to give you the loan, they also need to know that the property will be profitable. This doesn’t mean they just want to know if the rent will cover the cost of the monthly mortgage repayments, they want assurances that your investment will be profitable in the long term, that you will not default on your repayments. For this the lenders will need to know that the potential return in rent will easily cover the cost of the mortgage, of insurance, of taxes and of you maintaining the property.

Property for newbie

There are various loan options available to fund your property:

Residential loan—this is your standard home loan. Most people wrongly think that a standard home loan allows you to purchase a single dwelling for which you are to occupy. In fact a standard loan lets you buy anything from a single dwelling to a four-plex complex. To qualify however you will still need to be an owner occupier of one of the dwellings. It is important to note however, you do not have to live in the dwelling for the life of the loan, you can move out anytime you like and rent that dwelling too. But you must live in the property when you first purchase it.

If you don’t want to live next door to your tenants or would rather purchase a property with more than four dwellings than you will need a commercial loan. Commercial loans are much more expensive than a residential loan with minimum down payments beginning at around 25%–35%. On top of this interest rates and charges are normally more expensive for the commercial loan. A lender for a commercial loan will examine the property more thoroughly than would happen with a standard loan. Without the guarantee that you will reside in the property the lender has to accept the possibility that all the dwelling within the property could be vacant. The lenders will not only  make sure that the property will have the required cash flow to cover the mortgage and typical expenses related to rental properties but they will also want to see that there will be enough remaining to be put into a reserve account.

FHA programs are available for investors looking to purchase their property with a residential loan. FHA do not actually loan money to people, instead they offer insurance to the lenders to make it easier for you to be accepted for your loan.

These are the two method of getting finance I would recommend. But if you have had credit problems in the past and cannot obtain a loan through traditional means then you may have to look elsewhere for financing.

One option is to get a private party loan, which is where you get a loan not from a bank or broker but from an individual or private business. With this type of loan you actually work out the terms of the loan together. While these loans can end up being a win win situation for both parties—it’s not unheard of for private party loans to come with lower interest rates than the big banks—there is a lot less regulation and more opportunity for fraud. One option for you to get a private party loan is to ask the current property owner to take on the loan for a reasonable down payment and a good interest rate.

The most risky option I will mention is the hard money loan. A hard money loan is an asset based loan in which you secure the funding with other real estate you own, including the property where you live. Again these types of loans are not available from the banks or brokers, they are only available from private investors. Typically the amount of the loan will be about 65%-70% of the value of the property you use for assurance and traditionally come with very high interest rates.

Again I would not recommend the last two options for purchasing your investment properties but if getting traditional finance is not possible then may be your only option to enter the market.

While finding investment property loans can be difficult and expensive at the beginning keep in mind that a little further down the track you will be able to refinance your loan, giving you both a better interest rate and better terms.

Property sell

Finding Your First Investment Property

Finding the right investment property takes time and research, but it is essential to succeeding in the property market, unfortunately finding your first investment property is often harder than most investors think. Eagar to buy a property, to start reaping the rewards, inexperienced investors often jump head on into the first property they find and for many of them this error can cost them dearly. This article will outline some of the things you need to know to find the right property that will generate income and not waste it.

You have the choice of searching for a property by yourself or with the aid of a broker.  My advice to first time investors is to invest a little money and get a broker to guide you through the first purchase, if your plan is to buy multiple properties than I recommend you use a broker to help with all your properties until you feel confident about going it alone. If you’re looking to buy into a market that you don’t know well than a broker from that area can help you find suitable properties including new properties that have just been put up for sale, giving you the first bite. A broker with local knowledge, who understands the area that you are looking to invest in, is invaluable for both the beginner and the experienced buyer.

Understanding the local market is paramount to your success. Look for any discernible trends in that local property market. If housing prices are falling then there is a good change that the local rental rates will soon follow. Along the same lines, if the local prices have gone up in the past 6 months than the area must be in demand, meaning you will be able to increase the rent without fearing long term vacancies. If your target market is not too far away you should also visit city hall or at least visit their website to see if there are any development or plans for that area which could adversely affect property prices. It is also a good idea to contact the local police department to check the how safe the area is so you can find out if you should provide extra security to the property.

Once you have found your perfect property you need to make sure you have your finances in order. Before you start looking for financing you should check your credit report so you can find any inaccuracies that would prevent banks from loaning you money. Checking this yourself will give you time to rectify your record before letting the banks have a look. It’s best to check with all the credit reporting bureaus to get the full picture of your credit situation. Even if your report doesn’t seem that bad remember that the better you can make your credit report the better the interest rate you will be able to get.

While a renovator’s delight can be an exciting purchase I don’t recommend it for the first time investor. Although it means buying the property at a cost well below anything else you will find in the area the cost of fixing the property to a stage where you can successfully rent it out can very quickly break the bank, and of course the period that the property is being worked on is time that you can’t collect rent. Your first property should be one that is ready to be occupied, one that can start making money as quickly as possible.

You should of course inspect the property yourself and make sure it is too your liking but more importantly than that is to get a professional to inspect the property to make sure it is safe. While you can check the doors, the power points, the taps and the gas yourself, it definitely pays to get someone to look below the surface, beyond what you can see. Have a professional check the actual wiring throughout the house, see if there are any remnants of lead paint on the property and make sure that the building is structurally sound, you don’t want your first property to fall down around you.

I know that when you make the decision to invest in property you are so anxious to buy that you don’t want to go waste time and effort worrying about the property, you want to buy a property and start making money. But when it come to finding your first investment property it really does pay to take your time and double check everything before proceeding with the purchase, not only will it  save you money and make it a more enjoyable experience but it will also give you the confidence to continue to invest in further properties down the road.

Thinking of Buying Investment Properties

Buying investment properties has been proven over a long period of  time to be an excellent source of additional income and also as an asset whose value increases each year. When you decide to retire selling these properties is better than money in the bank. Most people who have never invested in property see renting as an easy process: buy the house and sit back as the each week the rent pours into your bank account uninterrupted. Sadly there is a lot more to investing than that. For most first time investors their biggest fear is not the process of owning a rental property buy rather being able to find the financier to fund the first property. Quite often however this is a lot easier than they would think. What you need to consider when you buy your first investment property is what are the issues and costs involved in renting a property.

A simple mistake made by investors entering the property market is to assume that the mortgage repayments that will be owed on the new property will be easily covered by the rent paid. Buying a rental property without first researching to see if the rent will cover your mortgage repayments is the first step to disaster. As with any investment the first step is to research, research and research again. You should decide on the area you want to buy the property and then check the local real estate agents to see what they are charging for rent and the types of properties they are renting. Take note of the type of property and the features, such as number of bedroom, bathrooms, renovated kitchen and keep these at the forefront of your mind when looking for a property to purchase. It is also a good idea to contact the area’s local landlord’s association to find more information about rental rates.

A potentially big hidden problem owners can face is not having an emergency fund for the property. This fund is needed for the repair and upkeep of the property, and more worryingly can be needed to pay the mortgage during periods where the property is vacant. Ideally you will have money set aside to pay the mortgage for a few months before you purchase the property.  You need to keep this in mind when you are looking at potential properties and how much you can charge for them, will the rent paid cover the mortgage, the cost of insurance, taxes and ongoing maintenance to the property?

It is also important to imagine your perfect tenant, not just one who pays their rent on time but also ones who will be respectful to the property, the neighbours and the local community. For example a small home might attract a young family and although you may expect that they will pay the rent on time they do have children and possibly pets which would be more likely to damage the property than a young couple in a upmarket apartment complex.

Also the facilities in that community can also dictate the type of clients you can expect to get. If there is a University or College nearby there is a good chance that the property will be rented to students. Buying in a community with a large number of students almost guarantees that your property will rarely be vacant but also means maintenance costs could skyrocket.

If you haven’t been scared away from investing after reading all that then renting could be the investment for you. Once you understand and accept some of the financial issues involved in the rental market it is time to look at the law, in particular what are the rights and responsibilities of being a landlord. Each state has its own set of laws pertaining to this so it’s definitely outside the scope of this article but understanding your responsibilities can save you a lot of money and maybe even jail time.

Renting properties can be a great way to secure your financial future but it is full of potholes waiting to catch the unsuspecting investor. Before you invest you must do your homework, understand all of the financial and legal considerations before signing off on your first property. Before you buy your first property go out and talk to local landlord associations, talk to your local real estate agents and tell them I’m thinking of buying a rental property, what do I need to know?

If you are still eager to get involved with buying investment properties, I congratulate you and welcome you to the wonderful world of property investment.