You can also download a PDF version
of
these tips that you can
Save to your computer, View, Print and Email
10
Important Tips to Successful Real Estate Investing
When it comes to investing, everybody has certain
goals and aspirations. However, we have found that
there are certain guidelines every aspiring real
estate investor needs to know.
Your
best bet is to ask your REALTOR®
1. Compare Property Values and Rents
Financial statistics only go so far; the best measure
of a property's market value is often the sale prices
of nearby properties. The same holds true for area
rents. A low price can often be justified by a
reasonable rent; renters who can afford a high rent
can afford to buy instead, so reasonably priced rent
is a need.
2. Be careful - Tax laws may change
Don't base your tax investment on current tax laws.
The tax code is constantly changing, and a good
investment is a good investment regardless of the tax
code. The right property with the right financing is
what you should look for as an investor.
3. Specialize in something you Know
Start in a market segment you know. Whether you focus
on fixer-uppers, foreclosures, starter homes, low-down
payment properties, condominiums, or small apartment
buildings, you'll benefit from experience by
specializing in one aspect of investment real estate
properties.
4. Know the Costs going in!
Know the financial statements inside out.
·
What are operating expenses?
·
What are loan payments?
·
Vacancy costs?
·
Taxes?
·
What does the cash flow statement look
like?
These are key issues that must be addressed before
making a solid investment.
5. Know where your tenants are coming from
If the last rent increase was recent, your tenants may
be considering a move. If tenants have a short-term
lease, they may be living there simply to attract
unsuspecting buyers. It is also important to collect
the tenants' security deposits at closing.
6. Assess the tax situation
Taxes are an integral part of successful real estate
investing, and they often make the difference between
a positive cash flow and a negative one. Know the tax
situation, and see how it can be manipulated to your
advantage. It may be a good idea to consult a tax
advisor.
7. Investigate insurance coverage
If seller's coverage is based on lower-than-current
replacement value, your insurance cost may increase
when you pay a higher purchase price.
8. Confirm Utility Costs
Ask the local utilities to verify recent utility
expenses, especially if any of these costs are
included in your tenant's rent.
9. Consult Your Accountant
Taxation is a key element of successful real estate
investing, so be
sure to find an accountant who is well-versed with the
constantly evolving tax code.
10. Inspect!
Make sure that you always perform a thorough
inspection of the property before buying it. Never,
ever buy any property without at least examining the
site. In some cases, hiring professional inspectors to
examine the structural mechanical system may be a
sound investment.
1. Get "Pre-Approved" - Not "Pre-Qualified!" Your best
bet is to ask your REALTOR®
Do you want to get the best property you can for the
least amount of money? Then make sure you are in the
strongest negotiating position possible. Price is only
one element in the negotiations, and not necessarily
the most important one. Often other terms, such as the
strength of the buyer or the length of escrow, are
critical to a seller.
In years past, I always recommended that buyers get
"pre-qualified" by a lender. This means that you spend
a few minutes on the phone with a lender who asks you
a few questions. Based on the answers, the lender
pronounces you "pre-qualified" and issues a
certificate that you can show to a seller. Sellers are
aware that such certificates are WORTHLESS, and here's
why! None of the information has been verified!
Many times unknown problems can come to the surface!
Some of the problems I've seen include recorded
judgments, alimony payments due, glitches on the
credit report due to any number of reasons both
accurately and inaccurately, down payments that have
not been in the clients' bank account long enough,
etc.
So the way to make the strongest offer today is to get
"pre-approved". This happens AFTER all information has
been checked and verified. You are actually APPROVED
for the loan and the only loose end is the appraisal
on the property. This process takes anywhere from a
few days to a few weeks depending on your situation.
It's VERY POWERFUL and a weapon I recommend all my
clients have in their negotiating arsenal.
2. Sell Your Property First, Then Buy the House
If you have a house to sell, sell it before selecting
a house to buy! Contingency sales aren't nearly as
strong as one that comes in with a ready, willing and
able buyer. Consider this scenario: You've found the
perfect house - now you have to go make an offer to
the seller. You want the seller to reduce the price
and wait until you sell your house.
The seller figures
that this is a risky deal, since he might pass up a
buyer who DOESN'T have to sell a house while he's
waiting for you. So he says OK, he'll do the
contingency but it has to be a full price offer! You
have now paid more for the house than you could have
because of the contingency, and you have to sell your
existing house in a hurry! Otherwise you lose the
house!
So to sell quickly you might take an offer
that's lower than if you had more time. The bottom
line is that buying before selling might cost you
THOUSANDS of dollars.
If you're concerned that there is not a house on the
market for you, then go on a window-shopping trip. You
can identify possible houses and locations without
falling in love with a specific house. If you feel
confident after that then put your house on the
market.
Another tactic is to make the sale "subject to seller
finding suitable housing". Adding this phrase to the
listing means that WHEN YOU DO FIND A BUYER, you will
have some time to find the new place. If you don't
find anything to your liking, you don't have to sell
your present home.
3. Play the Game of Nines
Before house hunting, make a list of things you want
in the new place. Then make a list of the things you
don't want. You can use this list as a guide to rate
each property that you see. The one with the biggest
score wins! This helps avoid confusion and keeps
things in perspective when you're comparing dozens of
homes.
When house hunting, keep in mind the difference
between "STYLE AND SUBSTANCE". The SUBSTANCE are
things that cannot be changed such as the location,
view, size of lot, noise in the area, school district,
and floor plan. The STYLE represents easily changed
surface finishes like carpet, wallpaper, color, and
window coverings. Buy the house with good SUBSTANCE,
because the STYLE can always be changed to match your
tastes. I always recommend that you imagine each house
as if it were vacant.
Consider each house on its underlying merits, not the
seller's decorating skills.
4. Don't Be Pushed Into Any House
Your agent should show you everything available that
meets your requirements. Don't make a decision on a
house until you feel that you've seen enough to pick
the best one.
A decade ago, homes were selling quickly, usually a
few days after listing. In that kind of market, agents
advised their clients to make an offer ON THE SPOT if
they liked the house. That was good advice at
the time. Today there isn't always this urgency,
unless a home is drastically under priced, and you'll
know if it is.
Don't forget to check into the SCHOOL DISTRICTS of the
area you're considering. Information is available on
every school; such as class sizes, % of students that
go on to college, SAT scores, etc. You can get this
information from this web site.
5. Stop Calling Ads!
Please note - ads are sometimes created to make the
phone ring! Many of the homes have some drawback
that's not mentioned in the ad, such as traffic noise,
power lines, or litigation in the community. What's
not mentioned in the ad is usually more important than
what is.
For this reason, I want you to be very careful when
reading ads. Remember that the person writing the ad
is representing the seller and not you! The most
important thing you can do is have someone on your
side looking out for your best interests.
Your
own agent will critique the property with an eye
towards how well it meets your needs and will point
out any drawbacks you should know about. So whether
you decide to work with me or not, pick an agent you
feel comfortable with and enlist the services of that
agent as a buyer's broker. Then you become a client
with all the rights, benefits, and privileges created
by this agency relationship, and you're no longer just
a shopper.
Did
you know that many homes are sold WITHOUT A SIGN ever
going up or an AD EVER BEING PUT IN THE PAPER? These
"great deals" go to those people who are committed to
working with one agent. When an agent hears of a great
buy, who do you think he's going to call? His client,
who he has a legal obligation to work hard for you, or
someone who just called on the phone and said "keep
your eyes open"? So to get the best buy on a property,
I always recommend that you hire your own agent and
stick with him or her.
7 Selling Mistakes That You Don't Want To Make!! Mistake #1 -- Pricing Your Property Too High Your best
bet is to ask your REALTOR®
Every seller obviously wants to get the most money for
his or her product. Ironically, the best way to do
this is NOT to list your product at an excessively
high price! A high listing price will cause some
prospective buyers to lose interest before even seeing
your property. Also, it may lead other buyers to
expect more than what you have to offer. As a result,
overpriced properties tend to take an unusually long
time to sell, and they end up being sold at a lower
price.
Mistake #2 -- Mistaking Re-finance Appraisals for the
Market Value
Unfortunately, a re-finance appraisal may have been
stated at an untruthfully high price. Often, lenders
estimate the value of your property to be higher than
it actually is in order to encourage re-financing. The
market value of your home could actually be lower.
Your best bet is to ask your REALTOR® for the most
recent information regarding property sales in your
community. This will give you an
up-to-date and factually accurate estimate of your
property value.
Mistake #3 -- Forgetting to "Showcase Your Home"
In spite of how frequently this mistake is addressed
and how simple it is to avoid, its prevalence is still
widespread. When attempting to sell your home to
prospective buyers, do not forget to make your home
look as pleasant as possible. Make necessary repairs.
Clean. Make sure everything functions and looks
presentable. A poorly kept home in need of repairs
will surely lower the selling price of your property
and will even turn away some buyers.
Mistake #4 -- Trying to "Hard Sell" While Showing
Buying a house is always an emotional and difficult
decision. As a result, you should try to allow
prospective buyers to comfortably examine your
property. Don't try haggling or forcefully selling.
Instead, be friendly and hospitable. A good idea would
be to point out any subtle amenities and be receptive
to questions.
Mistake #5 -- Trying to Sell to "Looky-Loos"
A prospective buyer who shows interest because of a
"for sale" sign he saw may not really be interested in
your property. Often buyers who do not come through a
REALTOR® are a good 6-9 months away from buying, and
they are more interested in seeing what is out there
than in actually making a purchase. They may still
have to sell their house, or may not be able to afford
a house yet. They may still even be unsure as to
whether or not they want to relocate.
Your REALTOR® should be able to distinguish realistic
potential buyers from mere lookers. REALTOR®s should
usually find out a prospective buyer's savings, credit
rating, and purchasing power in general. If your
REALTOR® fails to find out this pertinent information,
you should do some investigating and questioning on
your own. This will help you avoid wasting valuable
time marketing towards the wrong people. If you have
to do this work yourself, consider finding a new
REALTOR®.
Mistake #6 -- Not Knowing Your Rights &
Responsibilities
It is extremely important that you are well-informed
of the details in your real estate contract. Real
estate contracts are legally binding documents, and
they can often be complex and confusing. Not being
aware of the terms in your contract could cost you
thousands for repairs and inspections. Know what you
are responsible for before signing the contract. Can
the property be sold "as is"? How will deed
restrictions and local zoning laws affect your
transaction? Not knowing the answers to these kinds of
questions could end up costing you a considerable
amount of money.
Mistake #7 -- Limiting the Marketing and Advertising
of the Property
Your REALTOR® should employ a wide variety of
marketing techniques. Your REALTOR® should also be
committed to selling your property; he or she should
be available for every phone call from a prospective
buyer. Most calls are received, and open houses are
scheduled, during business hours, so make sure that
your REALTOR® is working on selling your home during
these hours. Chances are that you have a job, too, so
you may not be able to get in touch with many
potential buyers.
1.
Finding the right real estate
professional requires doing a little research and
asking a few questions. You need to know everything
about the selling process. What is the marketing
strategy? What kind of advertising will be done? Is
the REALTOR® capable and willing to communicate
effectively? Can the REALTOR® effectively present and
sell the less-noticeable assets of the property?
Real estate professionals also need to be
knowledgeable about the community. They need to have a
feel for the history of the area and the approximate
price that people will be willing to pay. Also, real
estate agents should know what the competition is and
how much it will effect your sale.
NEVER choose a REALTOR® on price alone. Remember that
a REALTOR® cannot magically raise the selling price of
the house. Consider the buyer. The purchaser won't
willingly pay too much; it's most likely that he or
she will do research on the market and try to find the
best product for the best price. The facts simply
cannot be changed, no matter which REALTOR® you
select. In spite of these unchangeable factors, the
REALTOR® you select must still be diligent and
knowledgeable.
If your property does not elicit attention within
several weeks, the cause can most likely be attributed
to one of these three factors:
1. location
2.
condition
3.
price.
The
location obviously cannot be changed. You should
consider examining the conditioning of your property
and reevaluating the marketing strategy. Ask your
REALTOR® to offer an explanation of the competition
and your pricing strategy.
Tax incentives for real estate investors can often
make the difference in your tax rates. Deductions for
rental property can often be used to offset wage
income. Tax breaks can often enable investors to turn
a loss into a profit.
For which items can investors get tax breaks? You
could claim deductions for actual costs you incur for
financing, managing and operating the rental property.
This includes mortgage interest payments, real estate
taxes, insurance, maintenance, repairs, property
management fees, travel, advertising, and utilities
(assuming the tenant doesn't pay them).
These expenses
can be subtracted from your
adjusted gross income when determining your personal
income taxes. Of course, these deductions cannot
exceed the amount of real estate income you receive.
In addition to deductions for operating costs, you can
also receive breaks for depreciation.
Buildings
naturally deteriorate over time, and these "losses"
can be deducted regardless of the actual market value
of the property. Because depreciation is a
non-cash expense -- you are not actually spending any
money -- the tax code can get a bit tricky. For more
information about depreciation and various tax
alternatives, ask your tax advisor about Section 1031
of the U.S. Tax Code.
Have a Positive Cash Flow
There are two kinds of positive cash flows: pre-tax
and after-tax. A pre-tax positive cash flow occurs
when income received is greater than expenses
incurred. This sort of situation is difficult to find,
but they are usually a strong and safe investment. An
after-tax positive cash flow may have expenses that
outweigh collected income, but various tax breaks
allow for a positive cash flow. This is more common,
but it is generally not as strong or safe as a pre-tax
positive cash flow.
Regardless of what kind of real estate you choose to
invest in, timely collections from your tenants is
absolutely necessary. A positive cash flow -- whether
it be pre-tax or after-tax -- requires rental income.
Be sure to find quality tenants; a thorough credit and
employment check is probably a good idea.
Use Leverage
One of the most important factors in determining a
solid investment is the amount of equity you are
purchasing. Equity is the difference between the
actual worth of the property and the balanced owed on
the mortgage.
Benefit from Growing Equity
While investing in real estate is relatively complex,
it is often worth the extra work. When compared to
other financial investments, like bonds or CD's, the
return on investment for real estate purchases can
often be greater.
The key to real estate investing is equity. Determine
an amount of equity that you want to achieve. When you
reach your goal, it's time to sell or refinance.
Determining the proper amount of equity may require
the assistance of a real estate professional.
If you're new to investing or real estate and don't
know the first thing about interest rates, here's a
good tip: the higher the interest rate, the more
expensive it's going to be. High interest rates mean
you will have to pay back more on the money you
borrow. Another good rule of thumb is that
affordability increases if you use an adjustable rate
mortgage (it's easier to qualify this way). Of course,
there will be a wide range of prices that you can
choose from, depending on what kind of financing you
choose.
Not even the Fed knows for sure
The Fed holds a considerable amount of power, but they
can't control everything. Mortgage interest rates are
affected by many unpredictable political, economic and
social events. So there is no guarantee what direction
interest rates will go, despite the forecasts of the
experts. Therefore, make your financial decision based
on where things are today including your budget, your
needs and your future plans.
Locking in rates assures your lowest interest
If you do decide you want to lock in at a certain
interest rate, you will need to complete a loan
application and send it to your lender as soon as
possible. This must be done so that your commitment
doesn't run out before your loan is approved. Follow
up and be se sure that the lender is receiving all of
the necessary documentation. Get a property appraisal,
which usually costs about $300, through your loan
agent as soon as possible.
Don't obsess and miss a good real estate deal
Although rising interest rates can create more
problems for home buyers, waiting and hoping for low
rates is not necessarily a smart move. You may end up
paying a higher price. Also, refinancing is always an
option in the event that interest rates come down.
Use the right boxes, and pack them carefully.
Professional moving companies use only sturdy,
reinforced cartons. The boxes you can get at your
neighborhood supermarket or liquor store might be
free, but they are not nearly as strong or padded, and
so can't shield your valuables as well from harm in
transit.
Use sheets, blankets, pillows and towels to separate
pictures and other fragile objects from each other and
the sides of the carton. Pack plates and glass objects
vertically, rather than flat and stacked.
Be sure to point out to your mover the boxes in which
you've packed fragile items, especially if those items
are exceptionally valuable. The mover will advise you
whether those valuables need to be repacked in
sturdier, more appropriate boxes.
The heavier the item, the smaller the box it should
occupy. A good rule of thumb is if you can't lift the
carton easily, it's too heavy. Label your boxes,
especially the one containing sheets and towels, so
you can find everything you need the first night in
your new home.
For your family's safety and comfort
Teach your children your new address. Let them
practice writing it on packed cartons. You can lighten
your load and reduce any storage space you need to
rent by hosting a garage or yard sale.
Fill two "OPEN ME FIRST" cartons containing snacks,
instant coffee or tea bags, soap, toilet paper,
toothpaste and brushes, medicine and toiletry items
(make sure caps are tightly secured), flashlight,
screwdriver, pliers, can opener, paper plates, cups
and utensils, a pan or two, paper towels, and any
other items your family can't do without. Ask your van
foreman to load one of these boxes, so that it will be
unloaded at your new home first. Why the second box?
In
case the movers are delayed getting to your house on
the day of the move.
Keep your pets out of packing boxes and away from all
the activity on moving day.
Let all your electrical gadgets return to room
temperature before plugging them in.
Since you may need to call old neighbors or businesses
from your new home, pack your phone book.
Work hand in hand with your mover.
Give the mover's foreman your reach numbers and email
addresses so you can stay in contact.
Read the inventory form carefully, and ask the mover
to explain anything you don't understand. Make a note
of your shipment's registration number, and keep your
Bill of Lading handy.
If you're moving long distance, be aware that your
property might share a truck with that of several
other households. For this reason, your mover might
have to warehouse your furniture and belongings for
several days. Therefore, ask your mover whether your
goods will remain on the truck until delivered. If
they have to be stored, ask whether you can check the
warehouse for security, organization and cleanliness.
