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Residential Real Estate

Residential Real Estate

Building Your Residential Real Estate Team, Part 2

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As you continue to build your residential real estate team, there are a couple other key players you are going to want to align yourself with.

Always having a real estate attorney or CPA in place will save you a lot of time, especially if you are joint-venturing with an investor. If you’re the investor, you still want to have your attorney verify all your contracts and all of your paperwork to make sure that you’re protected.

Additionally, you will need an attorney to draft those documents for you. So having that attorney in place is going to cost you some money, but at the end it will protect you, because those contracts are only in place for one thing and one thing only — if things go bad.

You do not look at those contracts if everything goes great. If everybody is making money, nobody looks at those contracts. But if a disagreement arises, that’s the number-one thing you have to do: Go back and look at the agreement and make sure that you are protected. So you want to spend the additional money to have those contracts in place and have your attorney review them.

Additionally, the laws can vary from state to state, so if you’re partnering in an out-of-state deal or somewhere where you’ve never done business before, it is imperative that you have someone who understands the laws in that area. Also, some states require an attorney at closing, but many do not. Having an attorney who can advise on these matters is essential.

You will also want to make sure that your attorney is strictly an experienced real estate attorney. Some investors think they can cut corners by hiring an “all-purpose” attorney. This can often end badly. You’ve heard the saying, “You get what you pay for,” and this is particularly true regarding attorneys.

Adding a properly trained CPA to your residential real estate team is a must if you want to maximize your business. Understanding how to protect your money and properly reinvest it cannot be underestimated regardless of whether you’re a new investor or a seasoned pro.

Take the time to make sure you have the right players on your residential real estate team. Sometimes it may take a little work to find the people who understand what you’re trying to accomplish, but it’s worth every minute spent doing so. Investing is not an individual sport; you need all the right players!

 

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Residential Real Estate

Building Your Residential Real Estate Team

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The key thing to being successful in residential real estate is to surround yourself with the right people. That means building the right team. If you’re going to get and control properties, you want to have access to those individuals that are going to help you acquire the inventory.

I like to start building my team with experienced real estate agents. When I talk about experienced real estate agents, I mean someone you can effectively work with and who understands your business.

As we’ve seen in recent years, especially before the crash, a lot of people started jumping into real estate. So anybody — even your neighbor who used to be a mechanic — all of a sudden became a real estate agent.

There’s nothing wrong with that, but the fact is experience helps and it will get you out of trouble when you really need it. Fortunately, those that have stayed through this cycle have learned the ins and outs of the system are going to be able to thrive through what’s coming up next in the residential real estate cycle, and that is key.

You will also want to look for licensed contractors. Some projects require an experienced and licensed contractor, not just a handyman. Don’t get me wrong: Handymen are great as well. You do not need a licensed contractor for every type of work. There are minor things such as painting or crown modeling, little details that a handyman can do. But oftentimes you need somebody that’s going to be able to submit the paperwork to the county, get the license, get the permits and have the expertise to tell you what the structural damage is on properties, and a licensed contractor is a required team player.

I recently got a call on a property from a concerned investor with whom we had previously worked. He told me he’d purchased a fourplex in Huntington Beach, California, through a third party, and he found out the property had about $140,000 of structural damage.

He ran into this problem because he did not partner with the right team. The agent that helped him get into that property was not an experienced agent. The investor had a handyman — instead of a licensed contractor — do the inspection of the property to determine whether it was a good purchase.

If you don’t have the right team in place, you can get into situations like this. The property itself may look like a great purchase, the numbers are great, and you even have an end buyer in place. But, because you did not have the right team in place, you get stuck with losses that could really hurt you.

You’re always looking out for your business. If you’re going to be successful in residential real estate on a bigger scale, remember that it is a team sport.

 

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Residential Real Estate

Is Commercial Real Estate Different Then Residential Real Estate?

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A common definition of a commercial property is “any piece of real estate that is larger then one house on one lot.” Therefore commercial real estate includes everything from tiny 2 unit apartments to large shopping centers and even the development of land. Here are the 2 biggest differences between residential real estate and commercial real estate.

1. Commercial properties can be passive investments only once they are off the ground and running smoothly. Unless you have massive amounts of money and do not care about getting huge returns, commercial real estate will eat up both your time and money. When you enter commercial real estate investing you will have to deal with the learning curve, finding a good mentor or coach, finding financing, overseeing the project, hiring a good law staff and finally finding the right property to purchase in the first place. The good news is once you have your property up and running, then they normally makes enough money for you to sit back and pay others to manage it.

2. Investing in commercial properties has the ability to make you wealthy with the completion of just one deal. By completing one commercial deal in the correct manner you can profit with a healthy chunk of cash that might be worth several times your yearly salary as well as adding a decent monthly income to your current income. Residential property does have the potential to build wealth, but it does not have nearly the cash flow potential of commercial investments.

What it comes down to is how a person thinks. If you want to live big then you need to think big. Don’t think about how you can start small with a small house on a small lot and earn a small cash flow. Rather think about how big you can go while still managing the risks in an appropriate manner. You may not have the ability to purchase a skyscraper in your first deal, instead try setting your sights on a decent sized strip mall. Instead of a $1,200 a month check from your renter of the single family home, think about the $50,000 a month worth of checks you could receive from your strip mall. Think big and the profits you receive could potentially be enormous.

 

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Residential Real Estate

Residential Real Estate Investment Loans

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All types of loans are subjected to the criteria of character, collateral and capacity to pay, otherwise known as the “CCC criteria” among credit institutions. Residential real estate investment loans are not exempted from these criteria. Years have passed and a lot of lessons learned from the bad effects of the sub-prime mortgage scam that lenders of these investment loans inevitably constrict their loan windows. Institutional lenders are now subjecting themselves to self-regulation subsequent to the U.S. economy inching itself towards equilibrium. Indeed, the economy is easing, it is public knowledge that America’s loan delinquency rate is decreasing but the pace is slow and investments are “heating” in the alternative rental sector which is a logical consequence in housing thousands who were dislocated. Overall, tight credit bearing is not removed specifically the residential loans as lenders are not able to adjust absolutely avoiding speculation invoking the “CCC criteria” in a stricter sense.

The trouble is not absence or lack of money for loans but rather creditors are staying from demands by utilizing the “CCC criteria”, as mentioned before. This on the other hand, is an encouragement for lenders of the residential real estate investment loans to be prepared and careful. Lessons learned on the recent scam, both borrowers and lenders are practicing caution. Thicker “paper trails” is the result of tight credit situation. Borrowers now should be aware that lenders or creditors are extra cautious of the “person” or “character” of their borrowing client. Papers must be presented proving borrower’s credit standing and track record, employment history proving amount and source of income, real property assets with no liens and encumbrances or management experience if the loan will be use for commercial purposes.

Borrower’s real property assets will be checked to qualify for “collateral”; these properties must be free of liens and encumbrances. There are lenders who may accept chattel mortgages or jewelries but they may now belong to the exception than the rule. The mortgage crisis was prodded by the unregulated, non-collateralized loans to residential owners even aliens were enticed to borrow. More importantly, borrowers must convince lenders or creditors that they are willing to pay because they have the “capacity” to do so. Thus, the synergy of income, management acumen and property assignment must be proven on paper as grounds of the borrower to pay both the principal and interest prior approval of the residential real estate investment loans.

Preparation is followed by calculation on the part of the borrower. While the lender strictly monitors the borrower’s preparation to avail of the loan using character, collateral and capacity to pay, prudence is not yet attained if the borrower blindly accepts what is not due. At the very least, borrowers must be prudent enough to know the terms of payment specifically the “due dates”. The borrower must know the law covering the contract, know exactly the amount borrowed, and compute with precision the interest charges and the total amount to be paid over a certain period of time.

To avail of the residential real estate investment loans is a lesson in prudence learned over a long decade at the onset of the 21st century. The bitter pill has to be taken but worked both ways in developing the virtue of prudence in lending and borrowing. While the availability of residential real estate investment loans remained “tight”, it is a message that borrowers must prepare before they plunge.

 

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Residential Real Estate

Residential Real Estate and Its Importance of the Whole Economy

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Residential real estate is one of the viable investment opportunities that are driving the US economy forward. A good number of US citizens have always desired to realize the much celebrated American dream by engaging in property investment. While several individuals have succeeded in owning a home, others are still in the process.

Residential investment vehicles gives investors the opportunity to purchase or sell all kinds of homes such as apartments, condominiums, terraced houses, cooperative houses, duplexes, and so on. Such investment opportunities are always available in many of the states. Buying and selling of such homes are always ongoing in various cities located in the US.

All over the US, there are agencies and individual agents helping people to invest in the residential real estate business. There are also various online real estate listing services that help home sellers to advertise their properties. A good number of US citizens get involved in the residential real estate business on regular basis. This has continued to help the US economy in diverse ways.

The Important of Residential Housing on the US Economy
Ever since the days economic recession which sparked off during the September 2008 financial crisis, the residential real estate has continued to remained one of the most viable tools that still drive the US economy forward. Since the recession ended in 2001, it has also been the primary driver of the US economy. Lots of cash returns have always been realized for the US economy through the residential real estate business. The bulk of the money comes from property taxes which most home owners pay yearly to the government in order to protect their properties.

The residential housing business has also generated lots of employment opportunities for the US citizens. Many young guys are now making ends meet by working as agents in their various cities. Many contractors, land surveyors, loan officers and others have also emerged. They have a lot to do in the residential real estate business. In most cases, they help home buyers to realize their dream while the US economy continues to boost in the process.

Housing for US citizens, it has continued to play an integral role in the US economy. The more several houses are provided, the higher the property tax multiplies. This ensures regular flow of income in the US economy.

There’s also a growing interest of non US citizens in the housing business in the US. Several investors from other countries of the world are given enough room to purchase all kinds of homes in various states. This in turn drives the US economy forward.

Indeed, the future still holds a lot for the US economy. The residential market is actually booming. More good reports are also in the pipeline. The US economy will continue to grow higher as the real estate market thrives. The economy is still reluctant to have increase in housing values, as the property foreclosures inventory is still high.

 

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Residential Real Estate

Residential Real Estate Investing – Is Residential Real Estate Investing The Best Way To Make Money?

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At over $20 trillion in size, the residential real estate market has a substantial influence on the U.S. economy. In fact, the single-family home market is several times larger than the entire commercial real estate industry.

But investors often ask whether residential real estate investing is better than investing in commercial real estate?

The answer is – it depends.

Each investor has a different skill set as well as vastly different financial resources. In addition, investors have varying backgrounds and interests. Money can be made with both. The investor needs to do what works best for them. Residential real estate investing may be the best choice for many, but not all investors.

There are many advocates of commercial real estate investing, but there are a couple of reasons that I generally favor residential real estate investing over commercial real estate.

First of all, an important factor that distinguishes residential real estate investing as compared to investing in commercial real estate is that the pricing of single-family homes is often driven by inefficient information. This means that pricing and market data is incorporated at a slower rate into the marketplace as compared to commercial real estate. This can enable the astute investor to better analyze price movements and allow for improved market forecasting.

Residential real estate investing is largely dominated by single-family residences that have fewer sophisticated buyers and sellers. With commercial properties, there are many more institutional investors with extensive market experience. Accordingly, locating a good deal may be much more difficult in commercial real estate as compared to residential real estate. Investing in commercial real estate is generally dominated by skilled professionals, who have more financial resources than the individual investor.

In addition, the demand for residential real estate continues to increase. This demand has been fueled by many factors, including population growth and baby boomers. The population is growing while available land remains relatively constant.

The Baby Boomers, which consists of people born between 1946 and 1964, are reaching their peak earnings age and have more disposable income than any previous generation. This population, measured at approximately 80 million people, continues to increase demand for housing (including second homes) in cities that offer many desirable amenities including affordable health care, a favorable climate and cultural and recreational activities.

Now I’m not saying that money cannot be made in commercial real estate. But for the average investor, residential real estate investing is generally a better investment vehicle. The investor needs to look past the current residential real estate slowdown and realize that in certain markets now is a great time to be investing in residential real estate.

 

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Residential Real Estate

The Quick Guide to Starting a Business in Residential Real Estate Investing

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Opting to invest in residential real estate has become a popular trend amongst many investors. It is in human nature for investors to invest when the market is rising in terms of stock, gold, and housing and automatically stop investing when the market falls. In true essence this leads to many investors leaving a lot of money that could easily be earned.

If you take the time to understand the fundamental principals that come with real estate investment, you will be able to capitalize on various aspects that many other investors are known to miss out on.

The thing you have to understand is that real estate investing is no quick get rich scheme. Yes it does offer you the opportunity to make some quick cash through flipping houses however the word investment should always be related to long term. This will ensure you are more successful.

While most of the investors will be packing their bags to go home when the market falls, this is where you can utilise on the fundamental principals that you have learnt and capitalize in terms of large profits. You will be able to make money regardless of the market status.

The fundamentals

When the market for real estate is rising in terms of equity, it makes it very easy for any “layman” off the street to even make money in the real estate business. What you have to make sure is that you put your money at the right place at the right time.

No matter how much research you do, being able to predict the market will be impossible. For this reason it is better if you simply opt to understand four various profit centres.

1.Cash Flow – This simply entails of the amount of money your residential income property brings in. Even though it may seen quite simple to calculate, many tend to over look various factors. You need to include all the expenses that are needed to be paid. These would include mortgage payments, repairs, advertising, debts, maintenance etc. It is important you keep a tally of all expenses to give you a fair value of cash flow.

2. Appreciation – It is possible for the market value of your house to increase while you own it. This is seen to be one of the fastest ways to earn really good money. However seeing that the market is quite volatile, you never know what to expect. For this reason it is highly recommended that you keep your residential property for at least a five year period before you decide to sell it off once again.

3. Debt pay down – Now when you own a residential property you would be expected to make monthly mortgage payments. These simply are accumulated over time to reduce the amount of loan that you own to the lending company. Now seeing that we are aiming to look at long term investments there are a few things that you need to keep in mind. Now the common loan system that everyone opts for will simply include a monthly repayment with interest. If you are planning to hold your property for a couple of years, you will see that you are actually paying more than you initially took out because of the interest rate. Seeing that you are going to be looking to sell of your property in the future it is ideal to go for an interest based loan only. This will result to me more profitable for you in the long run.

4. Tax write offs – It is quite common for one to have to pay Alternative Minimum Tax on various real estate properties depending on weather or not you match the criteria. The tax is usually based on the earned income and you may even see your self having to pay short term capital gains tax as well. However there is a possibility that you can have your tax written off which can prove to be quite beneficial for many. The problem with those investors that deal with houses on a flipping houses basis, there income is treated as earned income. This means you would have to pay the full amount of tax that you would do for a 9 to 5 job as well.

If you stick to the strategies and fundamentals that have been highlighted above, you are known to be able to earn a good amount of money regardless of the market change. Any market trend that moves in your favour will obviously boost your profit prospects but even if the market moves in a negative favour, you are still going to be able to “fight” your way through.

 

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Residential Real Estate

Foreign Investors Pose Threat to Residential Real Estate

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The negative impact of foreign investments in American residential real estate might have been badly overlooked by some U.S. government officials – and the potential harm it might cause is largely unknown to the average American.

Reports from a variety of sources suggest that a housing recovery is taking place, though not at the pace expected. As of last month, it was still some 16% below its peak in 2008. Yet at the same time, some U.S. cities are experiencing an unusually high demand for residential real estate, with buyers outbidding each other, often by tens, and sometimes hundreds of thousands of dollars. The same kind of outbidding was going on just prior to the 2007 real-estate crash where wealthy buyers, mostly foreign, were buying homes by paying for them in cash.

Average American home owners, of whom one in three is on the verge of financial ruin, aren’t fueling such buying frenzies. Skyrocketing real-estate prices in America’s selected urban centers are likely the result of a foreign influx of cash, more particularly mainland Chinese money, which is now flooding major American cities in the billions of dollars.

Last year, Bloomberg revealed a secret path that allows wealthy Chinese to transfer billions overseas. Before that, The Wall Street Journal outlined the questionable mechanics of moving cash out of China, where wealthy mainland Chinese bring their funds to Hong Kong and from there to other parts of the world. Most of it ends up invested in favorite foreign destinations — namely the U.S., Australia, and Canada.

Despite some Chinese banks across the border from Hong Kong allowing for a trial program (introduced in 2011) for overseas property purchases and emigration, the Bloomberg report noted that, “China’s foreign-exchange rules cap the maximum amount of yuan that individuals are allowed to convert at $50,000 each year and ban them from transferring the currency abroad directly.” So it’s illegal for mainland Chinese to take more than $50,000 out of the country — but wealthy Chinese are smuggling out billions.

Data from a Global Financial Integrity December 2012 study show that China topped the list of developing countries sending illicit money abroad, exceeding $2.7 trillion for the decade through 2010. In 2010 alone, it totaled $420 billion.

You can bet your last dollar that a good chunk of that Chinese money (of dubious origin) was earmarked for residential real-estate purchases, that is, the roofs over American heads.

The Chinese government turning a blind eye on their fleeing currency is best summarized by Jim Antos, a Hong Kong-based analyst at Mizuho Securities Ltd., cited in the Bloomberg article above. He said that the Chinese government has been trying to internationalize their currency for a lot longer than we thought — with the goal of allowing their Yuan to become freely convertible with other currencies. One can get a more thorough look at the workings of Chinese economy by reading “Trillions of Dollars Missing from the Chinese Economy,” written by Michael Pettis, a senior associate at the Carnegie Asia Programme and professor of finance with Peking University’s Guanghua School of Management.

The National Association of Realtors profiled international home buying activity for 2014. Purchases of U.S. real estate by international clients made during the 12 months ending March 2014 show the total sales volume estimated at $92.2 billion — a 35% increase from the previous period’s level of $68.2 billion. Nearly half, $45.5 billion, of it was attributable to nonresident foreigners which accounted for some 3.5% of the total U.S. existing home sales market of $1.2 trillion. If this trend continues, foreigners will own over 35% of residential real estate in the U.S. over the next 10 years.

General wisdom suggests that a foreign input of moneys flooding commercial U.S. markets might be a good sign for American corporations — but when large sums of those funds are used for snatching up residential real estate, it will, in due time, drive the prices of homes out of reach of middle-class Americans, rendering them unable to afford homes in their own country. Overpriced hubs such as San Francisco, New York, Dallas, Denver, Seattle and others are already becoming out of reach to most Americans.

I strongly believe that the U.S. government should take immediate proactive measures to curb the influx of foreign moneys earmarked for American residential real estate (especially from China). The acceptance of foreign moneys of dubious origin is basically speaking to a money laundering scheme. Furthermore, the conversion of Chinese currency into American dollars on a large scale, may pose an economic threat to the U.S. in the not-so-distant future, aside from making U.S. homes outright unaffordable to American citizens.

It may get even worse. By allowing more moneys from wealthy Chinese and other foreigners to purchase American residential real estate, the average middle class American may eventually end up financially subservient to Chinese investors once they move into the country either as investors or immigrants. In the end, I believe that the American government owes its citizens the right for affordable housing and should do everything in their power to curb the artificial inflationary trends fueled by foreign buyers and local speculators.

Last month, over 25,000 concerned residents in Vancouver, Canada, signed a petition pleading with their government to curb the foreign buying of Canadian real estate. Responsible Australian leaders have already taken proactive measures to mitigate their own problems in this regard. They pledged stiff application fees and in some cases outright prohibition of any Chinese investors buying into existing Australian residential real estate.

The same, if not more stringent measures should be imposed by the U.S. government. The primary goal of American leaders should be to assure their citizens’ well-being.

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Residential Real Estate

Is It Easier to Invest in Commercial or Residential Real Estate?

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Is it easier to invest in commercial than residential real estate? Here are 3 insights that will teach you how commercial real estate investors leverage the same techniques you already know to make big profits.

Valuation: Residential investors find the sales comparison approach easier than other valuation methods. If you’re buying a 3 bed, 1 bath and want to know its worth as a 3 bed, 2.5 bath, then you look at similar homes sold in the neighborhood and determine your after repair value.

What makes residential investors nervous is trying to apply the sales comparison approach to valuing a commercial property. It’s actually harder to value a commercial property using the sales comparison approach.

To make it easier, commercial real estate investors treat buildings like a business. That means they value the income that the commercial properties produce. The more income the property produces, the more it’s worth. This powerful method liberates you from caring what the guy down the street sold for because your commercial property will be valued based on its performance.

As a bonus, commercial lenders like the income approach. The more cash flow your commercial property throws off, the more money they’ll lend against it, which frees up your equity to pursue other deals. You don’t have to wait for the neighbor to sell first.

Creative Investing: If you’ve worked the lease option a deal, subdivided land, negotiated a short sale, or bought a home using other people’s money, then you understand the basic fundamentals of creative investing.

When you start investing in commercial properties, these techniques are not considered creative, rather the norm. Many of the techniques that real estate investing gurus teach residential investors come from the commercial real estate investing world. If you’re already using these tips, then the transition should be easy for you to commercial real estate deal making.

Deal Size:

Take a successful flipper of residential properties: he might flip 20-30 houses per year and make about $15,000 per house. That amounts to $300,000 to $450,000 per year. He makes a nice living, but it is a lot of hustle.

Commercial real estate investors can flip a deal and make that money in one transaction. For example, you might find a former bank branch for sale. The property had been used for banking purposes for 30 years, so you know the location’s solid.

You might buy the property for $700,000 and approach another bank and offer them them a deal on the location. If they’re expanding into that market, they might agree to pay $90,000 per year, triple net, for 10 years.

In most markets, deals like this one trade on an 8 cap rate, which means that with the new tenant, the building’s value instantly increased to $1,125,000. You might call a cash investor and offer him the deal. He closes in 30 days and you pocket $425,000.

Is it easier to invest in commercial or residential properties? Not really. Both have their positives and negatives, but these 3 powerful, must-know insights highlight the key distinctions that commercial real estate investors leverage to make larger, and sometimes, easier profits than residential investors.

 

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