Nothing is more beneficial to your long-term financial health than the right rental property. Sure, quick flips and rehabs are great for the short term but a strategic acquisition of a rental property can completely change your portfolio. Not only are they a source for surplus monthly cash flow, but they also build equity for the future which you can use can use as a means to purchase additional properties. It is not hyperbole to say that all it takes is one key rental property to get your portfolio headed in the right direction. Here are five steps to purchase your first rental property.

• Understand Financing: If you have been toying with the idea of a rental property purchase the first thing you need to understand is how the financing works. There is a huge difference in owner occupied and investment property loan underwriting guidelines. For an owner-occupied property there are loan programs that require just 3% down payment, credit scores under 600 and decreased reserve requirements. With any investment property you should anticipate needing a credit score of at least 680, 20% down payment and possibly six months of reserves in the bank. Additionally, you also need to factor in tax and insurance escrows as well as increased closing costs. Lenders will scrutinize loan applications for a three-family investment property much more closely than they will a single-family owner occupied one. Investment properties are considered a higher risk and you can expect the process to reflect that.
• Choose Market(s): When it comes to purchasing a rental property, you should find the market as opposed to finding the property. What that means is that not every property makes a good rental property. A beautiful home on 30 acres in the middle of a rural area doesn’t have the same renter pool as one in the middle of a booming city. Price is always important on any purchase, but not the most important factor when it comes to buying a rental property. You need to narrow down a market, or two, that can sustain rental demand for both the short and long term. The right market not only gives you security but allows you flexibility down the road. If the market continues to trend upwards you can comfortably increase your rent. In poor markets you are often left to take whatever tenant you can find, usually on their terms.
• Evaluate Individual Investment: There are plenty of items to consider on every prospective purchase. Before you do anything else you should decide how you will manage the property. Are you able to manage the property yourself or do you need a dedicated property manager? If you have a full-time job that doesn’t allow you to take phone calls or get away during the day you should strongly consider a property manager. Whatever you decide has a definite impact on your bottom line. A property manager generally charges 10% of the monthly rent received. In addition to management, you need to evaluate how much, if any repairs are needed, as well as monthly taxes, utilities and insurance. Also, review the title to see if there are any prospective issues as far as property lines, liens and anything else.
• Run The Numbers: No two rental properties are exactly the same. Numbers you run for one property may not be the same for a property even in the same town. From the outside you may think that monthly cash flow is simply the rent received minus the mortgage payment and any utilities. Sure, this is a huge part of that formula but there are other important factors. You need to make sure you are realistic with your numbers before you buy or you will be left disappointed after. For starters, is the monthly rent a realistic and sustainable number? Making a few simple changes doesn’t mean you can tack on a few hundred dollars to the rent. You also need to be realistic with what utilities you are paying for. Most importantly you can’t ignore seemingly minor items like snow removal, lawn care, maintenance items and a reserve fund. Only when you know all the numbers associated should you move forward.
• Make Your Offer: You don’t need to be a seasoned investor to understand that the lower you get the property for the higher your monthly cash flow. It is critical that you make an offer that works for you. Too many investors fall in love with a property that they fail to see the big picture. They want to make the acquisition so bad that they ignore the numbers. Before they know it their projections are blown up and the deal, they thought they were getting is gone. Even if it means missing out on a property or two you need to stick to your guns and stay true to your numbers. If not, you will be behind the eight ball, chasing profits right from the start. The goal is to acquire a property that you can make money on, not simply add to your portfolio.

If you run your rental properly and follow through with your long-term vision you will reap the benefits down the road. Once you acquire your first rental you will quickly want to add another.

One of the things that makes real estate investing so great is that there are different options for different tastes. A situation that you would may personally be staunchly opposed to, someone else may see value in. It doesn’t make either of you right or wrong, it simply boils down to personal evaluation. One of these scenarios is in buying rental properties in poor locations. On one hand a rental in a below average market may be available for a lower price, with subsequent higher cash flow. On the flip side the property will also have its share of challenges that not every investor has the time, or desire, to deal with. Only you can decide if these types of properties make sense for your schedule, portfolio and patience. The upside may be abundant but there may also be some unexpected headaches. Here are five potential problems with buying rental properties in poor locations.

• Resale: It is always important to remember that even the best rental properties will eventually leave your portfolio. Whether you want to simply liquidate an asset or move on from a property, they typically don’t stay forever. That is why you need to at least consider the resale value whenever you buy a property. The value you think is there may be much less than the market will bear. You don’t need to be in real estate to know that people want to live in the good locations. They will generally pay a premium for a nicer neighborhood and subsequently not pay as much for a poor market. When it is time to sell, you may be looking at a limited buyer pool, especially if the property has multiple units. You may be able to justify a lower sales price if you can squeeze years of positive cash flow from it, but at some point, a poor market may impact the finances of the property.
• Tenants: Rentals in poor locations generally come with poor tenants. Any landlord who has ever dealt with a bad tenant before knows just how much of a challenge this can be. Your life will be filled with constantly chasing rent, responding to phone calls and texts and resolving disputes. In most cases the issues are relatively harmless and nothing more than a bad use of your time. However, the worse the tenant the bigger the problems become. Bad tenants will slowly reduce the useful life of the property and become a constant bother. You can have the buffer of a property manager, but this will reduce the cash flow and your bottom line. If you decide to manage the property yourself just one bad tenant can engulf your day. It is because of this that many investors shy away from these properties, because they don’t want the burden of poor tenants. Not all rentals in bad locations produce bad tenants, but many of them do.
• Rent Increases: Value of an object is created by supply and demand. You don’t need to be an economist to understand that concept. However, it is important to remember when you are buying real estate. With properties in poor markets, you may not be as able to increase the rent when you want to. Even if you add value to the rental through updates and improvements, they aren’t always reflected in the bottom line. Tenants who are influenced by price aren’t as willing to stretch their budgets. They may love the property and you personally as the owner, but they simply don’t have the means or desire to pay for it. Even if the market is on the upswing it doesn’t mean that your tenant base will catch up to it. Poor markets are not a desirable place to live and you are at the mercy of your demand. By increasing the rent, you may outprice the market and leave you in a situation where you are scrambling to find a tenant.
• Evictions: Dealing with an eviction is one of the worst things a landlord could go through. Tenants with limited income have little margin for error in the event of an unexpected financial expense. Even the slightest alternation to their budget can have a trickledown effect to the rest of their finances. If the unexpected increase is large enough it may impact your rent. If you are forced to deal with an eviction it is a lengthy process that will hamper your bottom line. For starters, you are forced to cover the void in the rent received. Next, you would be wise to enlist the services of an attorney and have them start the official eviction process. An attorney can cost several hundred to several thousand depending on the specific situation and how much time is necessary. All the while you are trying to get the eviction dealt with you need to find a new tenant, which takes time and money and is difficult with a tenant in place. The chances of an eviction increase the worst the market.
• Decreased Rental Pool: Properties in poor, and unique, locations often have a decreased rental pool. As we stated the number of people wanting to live in these markets is slim. They generally live or work in the area, with few people outside the market entering. This makes it difficult for you to pick and choose from a wide array of tenants. You can also screen to find the best fit, but your pool won’t be as attractive as you may think. This leads to choosing between the best of poor options instead of truly finding the best qualified tenant. This often leads to problems with tenants down the road.

If you see value in a property, regardless of market, don’t be afraid to follow through in your convictions. Just know that these are some of the potential issues you may face. You won’t face them with every property, or even in every lease, but the potential does exist.

Getting approved for a loan is much different than it was a decade ago. In the past there were multiple options and programs for every different income type and down payment. Today there is much more documentation required and everything is much more scrutinized. A seemingly innocent document requested at the 11^th hour could cause the loan to be rejected. All the weeks, and months, that both sides put into the transaction could see it go to waste with an underwriter’s decision. Your loan is truly never closed until you sign the documents at the closing table. That is why it is critical to make sure every potential buyer is not just prequalified but actually pre-approved. This may seem like semantics, but the difference is tangible and could save you weeks of potential trouble. If you are selling a property or looking to make an offer you should understand the difference between these two. Here are a few differences between a pre-approval and a pre-qualification.

Pre-qualification

A pre-qualification is the very first step in the loan approval process. Very few, if any, real estate agents will show you a property without a pre-qual letter in hand. A pre-qual is obtained by reaching out to your local mortgage broker, bank or credit union. Prior to issuing a pre-qual letter the lender will ask you a series of questions to determine the strength of your application. The starting point is almost always a review of your credit score. Your score will either eliminate a handful of programs or put you square in line for others. It is important to note that a credit score for a loan application may not be the same as one you pull for yourself online. Anything over a 720 score is considered excellent, and anything under a 580 may give you limited options. Everything in the middle is usually tiered on a 20-point basis meaning there could be a huge difference between a 618 score and a 621.

In addition to credit the next most important item a lender will review is something called your debt-to-income ratio (DTI). The is a formula where the lender takes all the minimum monthly payments on your credit report and adds them to your proposed total monthly payment. This number is then divided by your gross monthly income (annual income/12). Each lender and program are slightly different, but the benchmark is generally 50%. If your DTI is above 50% you may have a tough time getting approved regardless of your score or down payment. Conversely, if your debt to income is low it can help open doors for other potential programs.

The final major pre-qualification item that is noted is the down payment amount. As is the case with your credit score, down payment is broken up in tiers for loan program purposes. 3, 3.5, 5, 10, 15 and 20 are generally the most common down payment percentages. You can always put down a number between those, but you will have the same rate scale as the previous tier.

Once a lender has this information, they can play around with how much down payment is needed based on the credit score and debt to income and issue a pre-qualification letter which can be used to start a new home search.

Pre-approval

There are many people involved in real estate who have been burned by a poor pre-qual letter. The truth is that a potential buyer can say anything they want to strengthen their application. They may really even think they are telling the truth, but in reality, their income may less than they think, or they are not employed for a minimum number of years. The only way to get past this is by submitting real documentation to a lender prior to house hunting.

There are several lenders who will submit an application complete with real paystubs, tax returns and a full credit report. Basically, everything except the signed contract, title and homeowner’s insurance will be reviewed. It is not an exaggeration to say that this can literally save a buyer weeks in the approval process. Once they find a house and have a signed contract, they send that over and the loan is more than halfway to closing. As we stated, at that point all that is needed is a review of the contract, title and homeowner’s insurance.

Gone is the guesswork on how an underwriter will review self-employed income or other items on the tax return. There is no hoping that the debt-to-income ratio is approved or the employment signed off on. If you are selling a home, you need to work with a real estate agent who knows the difference between a generic pre-qualification letter and an iron clad pre-approval.

Starting out with a buyer who is at least a few weeks ahead of their competition is something that cannot be overlooked. Things happen at every stage of the loan process, but the main hurdles usually come with the tax returns and income documentation. Once you are past those 90% of the issues can be rectified. Whether you are selling a home or working with a buyer you need to make sure they are not just prequalified, but pre-approved.

Having a quality rental property is not enough to attract tenants. In hot markets good rentals may be a dime a dozen. You need to come up with ways to have your property stand out from the crowd. Instead of massive upgrades throughout the property you are better off making subtle, but impactful, changes.

Updating the kitchen may be great for your primary residence but doesn’t provide a great return on a rental property. There are several everyday items that will instantly attract attention and help you find quality long term tenants. Little things like painting the walls and changing the dishwasher may seem obvious, but many landlords opt to keep things status quo. When they have trouble finding tenants they can’t seem to figure out why. If your current lease is coming to an end and you need to find tenants keep these five important items in mind.

• Freshen Up The Walls: You should make it a habit to paint the walls in the main rooms of your property every lease. Sure, you can probably get away with keeping them as is for an extra year, but why would you? Painting a living room or hallway is something that any landlord should be capable of doing themselves. You don’t need to be a professional painter to paint a straightforward room. If there are multiple windows or edges you should then consider hiring a professional. The difference between a living room with hand marks everywhere and one looking fresh and new is immense. The living room walls are always one of the first items that a new tenant notices. If the first impression is poor, the rest of the property may not matter.
• Update Appliances:  As a landlord you should always be looking for ways to update your property. There are a few schools of thought with updating the appliances. One theory is to by slightly used items at a reduced price and let your tenants run them until they stop working. The other is to buy new and hope to have them for many years. A better idea is to take advantage of seasonal sales and scratch and dent items every time you visit your big box retailer. You would be surprised at just how steep of a discount you can find if you do a little negotiating. Even if you don’t necessarily need a dishwasher or a stove if you can get a stainless-steel model for a 50% discount, you can find a place to store it when you do. Think of how nice a new dishwasher looks as opposed to a ten-year-old rundown model. You won’t see an increase in rent because of it, but you will fill vacancies quicker and your tenants will be much more likely to stay for an additional lease.
• Front Railing/Door: There are several exterior items that stand out like a sore thumb. Perhaps the two most obvious are the front railing and front door. These are two items that you probably haven’t given much thought to in recent years. You know that they are looking beat up, but they are far down on your to-do list. The reality is that these two items can make or break the curb appeal. If the front railing is still in good shape it may just need a fresh coat of paint. Removing the rust and giving it a high gloss shine can instantly transform the look. A front door is a little more labor intensive, and expensive, but can give you at least ten years of useful life. The ROI on your front door is one of the highest of any home improvement you can make. You need to make room in your budget once a decade for a new front door.
• Re-Stain Deck: Most household updates require nothing more than a little time and effort. Such is the case with painting the deck. The reality is that the heavy lifting is done the first time you stain it. Getting inside all the little poles and crevices is a real pain. However, once they are done every subsequent stain is simply a touch up if you are using the same color. It will take you longer to shake the paint can and set up than to roll the brush over the deck. Just like painting the walls, this is something you need to do every year. Peeling paint on a deck just looks bad and is a simple fix. Sanding the deck and hitting it with a brush shouldn’t take you more than an idea, depending on the size of your deck.
• Power Wash House. The final rental property touch up you should consider is power washing the property. Like almost everything else on this list, when is the last time you power washed the house? If it has been more than a few years you need to get on it asap. You can get away with renting a washer for a few hours instead of buying one. You need to be careful with it, but using it isn’t exactly rocket science. You will see an instant and noticeable difference in the areas that are power washed. It can make the property look fresh and new and improve the curb appeal.

Owning a rental property requires constant attention. All the items you put on the back burner over the years eventually need to get done. When you are looking to fill a vacancy, it is a good time to start doing them.

There are few things more impactful to your financial health than a foreclosure. Aside from a bankruptcy, a property foreclosure is one of the worst things that can negatively affect your credit. Not only does it hurt your credit in the short term, but it has a lasting impact that could take years to recover. While it may seem like the only option now, there are alternatives to foreclosure that provide far less of a blow. It is essential that you know, and understand, all the options you have if you find yourself late on your mortgage. Never make a rash decision based on pressure or influence until you know exactly what you are getting into. Here are five reasons why you should always look for alternatives to foreclosure whenever possible.

• Mortgage Late on Credit Report:  A foreclosure is the process of the lender assuming ownership of a property due to late mortgage payments. This starts once the homeowner is 120 days late on the mortgage. Depending on the state there are different practices and procedures involved. There are times when you will be advised to go into foreclosure so the lender can initiate a loan modification or loan restructure. Doing this is a dangerous game. For starters, when you go into foreclosure you are late on your mortgage. Every month you are late will negatively impact your credit score. Some lenders only look at your mortgage history when reviewing your application. If the modification doesn’t work you are left with three or more months of mortgage lates in addition to a foreclosure. Your score will plummet and you will be left with few options. It is not unrealistic to see a 100-point drop in your credit solely due to the mortgage lates.
• Long Term Credit Impact:  A late mortgage payment can come out of left field. There can be a handful of unexpected liabilities, a sudden loss of income or an unforeseen emergency with the property. What typically happens is that one late payment leads to another and before you know it you are three months late. At that point, the lender may only accept payment in full to make the account current. Even if you find a way to pay shortly after foreclosure is filed, it is still a significant stain on your credit report. A stain that can last several years, impacting your ability for future ownership. Depending the type of loan, the waiting period can last anywhere from two to as long as seven years from the time of release. Even if your financial profile and assets have changed since the foreclosure, lenders will not budge on their guidelines. If you want to buy, you will be left with options that call for an increased down payment or higher interest rates. The only other option is to wait until the foreclosure waiting period has changed. At that point the market will be different and your interest in the property may not the same.

Depending on your circumstances, the best solution to Foreclosure could be avoiding it altogether. Let us help! Give us a call or –SUBMIT YOUR INFO– to see how we could be an option for you!

• Impact on Credit Applications: Having a stain on your credit report doesn’t only impact you if you are looking to buy a house. It will be an issue every time you seek credit. Regardless if you are looking for a new phone or a new car, you will feel the impact. A lower credit score caused by a foreclosure could result in a higher payment for a new car, or potentially not being approved at all.  Some landlords will run credit and have a minimum credit score requirement, regardless of the rest of the application. When you go into a foreclosure it is not just the property that is impacted. You will feel the effect months, even years, down the road when trying to apply for credit.
• Slow Recovery: Credit scores change every month for a variety of reasons. There are a handful of factors that go into how your score is calculated. The most important of these factors is timeliness of payments. You can check all the other boxes but if you have late payments your score will drop. Every late mortgage paymentcan lower your score anywhere from 40 to 100 points. This is only magnified with additional lates. You may have a score of 680 in June, but if you are late three straight months and go into foreclosure you can easily drop to a 550.  As quickly as the drop is the recovery is an uphill battle. It will take you a long time to climb out of the hole and see an improvement in your score. Generally speaking, it will take up to a year before you start to see much traction with your score after a foreclosure.
• Future Residence:  Every landlord is a bit different in their application practices. Some will ask to pull credit; some will look for paystubs and some will have a detailed application. Almost every landlord will ask for the name and address of the previous landlord, or some previous address history. This section in generally accompanied by a reason for leaving. If you lie on the application you may forfeit your security deposit and if you tell the truth your application may be denied. Either way having a foreclosure on your record can be a difficult hurdle to overcome when you are looking for your next place to live.

Some things in life are simply unavoidable and must be dealt with. However, when it comes to a foreclosure you may have options that make more sense. A short sale is not a perfect option, but much better than a foreclosure. If you find yourself late you should always assess your situation and know where you stand before doing anything.

A lot has changed in the world of real estate over the last decade. As difficult as it may be to believe, the mortgage collapse was over ten years ago. One of the defining terms shortly after the collapse was “short sale”. There is a good chance that even if you were in real estate you probably never heard of it before 2008. In the years following, short sales were the driving force behind a majority of all total real estate transactions. While the overall number has greatly declined in recent years, there are still a good number of short sale transactions happening every day. It is important to understand the process, both as a homeowner and an investor.  Here are the five basic steps associated with almost every short sale transaction.

• Homeowner decision

One of the common themes when talking to homeowners in default is the speed in which it happens. Sure, it takes several months to get into foreclosure, but it isn’t an overnight decision. There is typically a financial hardship, medical emergency or sudden reduction in income that starts the process. A few weeks late on the mortgage turns into a month and in the blink of an eye foreclosure papers are served. With the glut of foreclosures lenders were forced to come up with alternatives and many of those are still available. Between loan modification or principal reduction most lenders would much rather you stay in your home than go into foreclosure. The most common foreclosure alternative is a short sale. This is essentially the lender agreeing to accept less than the principal amount owed. For a homeowner the stain of a short sale is less than a foreclosure or bankruptcy. For a lender they can salvage something from a depreciating asset without having to add the property to their portfolio. Before anything can happen, the homeowner must accept their situation and decide to take some kind of action.

• Reverse application.

From a lenders perspective the short sale process is very much the reverse of a traditional loan application. As much as a homeowner may want to short sale, the lender must approve it first. Once a homeowner decides on a short sale, they need to show the lender that they legitimately can no longer make the regular payments. The lender will ask for several items to justify a hardship include paystubs, tax returns, bank statements and a hardship letter. The lender is not going to just let a homeowner walk away from their property because they want to. You don’t necessarily need to be three or four months late on the mortgage to get short sale approved, but you do need to show that there is, or will be, a financial hardship. Once all items are submitted to the lender, they will either accept the short sale application or reject it. If accepted they will move on to the property valuation part of the process.

• BPO/Appraisal. 

As is the case with any real estate transaction the seller wants to walk away with as much money as possible. In a short sale the lender is willing to sell the property at a discount, but they will not just give the property away. To determine fair market value, they will either employ a local real estate agent for a BPO (brokers price opinion) or order an appraisal. Nothing will ever truly show a property’s value except listing it, but these methods will give the lender a good snapshot of what is going on. If the property is not currently listed the lender will recommend a price and if there is an offer already in place, they will use this information to respond. As with any other listing, the more work needed and the weaker the market the less leverage the seller has.

• Negotiation

Appraisals and BPO’s are largely subjective. While these estimations of value are not exact, they do play a part in the lenders’ perception of the property’s value and ultimately the price the lender is willing to sell the property at. Once the lender receives the report, they calculate the bottom line at which they’re willing to sell the property and the negotiation begins. As a seller pursuing a short sale you can put yourself in a good negotiating position by partnering with a cash buyer and short sale negotiator who has experience negotiating distressed transactions. They can take lead on your behalf and leverage their strategies, tips, and tricks to put yourself in the best position possible. As far as timeline, short sale negotiation times have been greatly reduced but can still take several months under the right circumstance. If you pursue a short sale you need to accept, and embrace, negotiation.

• Closing.

Once the terms of the purchase are accepted the closing is very much like any other transaction. What makes things a bit trickier is the fact that you may need to get the homeowner out of the property. However, there may be monetary incentives from the lender or binding terms of a contract that favor the buyer. At the closing table the process is the same for, just a little more paperwork for the attorney. The bulk of the work is done once the lender accepts the asking price.

There are state specific rules for foreclosure and short sale that should be reviewed prior to moving forward. Regardless of what side of the transaction you are on, a short sale can be a viable alternative in the right situation.

Our Network has over a decade of experience negotiating short sales. If you’re considering options and want to know more about how we can help, Give us a call or shoot us a message and we’ll give you a call ASAP!

It has often been said that the best real estate investors are surrounded by the best team. There are a handful of critical team members that directly impact your success, arguably none more important than your real estate agent. Think of all the roles that your real estate agent plays. Not only do they help find new deals, but they work tirelessly to get the deal to closing. On the other side of the transaction, they constantly work on unique ways to market to buyers and get the price you desire.

Most investors are on the hunt for an “investor-friendly” agent. When you find the right agent, it will have an instant impact on your business, help save massive amounts of time and grow your bottom line. However, many don’t know what an investor friendly agent really is. Here are five ways to help recognize if you have the right real estate agent for your investing needs.

• They Understand Investment Deals: All property transactions are not created equally. A property you want to make into a rental property is not the same as one you want to live in. Your real estate agent doesn’t necessarily need to have first-hand investing experience, but they should know something about the process. The better they know some basic formulas and math behind the listings, the more efficient and effective they will be. They won’t waste time on deals that have little to no upside as an investment. They will show you properties in markets that make sense and focus on specific criteria only. Most investors lose hours out of their day going to and from properties that aren’t even close to what they are looking for or don’t work financially. An investor friendly agent will help avoid wasted time and only show you quality investment deals.
• Submit All Offers: It is important to fully vet every prospective agent you want to work with. They can be a top selling agent in the market, but if they don’t understand the needs of an investor, they are not for you. Dealing with an investor is not even close to the same as dealing with a traditional home buyer. The investor will most likely want to submit an offer on every property they are interested in. However, their offer will be nowhere near the asking price, unless the situation warrants. If your real estate doesn’t feel comfortable with this, you need to find someone that does. This doesn’t mean that you will offer pennies on the dollar on every single listing they have. If the condition is poor and demand in your favor you should always be willing to offer the number that you are comfortable with. An investor friendly agent will give their input, but they won’t try to talk you out of following your numbers. The agent must be fully committed to the offer and not be embarrassed to get the price that works for you, however low it may be.
• Understand Time Is Money:  Time is truly of the essence in the world of real estate investing. The quicker you can get the jump on your competition the more likely that you can secure the deal. Investor friendly agents understand this and will pass along new prospective deals in real time. As soon as they get a listing or come from a listing appointment, they will alert the investor, so they can start their due diligence. Being the first person to show interest in the property puts you at the front of the line and starts the process in your favor. Good agents also make it a point to respond quickly to a seller and will get whatever items are needed asap. Even if the offer is below asking price or not at the amount they would desire, they still act like it is the only transaction in their pipeline.
• Know How To Find REO & Bank Owned Deals:  The best investment deals are usually from untraditional sources. If the seller doesn’t have true motivation to sell, they won’t be as likely to sell to the number that makes sense to you. An investment friendly agent typically has access to banked owned and REO properties. These are properties that the lender has taken over after a failed attempt to sell or after a foreclosure. Banks are not in the business of being property managers and want to get these off their books. This doesn’t mean they will give the property away, but if it needs excessive work and the demand pool is small there are real bargains to be had. A good agent has built relationships to access these deals, can put them together and knows how to structure the offer.
• Large Referral Network:  Investor friendly agents have a large rolodex of people in their pipeline. They have real estate attorneys, mortgage brokers and possibly even contractors they can share with you. This indirectly will help build your own network and help find more deals. It also increases the outlets for potential deals from the real estate agent. Instead of waiting for traditional seller listings they may get a probate deal from their attorney or a preforeclosure deal from their mortgage broker. A real estate agent shouldn’t be judged solely on the amount of people in their network, but it must be a consideration.

The right real estate agent is a game changer for your business. Never settle on an agent you aren’t fully comfortable with and is less than committed to you. Find yourself an investor friendly real estate agent.

In the world of real estate, you never know what is on the horizon. There are plenty of times when situation is thrown on your lap completely out of the blue with unfamiliar circumstances. Such can the case with inherited properties. Dealing with an inherited property or a property in probate can be one of the most difficult, and time-consuming processes you can go through. Because of the many laws and red tape associated, an inherited property can take months before title changes hands. When it finally does you can be left with a property that hasn’t been updated in years and is in dire need of maintenance. This puts you in the proverbial “catch 22” of not knowing exactly what to do with the property to maximize the bottom line. Here are the five biggest challenges to selling an inherited property with deferred maintenance.

• Limited Capital to Fix Up:  

In a perfect world you would have access to unlimited capital and do whatever work is needed on the property. Unfortunately, this may not be the case. Money may be tied up in other properties, your line of credit may be maxed, or you simply don’t have the capital to do the work the property requires. Without enough funds, you won’t be able to make the improvements you desire which will leave you with limited selling options. There is little question that buyers almost universally want to buy a turn key property, unless they are getting a severe discount. If you don’t make improvements your buyer pool will be limited, and it will be reflected in your sales price. You can try finding capital through credit cards, private lenders or short-term partnerships but each of these options have drawbacks and will diminish your bottom line.

• High Carrying Costs: 

The biggest issue with hanging onto the property for any period of time are the carrying costs. Every month you own the property you must cover the property taxes, insurance, utilities and a slew of other expenses. This is not to mention the payment to your attorney for their work on the probate and any other fees along the way. By not selling right away you can quickly get behind the eight ball, forcing more desperation and prompting you to make decisions with the property you normally would not. What you may think you are saving by not initially making improvements you end up losing by carrying the property.

• Selling A Property That Needs Work: 

If you don’t have capital to make improvements, you are forced to sell the property in as is condition. You essentially defer the responsibility of the improvements from you to the buyer. This creates numerous problems for many reasons. As we stated, your buyer pool will immediately decrease. Many buyers don’t have the desire, or financial wherewithal to throw money into a new home purchase. Buyers are having a tough enough time coming up with any significant down payment let alone money for improvements. This leaves you with a buyer pool of investors and buyers looking for a discount. On the surface you may think that any profit you can get from an inherited property is a bonus. In reality there are many fees and expenses that are associated that need to be recouped. Additionally, if the inherited lacks equity your bottom line won’t be nearly as big as you may think. With an as is sale you will most likely have to pick the best of potentially low cash offers.

If you’ve Inherited a property and would like to know more about your options and how we can help, contact us today!

• Lack of Local Market Knowledge:

An inherited property doesn’t have to come from someone in your immediate family. If there are limited options, you may be the only choice in your extended family. It would be great if the property was in a market you grew up in or know like the back of your hand. However, what if it is in the other side of your state, or even a few states over? This requires a completely different strategy, regardless of what you want to do with the property. Having capital is great, but if you don’t use it wisely you could essentially be throwing money away. You need to make the right improvements for the market that can maximize the profit and expedite the sale. Doing a little research online is helpful, but nothing replaces actual knowledge and first-hand experience in the market. Reach out to a few local real estate agents and contractors to help guide you through your options. Always talk to at least three of each before committing to anyone.

• Long Timeframe to Sell:

Going through probate can be a long and grueling process, even if there is a will. By the time you take ownership you can easily feel drained and beaten down. The last thing you want to do is wait another extended period to complete your improvements and wait for a buyer. If there is an extended amount of work needed in the property you have two choices. The first is do whatever is needed, regardless of how long it takes. Waiting a month or two to get the work done has significant advantages. The second is to find a quick sale and take the first halfway decent offer. If not, it can easily be another handful of months before another offer comes your way.

Most buyers want their properties fresh, updated and turn key. If there is deferred maintenance, you need to strongly consider doing the work prior to putting the home on the market.

In real estate it is not enough to simply get the property you desire. If you overpay or the closing is later than you desire, you won’t be able to maximize the bottom line.  It is essential to win every negotiation you are part of. Sometimes, winning means taking the sellers price and closing in ten days. Other times it means staying firm to your offer and knowing when to walk away. By winning in more negotiations than you lose, you can squeeze residual revenue from your deals. Adding this up over the course of the year has a significant impact on your year-end bottom line. Here are five tips to help negotiate the best possible deal on every transaction you are a part of.

• Act Quickly:  You should never blindly dismiss any prospective deal that comes your way. There are plenty of times when a property seemingly doesn’t fit your criteria, but with just a little research checks off more boxes than you think. The key is to act quickly and decisively when you are presented with an opportunity. In most cases the buyer who acts first gets a decided leg up on their competition. Even if two offers are similar the offer submitted first is the first one that is negotiated. Additionally, there is something psychological from a seller’s standpoint about getting an offer shortly after listing. They sense that you really want the property and are usually more open to negotiating with you. This doesn’t mean you have to rush in any offer just to get something over. You can still do your diligence, but you need to do it quickly. Don’t wait to act when a property in an area you like hits the market.
• Know Supply And Demand: Always know where you stand in every negotiation. On properties that have sat on the market for some time the seller is usually much more open to negotiation. They understand that they missed their peak marketingtime and any interest is at least somewhat appealing. On the flip side a new bank owned listing may be much more in demand. As a buyer you should be able to gauge demand in a short amount of time and tailor your offer accordingly. If demand is strong you know your first offer must be strong without giving away the farm. There will most likely be multiple offers and you need yours to stand out from the crowd. If demand is weak you can submit an offer that is more tilted in your favor. You don’t have to worry about another offer coming in and undercutting yours. You can stand firm and negotiate a little more without fear of losing the deal. In most cases supply and demand is straight forward, but if you have doubts don’t be afraid to ask your real estate agent. Misjudging demand can instantly cause your offer to be ignored.
• Multiple Financing Terms:  Never assume that you know exactly what the seller is thinking. You may think that they would want a cash offer with a quick close, when in fact they may be looking to walk with the highest possible amount. On properties you really want you should give multiple financing options. One offer can have a slightly discounted price, but close in 14 days free of contingencies. Your second offer can have a sizable down payment, but the remainder is financed through a traditional lender. You can justify this with a higher price. By giving the seller options you don’t pin them in a corner and you let them pick the best deal for them. You also reduce the chances of heavy negotiation since you already gave them plenty of things to choose from. The more financing options you can provide the more likely a seller will move forward with your offer.
• Know When To Walk Away: There are plenty of times when the best move you can make in negotiation is walking away. There is a fine line in giving a little to get a property you really want and having the deal no longer make sense. It is critical to remember that the goal is not to simply acquire the property, but to make a profit on it. If you feel that the numbers and terms are no longer to your liking, you should pull the plug and walk. This is never easy when you invest hours of time and energy into a deal but is the best thing you can do for your business. You also need to avoid bidding against yourself. If there is no competition for the property don’t be afraid to call a seller’s bluff and stand firm in your offer. Eventually they will blink and take the best offer on the table. If not, you turn your energy into finding a new deal.
• Clean Contract:  There are too many lender horror stories out there for a seller to fully feel comfortable with a lender financed transaction. If this is your only way to close, you can at least make the contract as clean as possible. The more contingencies you have the more potential potholes a seller must face. The only must have contingency on every deal is the inspection contingency, unless you plan on knocking down the property. You should think twice about adding anything else to the contract.

Don’t be afraid to ask for something that you really want. You never know what a seller will accept if they are truly motivated. The better you are at negotiating the little things the greater the impact on your bottom line.

Some of the best investments require a leap of faith. You have probably heard for a while that to make money in real estate you need to think outside the box. One of the most out of the box buy and hold opportunities is with student housing rentals. On the surface, these may seem like more trouble than they are worth but when you break down the numbers the ROI can be through the roof. Like any other investment, choosing the right location and quality management are critical to success. For every investor who despises student rentals there are a handful that sing their praises to anyone that will listen. Like anything else in real estate, it is essential for you to do you own diligence and gather all the information prior to making a decision. Here are a few pros and cons with investing in student housing rentals.

Pros

• Large Rental Pool: An investment in a college town is an investment in education. When is the last time you saw a college or university close? Nothing has grown more over the last decade than the cost of college and the need for higher education. When you buy a rental near a school you have a built-in rental pool. Most upperclassmen are required to live off campus, or at least have a strong desire to. Depending on the school this could mean literally thousands of students who may want to rent your property. If you take care of your property and market in the right places you won’t have to worry about finding tenants. This should give you confidence that your property will avoid vacancy and be a strong investment.
• Consistent rent prices: Rent prices are usually not just thought up out of thin air. They are greatly influenced by supply and demand. Since student rental properties are typically in demand, you can be confident you can get your number. This doesn’t mean you can swing for the fences and price yourself out of the market. It means that you should be able to charge market prices and get them year in and year out. Renters may be more inclined to pay a little more every month because it may actually be a savings in relation to what they would pay to live on campus.
• Vacancy reduction: The number of vacancies with student housing rentals should be minimal. The key is to adjust the dates on the lease to start in the summer months. Instead of ending the lease after the school year and starting in August you can start the lease on June 1^st. This allows you to avoid any vacanciesfor June and July and keep a solid 12 months of rent. Most tenants won’t have an issue with the lease starting before they arrive on campus. It gives them plenty of time to move in and get things situated exactly how they want. Additionally, for a house the really want the extra two months of rent is a minimal expense.

Cons

• Turnover: Even if you are lucky to get a junior interested in the property, the max time they will stay there would be two years. A more common scenario is to rent to seniors who will stay for just one lease.  This leads to plenty of turnover with the property. With that you will have to find new tenants every year which means plenty of showings, marketing, applications and documentation. If there is an issue with the property or the security deposit it could alter the timeline and pull time and focus away from other areas of your business.
• Maintenance: The biggest reason that most investors stay away from student housing rentals is because they want to avoid renting to tenants. Most students are right around the legal drinking age and have never lived away from home before. This produces plenty of calls about almost everything in the house. They don’t know much about a fuse box, furnace or boiler. It will also produce a fair share of simple maintenance calls. Students will not treat and take care of the home, and appliances, the same way a newly married couple would. The couple knows they want to live in the house for the foreseeable future where the students know they are out at the end of May.
• Management: If you own a student rental, you should expect a higher need for management. As we stated, you are renting to young adults who have never lived away from home before. They will call you at all hours of the night, usually with items that are far from an emergency. They may have problems with the neighbors and issues with property. You can expect to make a trip to the property at least once a month for something that is a relatively simple fix. You will also have to deal with moving in and out which will be filled with plenty of questions and time. Most students are well intentioned and things will go smoothly, but there will also be a lease that can make you second guess ownership.

Like any other buy and hold investment let the numbers be your guide. With student rentals the numbers will be in your favor, but you also need to account for management. Don’t listen to a disgruntled landlord who may have had a bad experience. Do you own due diligence and make your own decision.