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What is the difference between a buyer’s or seller’s market?

Are you in search of a new home, investment property, or the perfect office space for your business? Before looking for a property that will meet all of your needs, be sure to determine whether you’re currently in a buyer’s or seller’s market. Knowing what type of market your area currently has will give you insight as to how much bargaining power you will have.

To save you time, we’ve put together some of the best pieces of advice we can think of when it comes to determining your current market status.

Know the difference between a buyer’s or seller’s market

According to Certified Commercial Investment Member (CCIM) Brian Rosteck, “there is not a universally accepted upside to either [market].” While there are perks and challenges to each market, knowing the status of your area’s real estate market can be crucial when scoring the property you’re looking for. Your realtor is the best source for this information and you can ask them directly for this.

Buyer’s market

Before you can determine what type of market you’re in, you have to first know the difference between the two types. In a buyer’s market, there is more supply than demand in a neighborhood. In this type of market, you’ll have great negotiating power since there will be a need for properties to sell. When making offers, you’ll find that the seller is more likely to work on your terms in a buyer’s market. Essentially what you find is:

  • Inventory is higher than when compared to previous months or years
  • There is more than 6 months or more of inventory available on the market. You can determine this through the absorption rate and the month’s supply of inventory calculation. Your realtor can help you with this information.
  • Listings stay up longer and you will see higher Days on Market (DOM) numbers
  • Current listing prices are lower than previous comparable sale prices
  • Overall housing prices are falling
  • Likely to see more advertisements and bigger advertisements
  • It takes a long time for the “Sold” sign to go up
[contentblock id=ar_top_banner_responsive] Seller’s market

Conversely, in a seller’s market, there’s more property demand than supply and you will see the following characteristics:

  • Inventory is lower than when compared to previous months or years
  • There is less than 3 months of inventory available on the market. You can determine this through the absorption rate and the month’s supply of inventory calculation.
  • Listings do not stay up as long and the DOM is generally lower
  • Current listing prices are higher than previous comparable sale prices
  • Overall housing prices are rising
  • Likely to see fewer advertisements
  • “For Sale” signs don’t stay around long
What to do as a buyer for a seller’s market

As a buyer in a seller’s market, you’ll have a difficult time low-balling offers during negotiations. By doing so, you may lose the property you’re interested in. Because there is a limited supply of properties, sellers can turn to other buyers very easily without entertaining your offer. For more information on what mistakes to avoid during a seller’s markets check out this article by Trulia.

Most often people hear the two terms applied to real estate, but in reality, they apply to any type of product market.

Do your research

Now that you know the difference between the two definitions, an effective second step is to do your research on the property that’s captured your attention. For instance, you’ll want to take a look at how many days the property has been on the market. In a buyer’s market, it’s common for properties to stay on the market for some time since there is a lot of competition. However, if you’re in a seller’s market and you notice that a property has not sold after a significant amount of time, that could be a good sign to stay away. In this case, it’s possible that the seller overpriced the property. As a result, it became stale. People then assume there’s a problem with it. If you’re unsure about a property or your current market, ask your realtor. They can provide more information and advice before you make your offer.

If you’re concerned about how long a property has been sitting on the market, check with your real estate agent. He or she can give you an idea as to how long their properties typically sit on the market before being sold.

You’re also going to want to look at the neighborhood – are price cuts common in this neighborhood? In a buyer’s market, price cuts will be common and the competition will be few and far between. Whereas in a seller’s market, properties may maintain their selling prices or they may be sold for more than their asking price.

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Let interest rates be your guides

Ah, interest rates, the least fun part about purchasing a home or building. Interest rates are important not only because they can indicate how much cost will be added to the property, but also because they can indicate the type of market your area currently has.

If interest rates are high, buyers will have a difficult time getting mortgages. In this case, you’ll most likely find a lot of properties at discounted prices. You’ll also notice that prices will decline, indicating a buyer’s market.

When interest rates are low, however, money will be easier to come by, therefore buyers will be flooding the market.

[su_animate type=”rotateIn” duration=”1″][contentblock id=1][/su_animate] Check in with Freddie Mac and Fannie Mae

Government entities are great tools when it comes to determining the current status of your real estate market. Buyers can always rest assured that it’s a good time to purchase a home when Fannie Mae becomes involved. Fannie Mae pushes first-time homebuyers to take the property plunge by offering incentives for them. If you see Fannie Mae and Freddie Mae becoming involved, you’ll know it’s a good time for homeowners to buy.  

To better assist homeowners, Freddie Mac launched a financing program called HomeSteps, and another called HomePath. Both participate with a 3% closing cost assistance and lower money down. Whenever these two Government-sponsored enterprises become involved in your market, you’ll discover that it’s best for sellers. And in case you have any doubts, these deals were not around during the housing crash of 2008. Sadly the Freddie Mac and Fannie Mae programs do not apply to property investors, but they are great resources to recommend to homebuyers you work with.

Pay attention to your submarket

When looking for the perfect property, it’s important to know how either type of market will apply to you. When people are on the benefitting side of a market, they “can get cocky and overplay their hand,” says Rosteck. Ultimately, this will lead to losing the property you’ve had your eyes on.

If you’re a buyer and you’ve determined that your area currently has a buyer’s market, it’s possible that things “can be measurably different in the submarkets,” according to Rosteck. An example of this would be your local office space market.

Take the office market in the downtown Cedar Rapids area, for example. Rosteck says that when examining it closely, you’ll find that “the office market as a whole is a buyer’s market with an abundance of properties to look at.” This means that the downtown submarket can be even more competitive than other areas of the city.

In looking at office spaces in the New Bo district or on the northeast side, it’s important to keep in mind that it’s “less of a buyer’s market,” says Rosteck. In these areas, “properties are a little harder to find with owners a little less likely to deal.” In other words, if you’re taking a serious look at an office location in the downtown area, you may want to put in your offer sooner rather than later to avoid losing your chance.

Keep track of the months of inventory

Another way of determining your area’s market status is to look at the months of property inventory. In a buyer’s market, there is typically six or more months of inventory. In a neutral market, you’ll find three to six months of inventory, and in a seller’s market, you’ll discover less than three months of inventory.

Whether you’re a buyer in a buyer’s market or a seller’s market, it’s important to know that either market can work for you as a property investor. Before making an offer on a property, be sure you’ve conducted research on the neighborhood as well as the property itself. It will also be beneficial to keep track of whether or not governmental agencies are making special offers to homebuyers, as this can indicate a buyer’s market. As always, we highly recommend you run the numbers before making any purchase.

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Someone once asked us, should you invest in real estate or pay off your student loans? Many people who have student loans wonder whether they should focus on repaying their student loans or use any additional money to invest. One type of investment that often comes up is real estate. That’s partly because many people dream of owning their own home or of buying investment properties to rent out in order to generate income.
But does it make sense to do this before being debt-free?

Investing vs. Repaying Student Loans

Most financial advisors will tell you it doesn’t make sense to wait to until you’ve repaid your student loans. That’s because student loans generally charge a relatively low-interest rate while many types of investments provide greater returns than that.

Here is an example. If your student loan is charging 5% interest, but you can make 7% by investing in the stock market – then it makes more sense to repay your student loans slowly and invest any additional funds in the stock market or another investment opportunity. 

Is Real Estate a Good Investment?

Real estate is an investment that has the potential to offer great returns. How big those returns will be, depend on the market you’re buying into and the purpose of your investment. If the real estate market is growing in value at a rate greater than the interest charged on your student loans, than investing in real estate makes sense. Unfortunately, real estate is cyclical and so it’s hard to know whether that growth will continue.

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If you plan to live in the home that you’re buying, such as a duplex, your return could be greater. The money that you would otherwise have been putting towards rent would now go to your mortgage. This would reduce the real cost of your investment and the equity you build would mean that your return will be better.

But when you’re investing in real estate, there are a number of other costs involved which could reduce your return. For example, you’ll have to pay taxes, buy insurance, and cover repairs on the house. Each of these expenses will increase your cost. That means even with a 5% price increase on your property annually, the actual return on your investment is less. 

One of the safest approaches to this technique is to buy strictly relying on the cash flow the rental property will generate. This way if the home value fluctuates, you will still be able to pay for all your expenses and weather the market changes. The real estate market will vary greatly depending on which part of the country you live in.

It is critical that you do your due diligence and run the numbers to ensure your rental property is generating positive cash flow at the end of each month. This will pay great dividends later on. The more times you run the numbers, the better you will be at understanding your local real estate market.

Ultimately, the only way you will really know if you should buy real estate or pay off your student loans is to run scenarios. Use our free Student Loan Vs Rental Property Analysis tool by clicking on the image below or using the menu by clicking the Tools -> AssetRover Downloads link, to help you decide which scenario makes the most sense for you.

Fees and Interest Rates

Another important factor to take into account is how long you plan to hold the investment. Unlike stocks, it is sometimes difficult to sell real estate investments quickly. There are also high costs involved in buying and selling real estate such as agent fees, taxes, and closing fees. If you don’t plan to keep the property for a long time, then those fees could eat into your returns.

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If you have a high-interest rate on your student loans, it could also make it more difficult to make enough by investing in real estate. Should that be the case, you should think about refinancing at a lower rate. This could save you thousands of dollars and make it more beneficial to invest rather than repay your loans.

The Bottom Line

Many people who have student loans want to repay their debt as soon as possible. But if you wait and repay your student loans before investing, you lose valuable time that could be used to grow your net worth. In the end, you need to take your time, and do your analysis to make sure you are making the right decision to invest in real estate or to pay off your student loan.

Happy Investing,

Jeri

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Home Sewer System Inspection

Many people ask themselves: why should I do a home sewer system inspection before I buy a property? Should I go through the expense of having a home sewer system inspection when I buy a home to live in or to use as a rental? The short answer is, yes, having a home sewer inspection is a wise move before buying regardless of the age of the property. This simple act of due diligence has the potential to save you a lot of money and hassles.

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My Sister Did Not Have a Home Sewer System Inspection

My sister bought a house about 15 years ago. It was part of an estate. They did not have a sewer inspection at the time they bought the property and were unaware of any sewer problems. Very shortly after they moved in, however, they started to immediately notice the toilets backing up and they had trouble getting rid of the water in their washing machine.

They called their local plumbing company to snake the sewer line and learned they had a collapsed section of Orangeburg sewer line. Just months after the move-in expenses, they were hit with another large bill to replace their Orangeburg with Polyvinyl chloride (PVC). Luckily the city connection was on their side of the street and they did not have to cover the cost of tearing up and replacing the street as well.

Sewer Lines and Simple Wear and Tear

Sewer lines can be damaged due to cracking, pipe shifting, tree roots invading the pipe, collapsing, or cracking from materials that have worn out. Repairing a damaged sewer line could become one of the most costly repairs you will ever make to your property. It is good to know what your risks are with this before you purchase a property. The internet is littered with horror stories of people who did not perform an inspection of the sewer line on the property they were purchasing, just like my sister, and found out later the reality was something far different. You don’t want to be one of those stories.

Is a Home Sewer System Inspection included in My Home Inspection?

Generally, the sewer inspection is not included in the regular house inspection. You will need to specifically request the sewer inspection in addition to your house inspection. Often, it is an entirely different company that will perform this inspection. The cost ranges from $200 – $450 depending on your area.

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What is a Sewer Line?

First, what is a sewer line? All homes have a sewer line that is buried in the ground and takes waste water (water from toilets, washing machines, etc.) away from the house to be processed for treatment. Here is a little more information about each of the different sewer line types:

Cast Iron Pipes

Cast iron pipes are found in older homes or neighborhoods, although they are still installed today, but much less frequently. These pipes can sustain the greatest amount of pressure but are susceptible to corrosion and generally have a lifespan of 30 to 50 years.

Clay Pipes

Clay pipes are found in older homes or neighborhoods. Although they are occasionally installed today, they are heavy and more difficult to work with than plastic. A benefit of clay pipes is that they are highly resistant to chemical degradation. One downside to the clay pipes is that roots like to attach to the porous surface of the clay pipes which can result in breakage or blockage of the pipe.

Fiber Conduit Pipe

Fiber conduit pipes are made of tar paper and are also known as  Orangeburg (named after the town it was created in). Orangeburg was used for home sewers from around 1950 until the early 1970s when it was eventually replaced by mostly PVC pipe. Orangeburg was made out of layers of wood pulp pressed together. Fiber conduit pipes have a lifespan of approximately 50 years depending on the ground conditions and usage.

Plastic Pipes

There are two types of plastic pipes called Acrylonitrile butadiene styrene (ABS) and PVC, PVC is the more common solution. These are used most frequently today, and because of the smooth nature of their surface, they are less likely to have trees roots attach to them but are prone to breakage.

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How do I Know the History of my Sewer Line?

If you are purchasing a home through a realtor, a disclosure is required (for most states) that you can check to see what the previous owner knew about their sewer system and any sort of back-ups that were known. They are required to disclose what they know.  This is a bit of a gamble trusting this information as the homeowner may have not really understood what they disclosed, or there is a problem that has not shown itself yet. Often, deterioration of plumbing has happened slowly over time, and people are unaware there is a problem.

Another way to know the status of a sewer line is to check with your local city officials in the Public Works Department. You will be able to see if anything is on record of changes for the street or house.

How the Home Sewer System Inspection Process Works

The purpose of a sewer inspection is to determine the condition of the sewer pipe and check for blockages. The inspector will check for roots invading the pipes and other pipe-defects, such as caved-in areas within the pipe from deteriorating Orangeburg, or if there is calcification, corrosion or scale build-up within the sewer line.

Once you decide to complete a sewer inspection, the chosen inspection company will need access to the house for up to 4 hours. They will bring a long tube with a lighted camera. The camera will be fed through an access point within the house (generally in the basement) and run to where the sewer line connects with the city sewer line or a private septic system. The person operating the camera will have a monitor to watch as the camera is fed through the line to spot problem areas and are able to mark exactly where potential problem areas are.

If you have a private septic system to check, there is an additional cost for $500-700 for this to be checked and that can only be checked when the ground is not frozen.

When the inspection is complete, you’ll receive an assessment of your home sewer system and learn what, if any, action is needed. Often the inspecting company will also provide pictures or a copy of the video of the inspection itself.

Sewer Inspection Process - A Process Not to Be Skipped - YouTube

Last Thoughts on Sewer System Inspection

If the sewer inspection is completed during your due diligence and a problem is discovered, you can bring this to the attention of the seller for a credit or decide if the risk is too great and walk away. Either way, you are far more informed about a future problem that has the potential to cost many thousands of dollars in replacement of the sewer line and tearing up the yard.

The moral of the story here; a sewer system inspection is well worth the $200-450 this service costs and is valuable insurance or a great negotiating tool if done prior to closing. We make it a practice to perform this check when we buy properties but would love to hear your experiences with performing sewer checks.

Related Sources:

Sewer Inspections for Older Homes

Why you need to have the sewer scoped when buying a home

Sewer Inspection of Drains, Do I Really Need That

Happy Investing,
Jeri

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The almighty rental duplex. It’s such an attractive option for investors because you get two tenants under one roof.This reduces some of your management and logistical efforts, and increasing your rent per square foot…a 50% increase in some cases. Some rental duplexes are almost like complete units that are only sectioned off by a firewall; for example, a newer condo duplex. Other duplexes may just be a house that has been specially converted to a rental duplex. In this case, owners split off one of the bedrooms and one of the bathrooms, add a kitchen, and call that an efficiency that is able to house another tenant.

[contentblock id=ar_top_banner_responsive] Example:

An investor, who we’ll call Tom, picks up a 3 bedroom/2 bathroom (later referred to as a 3/2) apartment in Miami and is able to rent it for $1,700 per month. This investor has a great understanding of his market and knows that 1 bedroom studio efficiency apartments in the area can rent from $1,000-1,200 a month. He decides to add another kitchen, put a wall in, and carve off a separate 1 bedroom/1 bathroom (or 1/1) unit for a second tenant. Now, he essentially just created a new unit out of “thin air” that rents for $1,150. Of course, his original 3/2 apartment is now a 2/1 apartment after the conversion.
[bctt tweet=”How to Avoid Purchasing or Rehabbing an Illegal Rental Duplex”]
What is the net effect? Well, in a larger city like Miami, you often pay a premium just to live there. In Tom’s case, the $1,700 per month 3/2 has been converted to a $1,550 per month 2/1 apartment, creating a second unit within that property.

Put it all together and you have a 2/1 for $1,550 and a 1/1 for $1,150, which adds up to the original 3 bedroom/2 bathroom house that Tom purchased. The total rent for this house, which was originally just one 3 bedroom/2 bathroom house (at $1,700), is now $2,700 per month of rent! If Tom already bought this rental unit for positive cash flow, he just kicked this puppy into overdrive. It just sounds perfect doesn’t it?

Until you realize that Tom’s unit is now an illegal rental duplex…

Why is that? Well, Tom did the conversion without notifying the proper authorities. He also didn’t ensure his improvements were fully up to code by having them inspected. You might argue that Tom was a little negligent here, but it could’ve just been an accident.

Let’s look at another investor, Jessica. She is looking for a rental duplex and Tom just so happens to be ready to sell his. Jessica thinks it’s a great deal, even after Tom’s inflated the price to account for the new income the duplex offers. It is a really nice looking property and the numbers look great. Nothing to worry about, right?
[bctt tweet=”Watch out for illegal rental duplexes that have been incorrectly converted, especially in large cities.”]
Jessica works with her Realtor and buys the property. The Realtor ended up pushing the appraisal through with the seller anyway, despite the fact that it was illegally converted (this is based off of a true story–beware of this and make sure to have those units checked out.) After purchasing the property, Jessica did notice one problem–she had to pay utilities of that unit because there was only one meter in the building and they couldn’t be separated out by tenant. Furthermore, someone could report her to the city. Other questions such as “what happens when I have to sell it?” crossed her mind. She’d either have to hope that the appraisal was approved again (which is taking a huge risk) or find a cash buyer that wouldn’t try to get an appraisal.

So what happens if the city found out? The bad side is that the units would have to be converted back to original drawing specs. This means tearing down the added kitchen and opening up the walls that connect the illegal unit to the main residence. Often this would also mean evicting the tenants from the illegal unit while all of this is going on.

So what’s someone like Jessica supposed to do to avoid this situation from happening? Here are four ways you can help ensure you aren’t getting an illegal rental duplex like Tom sold and Jessica purchased.

1. How many units does the property have?
2. How many bedrooms and bathrooms does each unit have?
3. Are any of those units illegal units?
4. Does each unit have their own water and electricity meter?

Asking these questions will make sure you don’t run into problems in the future. Having these illegal units may seem profitable at first, but they really aren’t worth the risk! Due diligence, as always, is important, but when you buy a rental duplex, you definitely want to make sure you take extra steps to ensure you aren’t stuck with a huge mess on your hands!

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Helpful Links:

Find out any changes, repairs, and taxes from your local assessor’s site.
National Assessor’s Site

Get an estimate on how much rent you can charge. This is also an average.
Rentometer.com
Zillow.com 

Infinite Returns,
Bill

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What Do I Do When My House Floods?

Dealing with the aftermath of a house flood is always difficult. It is an emotionally difficult time for everyone – both landlord and tenant. Damage from flooding only gets worse as time goes on, thus it is important to act quickly! As an owner of a rental property there are several things you should know and understand about your responsibility as you begin the recovery process. The most important fact is, home flood coverage is typically NOT included in a property policy. Flood coverage can be purchased, but it requires a separate policy and most times the flood policy requires a 30 day waiting period before it takes effect.

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Most landlords are not responsible for insuring their tenants. However, a landlord could be responsible for covering replacement of items if they are responsible for the damage. But in most cases, your tenants should have their own renter’s insurance policy to cover their belongings. Renters insurance is generally fairly cheap and something all landlord’s should recommend their tenants own.
[bctt tweet=”10 Things to Know as a Landlord When Your House Floods”]

Landlord’s Responsibilities
  1. The landlord is responsible for the building structure itself as well as flooring, wiring, plumbing, and appliances; i.e., pretty much anything you provided to the tenant as part of their rent.[su_spacer]
  2. The landlord has responsibility to repair the unit so that it’s habitable and livable once again and this means that the repairs must be made as quickly as possible. If the repairs are not made within a reasonable time, the tenant could withhold rent, hire the work to get done, or even notify local authorities.[su_spacer]
  3. When a flood happens and you learn there is damage, immediately report the claim to your insurance company. (Please note: most insurance policies require you pay for home flood coverage separately from your regular policy.)[su_spacer]
  4. Whether you have home flood insurance or not, it will be very important to carefully track the expenses incurred as a result of the flood, including all material purchases, labor, travel, etc. If your insurance covers the flood, you will need to submit your expenses to them for reimbursement. If your insurance does not cover the flooding expenses, at the very least you will need the receipts for the next tax filing season.[su_spacer]
  5. In most states, landlords must provide 24-48 hours notice before entering the rental property; however, in the event of an emergency this does not apply.[su_spacer]
Tenant and Renter Insurance Information
  1. Renters insurance, most known for providing coverage for replacement of personal items if your stuff is damaged, ruined or stolen, also has other benefits.[su_spacer]
  2. Most renter insurance policies cover the cost of temporary relocation and normal living expenses in the event the location where the renter lived was damaged in such a way to make it unlivable. When the house floods, if the renter’s insurance policy does not specifically include home flood coverage, the damage and loss associated with flood will not be covered. Each policy has different limits and terms. It is important your tenants understand the limits of their policy. Regardless of how the event occurred resulting in damage, the landlord should encourage the tenant to report the event to his/her insurance company.[su_spacer]
  3. If the tenant has to relocate as a result of damages due to the house flooding or other significant damage, the tenant is not responsible for paying rent during that time.[su_spacer]
  4. The tenant will have the opportunity to cancel the lease at that time they are displaced due to the damages. However, they must notify the landlord or property manager soon after leaving the property.[su_spacer]
  5. If the damage does not require relocation but is a significant inconvenience, the tenant may request a rent adjustment.[su_spacer]

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[bctt tweet=”Home flood coverage is typically NOT included in a property policy. 10 things you need to know as a landlord.”]

This is a broad-level overview of the things to know about being a landlord when your house floods. Every situation will have its own nuances. When in doubt, go to your attorney, accountant, or insurance agent and get the guidance you need.

Here are some additional links that provide some good information: What’s My Flood Risk? What to Do When Your Apartment Floods Post-flood Tips for Residential Landlords What Are My Rights If My New Jersey Apartment Floods? Natural Disasters – Who’s Responsible? The 6 Most Important Clauses in a Landlord Insurance Policy

Happy Investing!
Jeri

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What Questions Must a Real Estate Investor Ask While Finding Hard Money Lenders?


Finding hard money lenders is easy, but they aren’t all created equal and it’s very important to be selective.

In order to do your homework, these are the key questions you must ask when seeking out a hard money lender and submitting your loan application:

1) How Much Experience Do You Have?

Make sure you choose an experienced hard money lender for your project. With an experienced lender that has been in business for years, they understand the cyclical nature of the industry. These individuals can suggest an appropriate loan for your real estate investing business, including some advice on avoiding potential risks and pitfalls in your business.

2) Are You a Licensed Lender?

If a lender is licensed and State approved, that individual is bound to follow state mandated rules which provide customer protection. Their website must display their license ID, which can be researched on the licensing state’s website. One example is the Texas Real Estate Commission website, which allows you to check the licenses of Texas real estate lenders.

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3) Can You Show me Your References or Testimonials?

A good hard money lender should not hesitate to show you the reviews and testimonials by his/her previous clients. These reviews are often on  lender’s own website, but better reviews can be found from third party sources. Considering the lender’s length of time in business, if he or she doesn’t have enough satisfactory reviews, you should be on high alert.

[bctt tweet=”7 Interview Questions You Should Ask When Finding Hard Money Lenders”]

4) How Do You Fix Your Interest Rate?

Generally, hard money interest rates are determined by the property type, risk analysis, and your credit rating. Hard money loan interest rates are higher than bank rates and range from 8% to 18%. There is greater flexibility in hard money loan rates and you should keep this in mind when you negotiate with the lender.

5) How Fast You Can Approve My Loan Application?

Hard money lenders are known for their quick approval of loans as they have very few requirements. The lenders approve loans within a week (or in some cases, the same day) if they determine you’ve provided satisfactory information. Asking about the lender’s funding timeline, and indicating your own need,  is crucial when you want to close the deal on time to increase your cash flow. Providing proper documentation, project status, and a solid exit strategy will improve turnaround time on this approval.

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6) How Much Loan to Value (LTV) Can You Offer?

Since property values are the key driver of a hard money loan’s value, it’s important to talk about the Loan to Value (LTV) on your investment. The LTV is the funding amount a lender provides on the basis of the existing value of property. It will vary from lender to lender.

LTVs are typically lower on land, commercial property, and rural houses due to the greater risks involved in these projects. Some hard money lenders provide funds on the After Repair Value (ARV), which is the value of the property after remodeling.

[bctt tweet=”How much Loan to Value (LTV) can you offer? This is one of 7 questions you need to ask a hard money lender.”]

7) What Types of Loans Do You Offer?

Some lenders are specialized in a niche loan category, while others have a broad loan portfolio. If you need a loan for buying and remodeling a property, you will want to select a lender that is more accustomed to a broad loan offering. You are more likely to see success working with a lender that is more aligned to your project’s needs.

The Last Word

By asking these questions, you can get a good sense of the lender’s services and criteria, helping you to find just the right one for your investment property.

Author Bio

David Mixon, owner of Loans 4 Investors, has been in the real estate business for 20+ years. His company specializes in Private Hard Money Lending for Real Estate Investors and Home Builders. He and his wife also have lots of fun traveling across the US in their RV exploring new markets and developing their power teams as they go! David was raised on motorcycles and it is still a huge passion of his to ride his Harley Davidson for the pure pleasure of it.

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Should Landlords Change The Locks For Every New Tenant? Here’s the Answer…

The great thing about apartments and rentals is that in most cases, it is a temporary arrangement. It is seen as a more cost-effective means to build a home without having to buy a house. In this day and age, there are many families gravitating towards rentals because it is a more affordable option. A lot of money goes into buying a house, so it is completely understandable that more people are leaning towards rentals.

For landlords, this can be an awesome thing. It presents you with the opportunity to meet new people and new families, time and time again. The responsibilities that go into becoming a landlord are extensive, to say the least. Aside from collecting rent, landlords are tasked with property maintenance and general upkeep. Among these responsibilities is the issue of whether or not landlords should change their locks every time they get a new tenant.

Some people will be quick to say “yes” and some will be quick to say that doing so will incur a higher price. When it comes to rentals, temporary ownership to a particular room or space changes hands quite often. This process makes it hard to have absolute key control. There is no clear-cut answer to the question posed, but there are options that landlords can take to ensure their tenants remain secure, and that their costs stay down. In order to understand why this is even a question that people ask, we have to look at all sides of the argument.

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Why Should The Locks Be Changed?

What’s the main reason why people advocate landlords to change the locks after someone new moves in? They are worried about the integrity of their home security. If you look at it from the perspective of a new tenant you can see why this is worrisome. Many of them want to make sure that their homes are as secure as possible, and it is hard for them to be content with this idea if they think that someone out there might have a copy of their key. In all fairness, tenants that are vacating the premises are required to hand over their keys to the landlord, but this does not mean that they do not have copies of the key.

According to the latest FBI Crime Statistics, 73.2% of all burglary offenses committed were on residential properties, so it is easy to understand why some tenants might be wary of their locks not being changed. In addition to someone probably having a copy of your key, there is also the possibility that the lock might have been damaged in some way or form by the previous tenant, making it less secure than it once was.

Why Shouldn’t The Locks Be Changed?

In most cases, landlords are against constantly changing the locks to apartments and rentals because of the cost that is incurred when they do this. If the landlord carried out the task themselves it would undoubtedly keep the cost of the replacement down, but this will be hard to do if they have a lot of new tenants. However, aside from the cost of the new locks, there is very little stopping landlords from changing the locks for every new tenant. If it were free, they would definitely do it. With this information available, let’s take a look at what the best possible solution is and what landlords should do.

[bctt tweet=”Should Landlords Really Change the Locks for Every New Tenant?”]

So, Should Landlords Really Change the Locks For New Tenants?

According to most Landlord-Tenant laws (these vary state by state), the landlord is required to provide functioning deadbolt locks on exterior doors. So unless the lock is damaged or compromised, they are not necessarily obligated to replace the lock. If the lock is damaged by the time the new tenant is moving into their rental or apartment, then the landlord is obligated by law to replace the lock on their door. Even if the landlord was not obligated to do so, there is a chance that they would take care of it, because no tenant would be willing to live in an apartment without a working door lock.

However, things do get a little tricky when the lock is not damaged. If the tenant were a homeowner they would have every right to change their locks and maximize their home security. In this case, they do not own the property and they cannot make any changes without running them by the landlord first. In this instance, landlords do not have to replace the entire lock, but they can instead rekey the locks when new tenants move in.

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This is a much more cost-effective option than replacing the locks. Rekeying a lock will lessen the fears new renters have of their homes being compromised and it can be done at the fraction of the cost. Rekeying negates the chance of anyone breaking into someone’s apartment with the copy of an old key. In terms of risk management, rekeying is a quick, cost-effective measure. Where a lock change will replace the entirety of the lock hardware, rekeying only replaces a few small internal mechanisms. For most locks, these mechanisms are known as pins. The pins are various lengths, which all correspond to the depths on your key. Replace the pins with different sizes, or in a different order, and the old key will no longer open the lock.
[bctt tweet=”Landlords: Why Rekeying May be a Better Option than Changing Your Locks”]

Conclusion

Landlords have a great deal of responsibility when it comes to their tenants. The mark of a good landlord can be seen in those who pay close attention to the state of their rental units. If a lock is damaged when an old tenant is moving out, then a landlord should replace it for their new tenants. In most cases, this is not a costly venture because it is rare that all the locks in an apartment complex will be damaged just as new tenants are moving in. If the lock is not damaged, the landlord should focus on rekeying the lock instead, as this provides a much more cost-effective solution with the same benefits of replacing the lock.

Author Bio

Ralph Goodman is a professional writer and the resident expert on locks and security over at the Lock Blog. The Lock Blog is a great resource to learn about keys, locks and safety. They offer tips, advice and how-to’s for consumers, locksmiths, and security professionals.

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There has been a great technological shift in the past few years that has resulted in effective automation of services and products. You no longer have to visit your real estate agent to research or physically track down investment properties and land! This is made possible by a number of smartphone apps for iOS and Android alike. Most of these sites also have search portals that are accessible over the web. These real estate and property search apps in India, in no particular order, include:

1. MagicBricks – MagicBricks.com [iOS / Android]

This is one of the leading real estate apps in India. MagicBricks links to websites that get down to the real estate “nitty-gritty.” You can rent, buy, or sell residential as well as commercial properties. The property listings are spread all throughout India with about a million listings at any given time! You will be in a terrific position to make investment property decisions because you will be advised on the location, property indices, rates and prevailing market trends.

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2. 99acres – 99acres.com [iOS / Android]

Just like all the other apps, download these from the App Store and Google Play. The links are right above! You can find information about property buyers and sellers in the residential and commercial markets in India  Instead of wasting time driving through town after town in search of the perfect investment property,  check out the available listings for homes here. Once you’ve locked down that property, talk to your lender to determine the best rates and best property to purchase.

3. Proptiger – Proptiger.com [iOS / Android]

This app is a simple solution for your real estate problems. You can access a multitude of properties in many different locations around India. They tout themselves as “India’s No. 1 Property Portal.” This is another great tool in your real estate investing arsenal because you can get ahold of property in prime locations. Details of the actual sellers are also available, helping facilitate the negotiation process between buyer and seller
[bctt tweet=”Here are 7 of the Best Real Estate and Property Smartphone Apps in India”]

4. Housing – Housing.com [iOS / Android]

Your search for listed villas, flats, or apartments in India ends here. There are houses listed here for sale or rent. Due to this, you can pinpoint your preferred home and then start negotiating with the sellers in order to secure payment and move to closing day. The best part is that there is a low risk of fraudulent listings since the listed properties have been verified and have recent photos uploaded to the website.

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5. Realtor – Realtor.com [iOS / Android]

This is a very familiar website based in the United States with an international scope into real estate markets worldwide. This massive database cuts across the whole world and it makes it easier for you to find the best commercial and residential properties internationally and locally. Homes, apartments, and flats are listed and have the prices called out on the pictures. Due to this, your financing decisions are much easier to make!

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6. Commonfloor – Commonfloor.com [iOS / Android]

This website lists more properties for sale or rent in India, which will be a great benefit for those interested in investing or just finding a home to live in. Commonfloor is also available as an iOS or Android app and is yet another tool in your India investing arsenal.
[bctt tweet=”Looking to Invest in India? Here are 7 Property Search Apps You Can Use to Find Real Estate”]

7. The Wadhwa Group – TheWadhwaGroup.com [iOS / Android]

Your search for a home ends here. This app makes the search easier where you can find a property to buy or to rent. The financing means for commercial and residential properties are spelled out and your decision-making process is simplified.  Finding prime locations for your homes that match your budget has been made possible by this application.

In conclusion, all these apps have been designed to save you time and money spent on searching for property for your home or business investments. You can settle on a financing regimen faster when you have a property in mind. Talking to the seller and the bank is always easier once you have locked down the property you want to invest in.  As always, remember to run the numbers and invest for positive cash flow! Check your market conditions, the average rents for your area, and vacancy rates to reduce your risk and maximize your CCR (Cash on Cash Return.)

Author Bio

Isabella Rossellini is a real estate expert involved in the Mulund residential projects listed in most of the apps aforementioned. You can get expert advice and analysis from her and her team on the best financing options for your home.

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Real estate investing is on the rise. Middle class entrepreneurs are finding opportunities to boost their income by investing in fix and flip (or fix and hold) real estate investments at an exciting rate.

This blog is courtesy of  Eric Krattenstein, Chief Marketing Officer of Asset Based Lending. You can find more information about their services at http://www.abl1.net

What exactly is a flip?

Thanks to the success of several primetime television shows and the rebound of the US housing market, house flipping is on the mind of new and experienced real estate investors alike. These savvy investors find a distressed property that can be purchased at a discount, 26% below market value on average, with the goal of renovating the property and selling it for a profit or holding it for rental income.

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Smaller investors are making money…

According to RealtyTrac’s 2015 US Home Flipping Report, residential property flipping is the most popular it has been since 2007; counting over 110,000 active flippers. Out of those 110,000 flippers last year, the average number of flips per investor was just 1.6–the lowest it has been in 8 years–a strong indicator that smaller investors are entering the market.
[bctt tweet=”Residential property flipping is the most popular it has been since 2007.”]
Why the rise in new real estate investors? Quite simply, they are making money. According to the research, the average finished flip was appraised at 5% above market value and sold for an average gross profit of $55,000 if it wasn’t held long term for rental income.

But where do they get their money?

The name of the game here is leverage. By bringing in a lender or equity partner, investors are able to fund these investments with just a fraction of the cash coming out of their own pockets.

Conventional Financing

The first source of funding beginner investors try is their local neighborhood bank. Banks tend to offer lower interest rates than the alternatives, and some investors feel more comfortable using a federal institution. However, investors that are not exceptionally healthy with an outstanding profile have trouble getting the financing they need from banks for a few reasons.

First, institutional financing is almost impossible to obtain with a mediocre credit score and not a great deal of liquidity. Perhaps even more importantly, bank loans take time that investors usually do not have. Time is money when it comes to real estate investing, and a delay in funding almost always means the inability to snatch up that perfect listing and a missed opportunity.

Hard Money Lenders

The option most investors turn to for leverage then is what is known as hard money lending (or asset based lending). A hard money lender is willing to finance “riskier” loans for borrowers that don’t meet institutional criteria in exchange for higher interest rates.

As opposed to banks, hard money lenders are more interested in the deal itself rather than the profile of the borrower. These alternative lenders use different underwriting criteria that tend to offer significant leniency when it comes to credit scores, income history, and other traditional underwriting factors.

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Hard money lenders want to know that you’re getting involved in an investment that will be profitable–whether the goal is to sell quickly or hold and rent. Unlike conventional financing, these alternative lending firms were born out of necessity in the real estate investing market so their processes are designed to support those specific needs.
[bctt tweet=”Real Estate Investing: No Longer Just for the Wealthy”]
In addition to closing loans fast, hard money lenders help investors leverage their capital by financing some or all of the purchase price of a property as well as the renovation costs. As a hard money lender ourselves, we typically fund up to 80% of the purchase price and all of the rehab costs. This means in exchange for paying more money per month in interest, a borrower is able to get involved in a real estate transaction with just 20% of the purchase price coming out of their pocket. Investors looking to hold a property for rental income typically refinance out of the hard money loan with conventional financing once the property has been stabilized.

Key Takeaways

1. New investors are entering the real estate market at the highest rate in a decade.
2. The average fix and flip or fix and hold project is purchased at a steep discount and ultimately worth several percent above market value.
3. Individual investors that are not independently wealthy are leveraging alternative financing to fund investments with just a fraction of the deal out of pocket.

This blog was written by our special guest Eric Krattenstein, Chief Marketing Officer of Asset Based Lending. You can find more information about their services at http://www.abl1.net

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https://www.youtube.com/watch?v=7ax3Hha6vm8

A retirement plan that lenders have been pitching in the past 10 or so years is the reverse mortgage. Despite almost everyone being aware of the term, most people understand very little about this concept. Thanks to a brilliant marketer somewhere, the term “reverse mortgage”, known officially as a Home Equity Conversion Mortgage (HECM), really got people’s attention. This concept of a reverse mortgage helped most people visualize a paid off house that suddenly becomes a bank account for their retirement years. The reverse mortgage option has been packaged as a life saver for baby boomers and property owners who are reaching their golden years.

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Types of Reverse Mortgage Options

I was asked by one of our mailing list subscribers to shed some light on reverse mortgages, especially when it comes to making it a strategy for real estate investing. A reverse mortgage is basically a method to borrow equity back from your home without having to “pay it back.”

There are three different types of reverse mortgage options, all with various amounts of flexibility for your situation. They are: Lump Sum, Monthly Payments, and Line of Credit. Here’s a little more detail on each one:

Lump Sum – Your money is received in one lump sum payout at the time of closing.

Line of Credit – Draw from your loan whenever you choose and you are charged interest on what you take out.

Monthly Payments – Receive a payment from your lender each month for as long as you remain living in your home and continue to meet all loan requirements.

This article does a great job at comparing all three (Should You Take Out a Line of Credit, Lump Sum, or Monthly Payment with Your Reverse Mortgage?)

What Happens to My Home When I Die?

I think you may have already read between the lines and realized that for some of these reverse mortgage options, lump sum especially, you may not be leaving your cherished family home to the kids. If you think you are going to die soon (horrible and unsettling thought), you may have a lot of that reverse mortgage money to pass on, but of course, if you didn’t do a reverse mortgage, your kids could sell your house when you die and get money that way. So before getting too far, have that discussion with your children or next of kin and make sure they understand the decision you are making to pull equity out.

Let’s go into a little more detail on how your heir(s) could buy the property back. The lender lets you pick the lesser of the two:

  • Pay the outstanding balance of the mortgage off – Interest accrues on the money you are borrowing, so if you die next year, your heir would pay almost the same amount that you borrowed. If you die in 20 years, the interest rate, around 4.92% according to ReverseMortgageAlert, will really increase the amount you’ll have to pay later. If the housing market has appreciated substantially, your children or next of kin may be better off paying the mortgage balance.
  • Pay 95% of the appraised value of the property – Here’s another option…if the housing market does poorly and the home decreases in value, you could pick it back up for much less than the mortgage balance. This is obviously a very good decision in this case.

So in summary, once all that interest adds up, or if the house appreciates a lot, it will cost much more to obtain the property. In that case, it’s much less likely your child will get back her old bedroom with Star Wars wallpaper and Prince posters! It’s also important to note that your age is going to make a big difference on the reverse mortgage deal you get. If you are very old, and if you are “statistically” expected to die soon, you won’t get as much cash up front. This is very similar to how a life insurance policy works because they lose money if you die sooner than the statistical average, but they make money if you live longer than this average.

Reverse Mortgage Obligations

Before considering a reverse mortgage, remember that you still have to fulfill these obligations:

  1. You must be at least 62 years old.
  2. The existing mortgage, if any, must be paid off first.
  3. Occupancy – The home MUST be your primary residence. As mentioned earlier, don’t try to do this with an investment property.
  4. Maintain property costs – Have the ability to pay your taxes, insurance, and other fees such as Homeowners Association (HOA) fees.
  5. Property condition – Just as you have to keep up on your required property costs, you have to keep the property in good shape.  Since the lender may end up getting your house (see #5), they want that house clean and valuable.  Before you get your reverse mortgage, an appraiser will come by and inspect the property. If he/she finds a significant problem with your home, you will have to hire a contractor to fix the problem. Afterwards, the appraiser will come by and check your property to ensure repairs are done.
  6. Rights to own the property – The lender wants rights to the property after you pass away, or, they will either take 95% of the current appraised value or the mortgage balance, whichever is lesser. Check with your lender to get more details on this requirement.
What about Using a Reverse Mortgage for Real Estate Investing?

Wait a minute…you wanted to do a reverse mortgage for real estate investing. You wanted to borrow “HECM style” against a paid off investment property and that’s why you are reading this article. Nice try, but sorry…you can’t! The property used as collateral for your reverse mortgage has to be owner occupied…
[bctt tweet=”Should You Use a Reverse Mortgage for Real Estate Investing? Find out the details…”]
Now that we have that covered, let’s assume you want to take a reverse mortgage out on your primary residence to invest in real estate. Should you do that or not? This really is going to be a numbers game with the cost of borrowing money. Just as you would run the numbers on bank financing for a potential rental, you need to think of reverse mortgages as the same.

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One concern with reverse mortgages is that the closing costs are high.  Check out this Reverse Mortgage Calculator to run a hypothetical (or actual) scenario on a property. This calculator gives you an estimate of how much money you would get in lump sum or a line of credit, depending on the option you choose. How much money you get is dependent upon your age, the interest rate of the loan, and the value of your home. This dollar amount is known as the initial principal limit.

The initial principal limit is the amount of funds that you’re able to receive from a reverse mortgage before closing costs. The rule of thumb is that you can take out up to 60% of this “initial principal limit” in the first year of the loan, according to consumerfinance.gov. Make sure to talk with a lender to get exact details, depending on your situation.

As with any investment you make, run the numbers (you can use our free tool), do your due diligence, and see if your financial situation is really going to improve or not. The closing costs and equity you lose in your home may really knock your net worth down compared to the benefit you’ll get out of the rental property.

[bctt tweet=”Before you should even consider a reverse mortgage, look at the rest of your options!!”]

Do You Need ALL of Your Equity?

Reverse mortgages are typically are for people who want all the equity out and don’t care about passing the house on to their kids or next of kin. If you just want “some” of the money for an investment, consider a Home Equity Line of Credit (HELOC) or even a standard Home Equity Loan.  Want to know the difference? Check the video and blog from BankRate below.

BankRate: Home Equity Line of Credit (HELOC) vs. Home Equity Loan

Are You Truly Out of Options?

One interesting fact that most people don’t know about reverse mortgages is that they’ve actually been around for quite a while. Back in the 70s and 80s, however, they were used as a last resort option. It definitely wasn’t meant for vacationing on fancy cruise ships, buying luxury cars, or paying for country club memberships. But, you stopped by AssetRover because you want to do something smart with your money! You are going to invest that money into real estate to get passive income, tax benefits, and a physical investment that you can pass to your children when you leave this world.
[bctt tweet=”Is it a good idea to use a Reverse Mortgage for investment property cash?”]
You might have already tried the bank route via a traditional mortgage, HELOC, and Home Equity Loan and things just didn’t work out. They see your financial situation or credit situation and don’t see how you are going to pay that monthly fee. Reverse mortgages have fairly minimum requirements since they get your home if things go sour.

There Are Many Ways to Pull Equity Out of Your Property

One thing to remember here is that no matter which alternative you look at, you have a physical piece of real estate that’s either paid off or has a lot of equity in it. Your home is likely worth a substantial amount of money. The bank gave you money 30 years ago to buy this home when you hardly had any equity. Usually, they’d be happy to put a lien on your property again! A lien does need to be paid off though, and you now have a house payment again.

Sometimes a solution to an immediate problem is attractive, but in the long run, it may be detrimental to your financial success. A reverse mortgage could be a great way to get extra money to help you enjoy your life and still keep your house; however, if you’re still looking to ride the wave of real estate investing a little longer, you may be better off looking at more traditional methods instead of using a reverse mortgage for investment cash. Whatever you do, look at the long term consequences of your decisions–whether you’ll be around to see the end results or not!

WARNING: Reverse mortgages, lines of credit, and other financing can be complex. Decisions like these, usually life changing MAJOR decisions should never be made based on reading one blog post on the internet. PLEASE consult with your financial advisor, lender, attorney, and other trusted members of your network to make sure your decisions really meet your financial and life goals! You can also talk to a reverse mortgage counselor. HUD-approved housing counselors can be found at HUD’s counselor search page or calling HUD’s housing counselor referral line (1-800-569-4287).

Infinite Returns,
Bill

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