SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Financing

The Autumn Leaves Mean Deals

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I hope everyone had a great holiday weekend.

As we get summer behind us and look forward towards fall, smarter landlords are also looking forward to some great end of the year purchases.  It has been my experience over the years that some of the best deals show themselves towards the end of the year.

Why is that?

I think there are a couple of reasons.

  1. People have had their property on the market for a while now, some since spring trying to hit the “peak” buying season, and have had no success.  They will now be ready to make a deal.
  2. Banks will be looking to unload non-performing assets or foreclosures.

You see, the end of the year is both a psychological and fiscal boundary.  People want to start fresh in a new year.  They want to unload things that are perhaps holding them back.  They are tired and ready to deal.

Banks and many other businesses will be starting a new fiscal year.  That means it is time to clear the books.  It is time to take those tax write offs.  It is time to move some inventory so the banker can get their year end bonus.

Basically, the looming end of the year can be a great motivator.

So what should a smarter landlord do if you want to pick up some of these deals?

  1. Get your money and/or financing in order.  You will need to be able to move quickly.  It is best to have all of this arranged now.
  2. Know your market.  You will need to know what a deal is and jump because others will be looking too and the good ones go fast.
  3. Network.  Let others know that you are in the market and what you are looking for.  Paying someone a finder’s fee is a great way to get deals.
  4. Keep a close eye on all of your sources.  Many deals are still found through the Realtor’s Multiple Listing System (MLS).  Have your realtor set up a search that will e-mail you directly potential deals.  Use key words such as bank or corporate owned, price reduced, make an offer, priced to sell, estate, etc., as part of your search criteria.

It’s September.  Time to think of the autumn leaves, football and getting a break from this humidity.  But smarter landlords are also thinking about picking up some year end deals.  Some are going to come your way.  Be ready!

Preparing to Buy Your First Property

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If you’re like me, you turn to the internet to answer all of your questions. Every time I’m ready for a new challenge, I begin by typing, “How to…,” in the Google search bar.

So, I’ve created a few posts that combine strategies that have helped me to prepare for the big purchase. Following these strategies can increase your savings, reduce your expenses, and move towards your goal of home ownership.

First and foremost, define your goal
Do you want to buy a single family house or a multifamily house? Will you live there? If so, how long do you intend to live there? Will this be a rental property? Do you plan on selling it in the future? Answering these questions will narrow down your search criteria.

Next, decide on your price range
I’m a huge proponent of living below your means. Reduce your expenses to live a more moderate lifestyle. My advice would be to set the top of your price range below what you can afford. Make sure your price range is based on a well thought out budget and a consistent spending record.

Get your finances in order
Pull your credit and review that information. You are allowed to request a free copy of your credit every year from each of the three reporting agencies (find that link here). Is everything correct? 1 in 4 people have a mistake on their credit report. Having open disputes on your credit report could prevent you from qualifying for an FHA loan. So, take care of this early.

Get smart
You should be able to have an intelligent conversation with your lender about your options. Don’t let others make decisions for you. This is your purchase, isn’t it?
Which product best suits you: FHA, FHA 203k, Conventional, or Homepath?
Learn the lingo: GFE, Warranty Deed, Closing Costs, Owner-occupant, Per Diem Interest, FRM and ARM

Save and Source
Stick to a savings plan that is consistent and can be tracked. It’s not enough to stick money under your mattress. You have to be able to show where the funds came from and where they went, for at least 3 months. This is to ensure you’re not opening new debt to fund your down payment or closing costs.

Find a Knowledgeable Real Estate Agent
Everyone I have worked with was based on a referral, and I must say, I have worked with some amazing professionals. If your real estate agent is knowledgeable and experienced, he/she can connect you with other knowledgeable and experienced professionals like lenders and title companies. They can advise you of real estate trends or bidding strategies. I chose an agent who was also an investor. So I gained a good bit of insight on buy and hold deals, flipping houses, and the benefits to gaining your real estate license.  You can often find such an agent at your local REIA meetings.

Have FUN
Searching for a home is a fun experience! Don’t let the research or the pressure stress you out. Don’t get emotionally attached to the property either. The best real estate purchases are made when the buyer has a clear mind and is not in a hurry. I lost out of many bids that I wished I had won, but I ended up with a great purchase that I love. I’m sure you will too.

Finding the Financing

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Exclusive for Smarter Landlording

Finding the Financing

By: Jimmy Moncrief

Since I know Smarter Landlording readers are focused on working “smarter, not harder” I wanted to write about a smarter way to get financing.

When acquiring a property the vast majority of real estate investors spend 99.9% of their time looking property.  They make a ton of offers, finally get a property under contract, then frantically scramble for financing.

Does that seem smart to you?

Of-course not.

Here is the smart way to pursue “smart financing”

Have a goal this week of making contact with at least 1 lending institution a day.

Here’s the schedule:

Monday: 2 credit unions

Tuesday: 2 small community banks

Wednesday: 2 regional banks

Thursday: 2 national banks

Friday: 2 hard money lenders

When you call ask for the person that makes commercial loans.  Commercial lenders are less restricted by consumer regulations.  They will be significantly more flexible. Before you start telling them about yourself. Simply ask them what kind of loans they are looking for.

At the end of the week, you should have a list of contacts for your next deal.

If you want to take it a step forward, go ahead and send them the information they request for a new loan so you are already pre-approved and you know what kind of loan you are qualified for.

Jimmy Moncrief is a bank underwriter and real estate investor.  He writes at: http://realestatefinancehq.com/

He has provided an exclusive report for Smarter Landlording readers: Top 6 Things You can do to Negotiate better terms from Banks: http://realestatefinancehq.com/smarterlandlording

What Properties Should I Invest In?

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I have often been asked by people wanting to get into real estate investing for advice about the types of properties they should invest in.  There are so many different kinds of real estate investment types, from single family homes, to farms to industrial parks and there is nothing wholly right or wrong with investing in these various types of real estate.  Each has advantages and disadvantages.   But in my experience, residential real estate is the easiest to get into and the learning curve is the shortest.  So for the new investor, I recommend residential real estate investment properties and that is what I am going to discuss in this post.

 

There are three types of residential investment properties.  All three can be great investments.   Just be aware of the advantages and disadvantages of each type before investing.  Let’s go through each one.

 

Single Family Homes – Single family homes are properties with just one dwelling unit in them.  They can be detached homes on acre lots, town homes, even condos fall into this category.  Single family homes can be great investments.  One of the best features of single family homes is that they generally are the only properties you can sell on the retail market.  You often therefore can get a higher sales price when you sell than you would with other type of residential properties.

 

In today’s market there are many, many homes out there that are priced right and will generate positive cash flow.  In fact, right now they are the cheapest I think they are going to be for a long time.  Even thought prices have declined, rents have not.  Properties in desirable neighborhoods can bring good rents and very stable tenants.

 

New investors can also get some very favorable financing for single family investment properties right now.  Rates are currently amazingly low.  Investors with W-2 (regular job) income and a good credit score can get up to 10 investor loans with low fixed rates financed over 30 years, just like you can with an owner occupied house.  So both pricing and loan rates make this type of investment property very attractive.  (Here is a tip.  If you are married be sure to put these loans in only one spouse’s name.  That way you can get 20 loans, 10 in each spouse’s name.)

 

In many areas however, the prices of single family homes are far higher than the rental income they will produce can cover. In other words, unless you are paying in cash for an expensive home or have a large down payment, the amount you will have to finance will not create positive cash flow.  Be careful buying in pricier neighborhoods.

 

A downside to single family homes is the fact that when your tenant moves out, your house is vacant and producing no income.  You need to move quickly to get your property re-rented.  Vacancy is a cash flow killer!  For example, if your monthly cash flow is $150 per month on a home that rents for $900 per month and it remains vacant for a full month, you have just lost 6 months of cash flow profit.  Plus, when they are empty, they are more prone to theft and vandalism.

 

Duplexes, Triplexes and Four-plexes – These are the two, three and four unit properties or smaller multi-unit properties.  These also make great first time real estate investments.  The main advantage here with these multi-unit properties is that they will still produce income when one unit becomes vacant.

 

Another advantage for the newer investor, you can often get the same types of loans mentioned above with single family homes.  This is because Freddie Mac and Fannie Mae, the buyers of these loans, treat these multi-unit properties the same way they treat single family homes.

 

These smaller multi-unit buildings can still possibly be sold to owner occupants.  So the market for these properties is a little stronger than it is for others.  They can often be sold to someone like me perhaps.   When I was beginning my investing career, I wanted to generate some extra income so I bought a duplex and lived in one side while I rented out the other.

 

Apartment Buildings – Apartment buildings are properties that contain five units or more.  These types of properties can really be income producers.  However, they can also be real drains if they are mismanaged.

 

Management of these types of properties has to be strong or they can quickly get out of hand.  Tenant issues and faulty maintenance can quickly add up to a negative cash flow situation.  You might think you can hand this type of property over to a property management company.  But if you do not know how to manage your property or manage the property management company, you will end up on the short end of the stick every time.

 

Financing these properties is also much harder.  Say goodbye to 30 year loans that you can get with the above properties.  To purchase these types of investments, you will most likely need to go to a local bank and get an officer’s line of credit or commercial loan.  These loans have significantly higher rates and much shorter terms.  Often terms of 5 years or less.  In this way they are very much like commercial or industrial properties.

 

Selling these properties is also much harder than with other types of residential investment properties.  Think about it.  Who is going to buy these types of properties?  Certainly not a retail buyer, but another investor who is going to be looking at the same cash flow numbers you were when you bought the property.  In other words that investor will be looking for a deal just like you were.

 

What should you buy if you are just starting out?

 

I would suggest starting with a duplex, triplex or four-plex.  You can generally get decent, long term financing.  They will produce income with multiple units as opposed to sitting vacant.  The resale market is fairly good for these types of properties.  These three factors help reduce the risk for you first time investors.  If these types of properties are not available where you live, then go for single-family homes in stable neighborhoods for many of the same reasons.  Whatever you decide to do, do get into real estate investing today.  Make it a goal to buy one or two investment properties this year.  The combination of low prices and low rate may not be seen again for a long, long time.