SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Real Estate Investing

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.

The Importance of Networking

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Smarter Landlords always take the opportunity to network.

Networking is simply meeting and greeting different people, telling them what you do, exchanging business cards perhaps and basically establishing a professional relationship.

You might think that networking is not very important for the buy and hold type investor.  But it is.  Because you never know where a deal might be or when it may pop up.

Here is an example.

Someone you briefly met last year and exchanged business cards with has just inherited a house he does not want.  He remembers you buy real estate, finds your card and gives you a call.

You may have just gotten a great deal on a rental property.   But what if it is not in an area you want to invest in?

Well, because you have been going to your local REIA meetings, you know folks who do invest in that area.  You make a few phones calls.

Another investor says he will purchase the property.  You put the two together.  He buys it, fixes it up a little and flips it to another buy and hold investor.

You get paid a finders fee.  Your fellow investor makes money from a flip.  Another investor has a cashflowing asset and the original property owner is glad to be rid of something he saw as a problem.  Everyone is happy and a little bit better off due to a little bit of past networking.

Networking works!

Your networking goal is to let as many people as possible know you are in the real estate buying business.  It does not matter if they are in real estate or not.  Let them know what you do and how to contact you.  Your networking strategy should involve many approaches.

Always carry business cards and hand them to everyone you meet.

Attend local REIA and other professional group meetings.  Our local REIA has a time and place specifically set aside for networking.

To the new guy, networking is not always the easiest thing to do.  You have to force yourself to get off the wall and get out there and talk to people.  I had to learn this myself and I am still learning it today.

Smarter Landlords remember that real estate is really a people business, and the more people you meet, the more they can help you.  This is the power of networking, you helping others and others helping you.

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

Teach Your Tenants to Help You

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I wrote previously about tenants being the eyes and ears of your properties.  Tenants can really save you some serious time and money if you listen closely to what they are saying.

In this post I want to talk about another way your tenants can help you save time and money.  All it takes is a little bit of teaching and training on the front end at  move in.

The key here is to understand that tenants are not homeowners.  They likely have never owned and therefore never learned about a house and its systems.  They do not know how the electrical and plumbing systems function.  They also don’t know how appliances work except that you push the “on” button to make it go.

Your job as a smarter landlord is to teach them about some of the basics of these systems.  Once you do that they will be able to help you solve minor problems which will in turn save you time money and even aggravation

So here are some of the basics we go over with new tenants to help them help us.

  1. The Breaker Box – Do not assume that your tenants know how to work breakers or even what a breaker is.  We show our tenants the electrical breaker box and how breakers work.   We explain what a tripped breaker is and tell them what it causes.  We then show them how reset it the breaker.
  2. Gas Cut Off Valves – We show our tenants how to shut off the gas.  We explain what gas smells like and instruct them if they notice a faint smell of gas to shut off the gas and call us right away.
  3. Water Cut Off Valves – We like to show our tenants where the various water cut off valves are located and how they work.  Surging water can cause major damage really fast.
  4. Appliances – We explain how to run the washer and dryer.  Many just do not know that you cannot wash all of your rugs at once.  They also do not know that a clogged lint trap or vent pipe will prevent the dryer from heating properly
  5. HVAC System – Believe it or not, we once got a call that a tenant’s heat was out.  After going over there, the only problem was that she had hot turned the thermostat to the heat setting.  Now, we show them how to the thermostat works.   Plus we explain the importance of changing filters and also leave a few filters near the HVAC unit.
  6. The Toilet – I once got a call late one night from a tenant telling me the toilet had broken completely and was unusable.  When I got there the pull chain from the flush handle had come off.  The toilet was certainly still usable.  So now in addition to the cut off valve, we also explain the inner workings of the toilet tank.

By showing tenants these few items you can really save yourself some time, money and aggravation.  Your tenants will now be able to flip that tripped breaker, turn off the water until you get over there tomorrow to check it out and not ruin your washing machine by washing every towel at once.  It does make things a little bit easier.  Helping them learn helps you.

What’s The Rent?

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Smarterlandlords want to maximize their investments by maximizing rental income.  That means they need to be charging top dollar for their rental properties.  Problem is, how do they know what to charge?  Here are some tips and tools to help.

 

 

 

  1. Talk to other landlords.  Most have no problems telling you what they get in rents because they want to verify what they are doing as well.  Where do you find other landlords?  You can find then at your local REIA.
  2. Scan Craig’s List.  Most landlords will put “for rent” ads up on this site.  You can refine your search in a variety of ways and target your market.
  3. There are several other tools available online.  Use them to establish a base.  But be careful.  Some of the data on these sites can be a bit misleading.  So know your market. Here are a few of the most popular.
    • Hotpads.com – The place to find your place.  Do a search here like you would for Craig’s List.
    • Rentmetrics.com  – Claims to be real time rent comparable data for real estate professionals.  I took a look around for my area and was impressed.
    • Renometer.com  – Paying too much or charging too little?  Cool site but it gave me quite a range for my area.
    • Zillow.com – Search the for rent section to see what you can find.  This site is nice, but it also gives me quite a range.

Remember however that these websites only show what rent was being asked for.  They do not really show you what the landlord actually got in rent.  So again, use these sites as a starting point.

  1. Finally, depending on your market, you may have to drive around and look for “for rent” signs and give them a call.  Some markets are just not going to be as accessible on the internet.

Once you have done your research, try putting your property on the rental market for as high as you think it can go.  If it does not rent in a week or so, you are likely asking too much, drop the price until you find a renter.  Only then will you truly know how much the rent is.

Herding Cats

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Previously, I wrote about having your offer accepted.  In that article, I touched on some of the major items that you will need to keep up with, such as inspections and appraisals.  There are however a whole host of other things that you need to keep up with as well.  In fact getting to the closing table can sometimes be like trying to herd cats.

Real estate transactions involve several players.   Each player has their own role to play in you having a successful closing.  There is your attorney, the seller’s attorney, each attorney’s assistant, the lender, the lender’s assistant, the appraiser, the title searcher, the insurance agent, the bank inspector, the termite inspector, etc., etc.

Keeping up with all of this can be a challenge.  But, if you want to close on your deal by the date defined in your contract, it is in your best interest to make sure all of these players work together.  In other words, get used to herding cats.

Many of these players are swamped with other projects and real estate deals.  Yours can easily get lost in the shuffle.  I have not seen a real estate attorney’s office yet that was not stacked floor to ceiling with files.  So you have to protect your interest in getting the deal done.  No one else will care like you will.

What you as the smarter investor need to do is start a simple file as soon as you offer is accepted.  Yes, get an old fashioned legal sized file folder, write the address of the property on the tab, and put a copy of your signed contract in the file.  Then attach this Closing Information Sheet on the front cover.

This Closing Information Sheet is the one we use to keep up with our closings.  It lists all the players, gives dates when things like appraisals are due and provides a checklist to make sure we do not miss anything.  Feel free to download a copy of it here.  You will be thankful you did.  Because when herding cats, you need all the help you can get.

How to Save Money for Future Investing

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Training yourself to build a consistent savings will eliminate so much stress and uncertainty in life. You will be adequately prepared to deal with unpredictable expenses and you will be positioned to make serious real estate investments in your future.

So, why do we make excuses?

I’ve copied down a few of the tactics and tricks that helped me develop consistent savings. Savings coupled with reducing your expenses are the keys to financial flexibility.  I’ll discuss reducing expenses next time.

1. Increase the Inconvenience
Using the same bank for your checking and savings accounts is too convenient! It makes it too easy to borrow from your savings. That’s why I tell everyone to open their savings account at a different institution than their checking account. To INCREASE the inconvenience, I opened my savings account at a credit union whose hours of operation mirrored my own office hours. What are the chances of you leaving work just to borrow a few dollars from your savings? I don’t think so. You don’t need to buy those shoes anyway.

2. Payroll Deduction
If you have the option, have your savings come directly out of your paycheck and into your savings account. If you don’t ever see it, you won’t ever miss it. This worked so well for me that I continued to increase my payroll deduction every time I got a pay increase.

3. Know Where Your Money Goes
This may sound like a no-brainer, but seriously, know where you spend your money. Make a budget of necessary spending as well as monthly luxuries. After analyzing my spending, I realized I was eating out way too much. If you earn $10 an hour, and those shoes cost $70, think about it. Are those shoes worth a full day’s work?

4. Spend it all on Pay Day
Pay all of your bills the day you get paid. If you aren’t afforded the option of payroll deduction for your savings, then pay into your savings like it’s a bill. After all of your bills are paid, portion out what is needed for groceries, gas and reasonable “rewards” for budgeting responsibly. If there is a larger than expected balance remaining, then put most of it in your savings. If you wait to pay your bills, you will nickel and dime your savings away before you ever see it.

There will be surprises; there will be set backs. Don’t get discouraged. Everyone is different, and you should develop your own savings strategies based on how well you know yourself. For instance, I never allowed myself a “reward” for responsible spending. I saved it all. If I had just experienced a sizable set back to my savings though, I would find justification for treating myself. Yes, it made an even bigger dent to my pot of savings, but it kept me on track.

Which is more important?

Why I Became A Real Estate Investor

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I have always rented: rooms, apartments, town houses, single family homes—the works.   My parents have always rented too.   They worked hard to provide for me, but I wish they had worked smarter.

Working smart is having assets that work for you.

Unless you have revenue generating assets, your income will always depend on the hours you punch on a time clock.   Building wealth and financial stability is about diversifying your revenue streams.   Diversification will provide you with an additional level of stability in the event that you’re laid off or suffer from a severe medical condition.

I’m young but I’m all about preparation.   There are many reasons why investing in real estate can be advantageous.   Here are 5 reasons why I became a real estate investor.

1. It is not rocket science.
Properties appreciate alongside inflation.   The longer you own an investment, the more it is worth.   As a notoriously indecisive person, I enjoy the options that appreciation provides.   I can sell it for a profit down the road, or I can refinance and leverage the equity to continue investing.

2. I learn valuable skills.
Unlike undergraduate school where I spent thousands of dollars to learn things like existentialism, the skills I have learned during my time in real estate are functional.   As long as people live in houses, there will always be a demand for carpenters, plumbers, painters, etc.   If all else fails, I could make a living as a handy man—not to mention the money I save by doing repairs on my own.

3. I can increase the value of my investment.
Unlike stocks or bonds, a real estate investment is something that you can directly and immediately affect.Sweat equity can go a long way, increasing the property’s value and increasing its rent revenue potential.   I enjoy the work too; so, it’s a win/win!

4. Cash flow is king.
The revenues generated from my rentals cover my mortgage—in addition to padding my pockets.   Someone else is paying for my retirement!   I’m able to save at a higher level than before too, which affords me some of life’s luxuries, as well as the ability to continue investing.

5. I can be proud.
The most rewarding part of being a real estate investor is the difference that you make in the community.   It’s incredibly satisfying to see an abandoned property return to its former glory. I want to be a catalyst for systemic change, and real estate can afford me the opportunity.   I also enjoy being a fair landlord to deserving tenants. Too many companies take advantage of tenants through crafty lease language—or by neglecting their duty to maintain the property.   I know because I have been there.

I’m proud to be an investor.

So what are your reasons?

 

My Offer Was Accepted, Now What?

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You have gotten to know your market.  You have a pretty good idea of what a good buy and hold deal is. You just negotiated an offer.   It got accepted.  It is your first deal!  Now what?

That depends on what is in your purchase contract and how you are planning to purchase the property.  No two contracts are the same but most have several standard parts.  These can include:

  1. Buying the property “as is.”
  2. A property inspection period.
  3. A review of leases and financials.
  4. The need for some type of financing to close the deal, likely from a bank.
  5. A way out or escape clause.

So let’s go through each one.

  1. Many investors buy investment properties as is.  Buying a property “as is” means exactly that.  You are buying the property as it is where it is and the seller will not make any repairs.  It is incumbent upon you to know what you are getting into and what, if any, repairs and upgrades are needed and what they will cost.  To find all this out you need an inspection period.
  2. Just because you are buying a property “as is” does not mean you should not inspect it.  In fact you should!  During initial negotiations you may only have seen portions of the property.  Now is the time to see it all.  Your inspection should include all rental units, attics, basements, crawl spaces, roofs, etc.  Anyplace you can get into.  If you are new to this, you may want to hire a property inspector or at least take a trusted contractor with you.  During this inspection period you should be doing two things, making a list of repairs needed and looking for major damage and/or problems you were not aware of.  If you find major damage or problems, it may be time to go back to the negotiating table.  If the seller will not renegotiate, use your escape clause and back away from the deal.
  3. Get copies of all leases and at least two years of past income and expense reports.  Read these over carefully.  You will be inheriting the tenants and they come with certain rights.  You can’t just kick them out because you are the new owner, you will have to live with them for a while.  Be sure you are aware of what you are getting into.  Make sure utility payments jive with what you were told for example.  Do the tenants really pay them, or are they listed as expenses on the expense report?  Depending on what you find, you may need to renegotiate.  Again, if the seller is unwilling to do so, you may need to back away from the deal.
  4. Finally, if you are getting bank financing, there will be an appraisal.  Always, always, always go to the appraisal and meet the appraiser.  This person can make or break your deal depending on how they value the property.  Be helpful to the appraiser.  Take them some comps if you can.  Hold their measuring tape for them.  Explain to them, or better yet provide a list of the repairs and upgrades you plan to make.  Do all you can to ensure the appraisal goes well.
  5. This is pretty self explanatory.  If something goes wrong, such as unexpected and costly repairs, you need a way out as we see in 2 and 3 above.  But only use it if you absolutely have to.  If you make an offer, you should have every intention to close.

Assuming all is in order and has gone well, your next job is to secure insurance for the property.  Find a good insurance agent who understands your market and understands investment property.  Trust me, not all of them do.  You can often find one at your local REIA.

Finally, develop a checklist to make sure all of these various pieces get placed in their proper slots.  Do not just assume that the appraiser has the proper address to send the appraisal.  Do not just assume that your insurance agent has sent the proper forms to the right places.

It is your job to follow up with all of these people and make sure that everything gets to the right place in time to close.  E-mail the bank to make sure they have the appraisal scheduled and that they receive the appraisal when completed for example.  Nobody else cares about this deal as much as you do and often times you need to expend some energy to get all the pieces together.

Only then, once it all has been fitted together, then maybe, you will close on your first deal.  Congratulations!  Now the real fun begins.