Investing in Distressed Property and Foreclosures? Here’s Advice from the Experts

Distressed Property and Foreclosures- Expert Advice in Investing-150x150Foreclosed and distressed properties are a good real estate investment because their price is usually significantly below market value. When the owner of such a property defaults on their mortgage payments, the property goes into foreclosure and the bank or debt collector starts the selling process in order to collect the mortgage payment.

One third of all the homes sold between 2008 and 2011 were foreclosed and distressed. These properties are listed for prices 40-60% off their initial market value, and are a good deal for real estate investors. However, the possibility of making a profit with these properties will attract a lot of investors, so you will most likely have to win a bidding war before you can purchase a distressed or foreclosed property. Another issue that you may encounter is that foreclosed and distressed properties will usually need to be repaired before they are resold. Here are the top 10 tips for investing in distressed and foreclosed properties.

Top 10 Tips

1. Get pre-qualified for a loan. Unless you have enough cash to buy a property, you will need to take out a loan. Lenders will only consider serious offers, and you might not be able to bid on a property if you are not pre-qualified for a loan. However, if the home is too damaged, lenders might refuse to give you the loan, which means that you will have to take out another loan for repairs, or invest some of your own cash.

2. Research the area. Buying a nice home in a bad neighborhood is not a great idea. If the surrounding properties are in bad shape, they will most likely drive down the value of your investment. On the other hand, buying a damaged home in an upscale neighborhood will bring up the value of your investment. Renovating the home will also increase its value.

3. Have a professional home inspection. Foreclosed and distressed homes are sold “as-is”, making a professional home inspection a very important part of buying a property. Once the sale contract is signed, you will be responsible for any damage that the home might have. Besides giving you a clear picture of what shape the home is in, the professional inspection will also give you an estimate of how much it will cost you to renovate.

4. Be ready to make some repairs. Many times, when previous owners are evicted, they do intentional damage to the property. After the housing market crashed a few years ago, many people left their homes in a deplorable state, while others even stole kitchen appliances or light fixtures. Another thing that can happen to a home if the previous owners have been evicted is that it can become an easy target for vandalism.

5. Advertise. In order to find good deals on properties that are facing foreclosure, you need to advertise to their owners. A good idea would be to use bandit signs in areas with a high foreclosure rate. Another thing you can do is post classified ads in local newspapers, or on local websites. This way, you will find desperate sellers, and not be restricted to bidding on properties that your competition will also be bidding on.

6. Buy from people who are forced to sell. Buying from a seller who is only thinking of selling won’t guarantee a good deal. But buying from someone who is forced to sell because they are facing foreclosure or have other issues will most likely get you a good price.

7. Be careful when making estimates. Especially if you plan on remodeling or renovating a home before reselling it, be very careful when estimating how much money you will have to invest in the repairs and improvements. A small mistake when estimating these costs can become very expensive for you, and you might end up with a home that is hard to sell.

8. Contact lenders directly. Not every foreclosed or distressed property will be listed publicly, and some may be outdated. By contacting lenders directly and finding out if there are any foreclosed homes in the area, you could even find properties that are not yet listed, which gives you the advantage of being the first one to negotiate their price.

9. Make serious offers. While lenders and owners are in a position where they want to sell the distressed property as quickly as possible, making an offer that is too low won’t work. The home’s price will most likely be based on other sales for similar properties in the same area, so researching other sales should give you a good idea of how much you should offer.

10. Know the law. Many states have laws regarding foreclosure, made to help the home owner. In some states it takes up to 12 months for the foreclosure process to end, so make sure you know the laws before you make a purchase and find that you have to wait months before actually getting possession of the property.

When investing in foreclosed and distressed properties it is important to act fast, know what you want and, most importantly, have knowledge of the foreclosure process. Arming yourself with these top 10 tips will increase your chances of making a good investment, whether you are just starting out or you are a seasoned investor.

Why Should You Invest in Real Estate Property?

Why Should You Invest in Real Estate Property-150x150When the recession hit and the housing market started to decline, a lot of investors abandoned the real estate world and started investing in other industries. While relatively slow for the time being, the real estate industry has started to recover and attract old and new investors.

When investing in real estate, if you cannot pay for the property with cash, it is very important to have access to a lender that will accommodate your needs and budget. Knowing people in the real estate industry, such as agents, appraisers, and even home improvement companies can give you the upper hand over other investors. Also, researching the property that you are about to invest in is an important aspect of being a successful real estate investor.

Advantages of Investing in Real Estate Property

Depending on the housing market and many other variables, investing in real estate can be a very profitable business. Here are some of the advantages that you will have:

1. Profit. Finding a home priced low enough and realizing its potential can result in some big profits. Buying a home that is in foreclosure, close to being foreclosed on, or in need of repairs or improvement, is a great opportunity for making a profit. You can buy this home for much lower than market value, repair or improve it, and then sell it for a higher price, netting you a nice profit. Also, renting one or multiple homes that you have purchased will result in ongoing income.

2. Lower taxes. Buying a home will allow you to deduct many expenses, such as the mortgage interest, property taxes, insurance, repairs, and even profit that you make from selling the property.

3. Using leverage. Purchasing a home and increasing its equity without spending your own money is an important part of being successful in real estate investing. High equity will help you save on the mortgage while making profit.

4. Appreciation. Your property can increase in value over time depending on factors such as supply and demand or inflation. Small improvements or repairs can also influence the selling price of your investment significantly.

Real Estate vs. Other Investments

Real estate seems to be the best choice when considering investing your money. The world economy is slowly recovering, but its fluctuations have a big effect on other possible investments, such as gold or stocks. Owning a home has some clear advantages that were enumerated above, besides being a good investment. Besides those advantages, home prices and current mortgage interest rates are very low right now and probably won’t go lower, but will start to increase soon. Other advantages to owning a home instead of other investments are:

  • Having more control over your investment. A home gives you more control than, for example, stocks. With stocks, you depend on big corporations and executives, who don’t make decisions based on your financial situation. If you have a home or apartment that is not being rented, you can always lower the rent, or create other incentives to attract renters.
  • More options. Whether you need some fast cash or passive income, there is a real estate investment that can accommodate you. With stocks or gold, for example, you don’t have many options besides buying or selling.
  • A tangible asset. A home can be rented, sold, or you can live in it. You own the property or the land, and this can give you a lot of peace of mind. Being defrauded in real estate is much harder than in stocks, because you can visually inspect the property or talk to the tenants face to face.

Every investment has pros and cons, but it seems that real estate is the one that offers you the most control, stability and options. But, like all investments, investing in real estate highly depends on your knowledge and financial situation.

 

 

 

How Do I Find More Deals in Real Estate Investing?

Q&A- How Do I Find More Deals in Real Estate Investing- 150x150Question: How do I find more deals in real estate investing?

Answer: Honestly speaking, you don’t usually just find obvious real estate deals. Most of the deal lies in the negotiation process. There are three things you need to determine:

1. Why does somebody want to sell; what are they looking for?
2. What problems do you have to solve?
3. What are your proposed terms for negotiations?

But before you really go out there and start looking, you need to be very informed about real estate investment. Here are a few tips to help you get the best deals possible:

Tips and Tricks for the Best Deals

  • Find out what the insiders know

You must think and act like a professional in order to find a great real estate deal. First, you should know that residential properties are valued differently from commercial properties. For instance, you will make more money from multiplexes than single family homes. Leases on single family homes are also longer on average than those on multiplexes. In general, a multiplex commands a higher cash flow than a single family home.

  • Develop a plan of action

First of all, you should know specifics about things on your end. For instance, you need to know how much you can afford to pay, who the key players in the negotiation process are, your perceived profit you would make on the deal, the number of tenants occupying the property already, how much rent they pay, and any other questions that need to be answered.

  • Recognize a great deal fast

A residential real estate professional recognizes a good deal very fast. But how do they do it? The secret lies in their exit strategy. A good RE deal is one from which you can walk out easily when things are not working according to your plans. A keener look at damages that require repairs and the overall risk is a good start. Use the financial calculator to know if and when your financial goals will be met.

  • Acquaint yourself with the fundamental real estate metrics

Essentially this means that you need a deeper knowledge of the real estate market. The key metrics you need in order to assess residential real estate include the:           

1. Capitalization rate- it is used to calculate the net value of income generated from the property. It estimates the Net Present    Value of future cash flows or profits, a process better referred to as capitalization of earnings.

2. Cash on cash- this is a formula used by residential real estate investors in comparing the performance of their properties to others after the first year. This formula takes into account the fact that an investor does not necessarily require all 100 percent of cash in order to buy the property in question because some of the cash will be used to make mortgage repayments. In order to uncover the cash level, the RE investor must first determine the initial investment required to purchase the property.

3. Net operating income- it is determined by valuing the property’s gross operating income of the first year and then deducting all the operating expenses incurred during the first year. The RE residential deal is worthwhile if the net operating income is positive.

  •   Know the seller’s motive

The motive behind selling helps you to find a desperate seller who can throw away below the market value. If the seller isn’t willing to negotiate the price then they are not motivated enough to sell quickly. This, in a way, should be a red flag.

  • Check the neighborhood

Assume that you are the tenant in that residential property and the things you will need around you. If the property is located closer to social amenities like schools, shopping centers, a city, and highways, then the property will not only be in higher demand, but it will also mean more profit.

  • The three-pronged approach of property evaluation

You ought to be very diligent when searching for residential properties for sale in the market. The three most recommended searches are the internet, hiring bird dogs, and local classified ads. A real estate bird dog will help you find a great deal in exchange for a small fee.

Tips from the Pros: Become a Successful Real Estate Investor

Tips from the Pros- Become a Successful Real Estate Investor- 150x150Investing in real estate can be very rewarding, but it can also prove to be very challenging and demanding. Patience and knowledge are very important parts of being a successful investor in this industry. When it comes to investing, everyone has different goals and aspirations, but there is one thing that all investors have in common: they invest in order to make money. Here is a list of the top 10 tips that will help you become a successful real estate investor.

Tips from the Pros

1. Do your homework. There are many important aspects to investing that you need to have a good grasp of before starting, including having a good understanding of your local real estate market as well as the negotiation process, how buying and selling properties works, and what type of financing to use. By doing your homework, you will have the advantage of knowing how to find the best deals, realizing when someone is trying to scam you, and how best to approach the process. Investing in yourself is the first and most important step in becoming successful in this industry.

2. Make realistic offers. The recent economic crisis made the housing market crash, which resulted in a lot of properties being foreclosed on or becoming distressed. Prices on these properties are very low, which makes this an ideal situation for real estate investors to make substantial profits. Unfortunately, this has created a lot of competition, which means you can’t make low-ball offers. Still, be careful not to make offers that are too high; you have to find the right balance when making an offer. Banks and owners with distressed homes are in a hurry to get rid of these properties, but that doesn’t mean that any offer will be accepted.

3. Have financing ready. Say you find the perfect deal, the owner accepts your offer, but you didn’t start looking for financing in time. Not being pre-approved for financing will most likely result in you losing that deal, unless you have enough cash to pay for the property. The owner will probably be in a hurry to sell so, by the time you find a lender, they will accept someone else’s offer, and you will lose the deal as well as the time you put into finding it. Finding a good lender and developing a relationship with him will save you the trouble of losing great deals because you weren’t quick enough.

4 Overestimate your costs. Many investors lose money or barely break even because they haven’t correctly estimated the amount of money that they have to use for home repair and improvements. When making estimations, it’s recommended that you overestimate the cost of the repairs and underestimate the cost of the property after repairs. Some homes can be in really bad shape when you buy them, especially if they are foreclosed homes, which makes it even harder for you to clearly estimate renovation costs. The previous owners may have intentionally damaged the house or apartment because they were being evicted, even stealing home appliances or lighting fixtures.

5. Focus on the local real estate. When people talk about the real estate market, they usually refer to the national market. Fortunately, the prices on the national market don’t necessarily reflect local real estate prices. The best thing you can do is find the area that you want to invest in, and then try to only focus on specific sections of this area that seem like they would be the best to invest in.

6. Avoid speculation. The surest way to make money in the real estate industry is by investing for value. Buy property based on its current and future value, instead of buying property hoping that the price will increase in the future. Speculation is a lot like gambling, and can put you out of business and leave you indebted before you even realize what happened.

7. Invest in areas that you know. Especially if you are a new real estate investor, concentrating on areas close to your home is a great idea. Knowing the area will help you observe the trends in sales and rentals much easier, and act faster when a property comes on the market.

8. Understand that you will make mistakes. Everyone makes mistakes, even the top players in the real estate industry. The only difference is that they have recovered and learned from those mistakes. Don’t look at mistakes as setbacks, but steps in the real estate investment learning process. Of course, this whole learning process will be a lot easier if you also learn from other people’s mistakes and try to avoid making them.

9. Develop relationships. Relationships are extremely important to the real estate industry. Whether you like it or not, you need to develop your people skills and make as many relationships as possible with people in the same business. Having good contacts with lenders, construction companies, and real estate agents will make your life a lot easier. LinkedIn and Twitter are great tools to help you with this.

10. Start small. Starting small means that you will have less risk involved and it will help you better understand what you need to do in order to become a successful real estate investor. Many investors fail in the beginning because they think that they know enough already when they are starting out. Starting small allows you to apply what you have learned and see if you have what it takes.

Like many others have done, you can achieve financial success by investing in real estate, but it all depends on your goals, knowledge, and work ethic. Following these top 10 tips will help you get on the right path to becoming a successful real estate investor.

10 Mistakes Others Make When Flipping Houses, But You Won’t!

10 Mistakes Other Make When Flipping Houses- 150x150House flipping is the process of buying a house under market value, renovating it if it’s needed, and then selling it at market value for a profit. Flipping a house is a good way to make money in the real estate industry, but it’s not as easy as it looks. TV shows on home improvement channels make it look a lot easier than it is, but the truth is that you will face a lot of competition in this business, especially nowadays.

Finding a house that is priced at least 30 percent under market value is hard, and once you do, you need to move fast. Having access to cash or financing, and being ready to start the home’s rehabilitation right away will make a big difference in house flipping. Acting too late will result in losing good deals and, even worse, money. Here are the top 10 mistakes that you should avoid when house flipping.

Mistakes to Avoid

1. Underestimating the cost. Over spending is probably the biggest mistake you can make when trying to flip a house. It’s better to overestimate the cost before buying the house, than to realize that you have to pay more than you budgeted for to renovate it after you have already bought it. The value of the house will always be relative to similar houses in the area, no matter how much money you invest in its rehabilitation. Asking significantly more than similar houses go for in the neighborhood is unrealistic, and will result in not being able to sell the house.

2. Paying too much. If you pay too much for a house, you will most likely make only a small profit or even no profit at all. When buying a house with the intention of flipping it, you should always make sure that the price is low enough to allow for rehabilitation costs. Theoretically, you should already have a profit when you buy the house. The rehabilitation will be just a nice little bonus.

3. Not having a budget. Over spending on a home’s rehabilitation can also be the result of poor money management. Having a budget will allow you to better estimate how much you will spend on each area of the house. Be careful when establishing a budget, because there will always be unexpected expenses, like hidden damage, that will make the renovation cost more than you anticipated. Don’t buy the most expensive appliances or fixtures. Have a look at the other similar houses in the area to get an idea about what you will be competing against when you put the house on the market.

4. Unreasonable time frame  With flipping houses, you have to be quick, but also realize that the whole process of buying and rehabilitating a house will not happen overnight, like some house flipping shows on TV will have you believe. Having a plumber or electrician ready to start working right away helps a lot, but they can only give you an estimate of how much the job will take only after seeing the house.

5. Allowing buyers to see the house before it’s on the market. You might be eager to start attracting customers as soon as possible, but putting up the “For Sale” sign before the rehabilitation is done will not make a good first impression on potential buyers. Showing a house that still needs work to buyers will not be in your advantage, so it is better to finish the rehab, even though it’s going to be a while longer until you can put the house on the market.

6. Not doing things yourself. Hiring someone to do things like cleaning the trash or taking old appliances to the dump will cut into your profits, and it’s something that you can do yourself. You can even do small repair tasks like changing light bulbs, or even fixtures.

7. Doing all the work yourself. Doing some of the work yourself is not only recommended, but it will also cut costs. But tackling big jobs, like fixing the roof or the plumbing, can quickly prove to be much harder than you initially thought it would be, so it is better to leave this type of work to professionals.

8. Not salvaging bath, kitchen and lighting fixtures. You don’t necessarily have to replace dirty or stained fixtures, such as sinks, faucets, toilets, or bathtubs. Of course, replacing them is sometimes easier than scrubbing for a few hours, but it is also more expensive. Salvaging things that only need to be cleaned is a lot more profitable than just throwing them away and buying new ones.

9. Ignoring the exterior. Being the first thing that buyers will see, the home’s curb appeal is very important to creating a good impression. Home buyers are looking for the entire package, a house that looks appealing inside and out. Having an unattractive exterior may keep buyers from wanting to see the interior.

10. Over-remodeling or under-remodeling. Don’t invest money in the most expensive appliances or fixtures that you can find. This is a sure way of killing your margins. On the other hand, cutting corners will turn the buyers away. Your best bet is to use common sense when rehabbing a house in order to flip it quickly and effectively.

Using these 10 tips when flipping houses will improve your chances of selling it faster and for a better price. Don’t get caught up in the same mistakes others have made. Doing research will get you one step ahead of the competition and on your way to becoming a successful house flipper.

Is Flipping Houses for You?

Is Flipping Houses for You- 150x150TV is great. Commercials make us think we can almost do the impossible if we buy a certain product. The do-it-yourself shows make every project look easy to complete. House flipping, for which there is not one, but two different cable TV shows, is one of those projects.

Although it’s an old investment technique, thanks to television, the concept of house flipping is now mainstream. Entire cottage industries are blossoming around it. Late night infomercial kings tout their educational books, seminars and programs that promise to teach the amateur real estate investor, with very little money, how to become a house flipping sensation and live the highlife.

It’s hard not to buy into the come-on. Flipping houses looks so easy, doesn’t it? While it’s true that real estate investing can be lucrative, there are a few things you need to know in order to be successful. So, before you head out the door to find that old shabby place that’s sure to make you ridiculously rich, set down the checkbook and let’s take a look at flipping, from start to finish.

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House Flipping in a Nutshell

If you buy a house with the sole intention of quickly reselling it for a profit, you’re a flipper. The operative word in the definition is “quickly,” while the operative concept is the tried-and-true “buy low, sell high.” Buying a house at or below market value with the hopes of selling it for a profit some years down the road is wise, but it’s not flipping.

House flippers may or may not renovate the home before flipping it. The typical investor, though, chooses an investment property located in a good neighborhood that needs a certain amount of cosmetic updating, renovates it and then puts it back on the market.

Then, there’s the middleman – the real estate wholesaler. This type of investor locates the properties and makes the deals with the sellers to buy houses for below market value. Then, sometimes before the ink dries on the purchase agreement, the wholesaler flips the property to a rehab investor, pocketing a few thousand dollars for his efforts

How House Flippers Locate Properties

Some real estate investors specialize in a certain niche, such as foreclosures or auction properties. Others research neighborhoods until they find one that’s up-and-coming. Then, there are those who look for keywords in real estate ads, such as “fixer,” “seller desperate,” “must sell,” and “handyman’s special.” Wherever there may be a deal, you’ll find an investor looking for properties to flip.

Qualities of a House Flipper

So, what does it take to be a flipper? While people from all walks of life may be successful, there are certain items one needs to get started:

  • Know-how – Do you know what type of house constitutes a good deal? Are you familiar with construction costs? Do you know which remodeling jobs will give you the most bang for your buck? Before purchasing a house, successful flippers factor the rehab cost into the cost of the house to determine if a particular house is flip-worthy. Flippers also need to accumulate expertise before they can become moderately successful at it. Real estate industry experts and veteran flippers agree – flipping is difficult and potentially disastrous to your finances. You’d better make sure you’re familiar with flipping before you make a career out of it!
  • Time – If you have a full-time job, you’ll have little time left for real estate investing and the ensuing rehab work. Looking for properties – especially those that are available for at least 25 percent below market value – takes a big chunk of time. Then there’s the fact that the rehab process, dealing with inspections, and marketing the finished house may take months. It’s hands-on work, too, so you’ll need big blocks of free time to deal with flipping.

Pitfalls of Flipping Houses

Flipping flops are the stuff of nightmares, especially for the amateur investor. There’s always a chance that you won’t sell the house for what you thought you would. There’s also the very real possibility that you may not break even on a flip. Especially with older houses, there may be problems you have no way of anticipating. Because of this, many successful flippers adhere to the “quantity over quality” method: To ensure that they make money, they do a lot of deals.

The house flippers on your favorite DIY channel make it look so easy and so glamorous. Houses go from disaster to dazzling in 30 minutes. If you think you might like to try house flipping, back away from the TV, and educate yourself. There are books, websites and investment clubs available in almost all cities. Learn from the pros – about their successes as well as their failures — so that your first flip doesn’t cause you to flip out – emotionally or financially.

Shannon O’Brien is a real estate expert and staff writer for RealEstate.com. She has over a decade of residential listing and sales experience. Her hands-on experience with home buyers and sellers gives her a unique perspective that many professional real estate writers lack.

 

Mistakes to Avoid When Investing in Real Estate

Mistakes to Avoid When Investing in Real Estate- 150x150Historically, real estate has always been a profitable industry to invest in. Over the past 50 years, real estate investments have become very popular, and have resulted in some big gains for those who know what they are doing. Unfortunately, the real estate industry is currently recovering from the recent economic recession, so investing in the housing market is riskier than ever. This, plus the high capital requirement, and the cash flow dependency, makes real estate an industry in which new investors, and even experienced ones, can easily find themselves not able to keep going due to a simple mistake.

Of course, even with the recent economic issues, a nice profit can still be made from investing in real estate, but it will be more difficult to do so. Let’s have a look at the most common mistakes that are made when investing in this industry.

Lack of Education

Educating yourself by learning from your own mistakes is not an option in the real estate world. One mistake is all it takes to put you out of business, so getting an education is an important part of becoming a successful investor. With so many educational opportunities available today, the only problem you will face is finding the best one. This is not something that you will want to try and save money with. Real estate education might seem expensive, but you will quickly realize that it is cheap if you compare it to what you will earn if you make it in this business.

Lack of Good Research

There are a lot of things that determine a home’s value, such as its size, the materials used in construction, the neighborhood that it is located in, and its condition. These are just some of the main aspects of a home that you should be aware of before investing in it. There are a lot of other things that you should know about a house or apartment before buying it, like if it’s located near public transportation or schools, if there are any construction sites nearby, if the area has flooding or termite problems, how old the home’s appliances are, and many more.

Paying Too Much

Closely related to doing good research on the property, overpaying is one of the main reasons you are not making money with your investment. Looking for a property can be time consuming and frustrating, so you might get a little hasty when finding a good home, and end up paying too much. To avoid this, you must have knowledge of what other properties in the area are listed for and have sold for in the past.

Miscalculating Expenses

Your profit is directly related to how long it takes you to buy the property, make improvements and resell it. Costs associated with making exterior and interior improvements, keeping the appliances running, or making changes to the property can quickly accumulate, so you must keep those in mind before investing in a property.

Getting Emotionally Involved

Many new real estate investors make the mistake of falling in love with a home that they have found on the market, which usually leads to them going out of their way to buy it. Decisions driven by emotion will usually result in a bad investment. Another way in which beginner investors lose money is by getting too attached to a home and not realizing that its value is starting to decline. Selling a property in a timely fashion is important in this business, and you will lose money if you fail to do so.

Not Building Relationships

Real estate investing is much easier if you are part of a team of professionals. It’s tough to make it on your own in this business, especially in this economic climate. Being part of a team, or assembling your own team, can be very beneficial to all the people involved. Aside from that, you need to build good relationships with other agents, home appraisers, inspectors, people who work in home repairs, and lenders.

Many big players in the real estate industry have made one or two mistakes themselves, but they have recovered. It is up to you to learn from their mistakes, and try your best not to make some of your own. Investing in real estate is a tough business which takes a lot of work, smarts, and luck, but the rewards are worth it.