Maximize Your Success as a Landlord with These 10 Tips

Maximize Your Success as a Landlord with These 10 Tips- 150x150Rental properties are great investments, especially in today’s housing market. But in order to become successful as a landlord, you will need to make your tenants happy. Managing rental property is as much about the people as it is about making sure that the building is properly maintained, but there are many more aspects to being a successful landlord. Here are some tips that will set you apart from the “average” landlord, and help make your business easier to run and more profitable.

Tips for Landlords

1. Check references. Don’t rely solely on first impressions or instinct when meeting a new tenant. People who seem great at first impression can become a nightmare in the future, so checking them thoroughly before signing a contract is important if you want to avoid any future headaches. Besides the credit history and background check, always ask tenants for references as well as a list of previous residences and follow up on them.

2. Keep records. In order to succeed as a rental property owner, you must know how to manage your property. Managing a rental property is a lot more difficult than managing a single-family home, so handling your finances in an organized way is the only way to make it in this business.

3. Have a policy. In order to protect your interests and the interests of your tenants, you will need a written agreement that includes the terms and conditions of tenancy. Make sure that this agreement includes many details, such as rules about pets and smoking in the rented unit.

4. Stick to your policy. Being organized is not only more beneficial to you and your business, but it also makes a good impression on tenants. Having a written policy makes your life and your tenants’ life a lot easier because you won’t have to explain yourself each time a tenant asks you why something is not allowed. If you have a written policy, you can just refer people who have questions to the document.

5. Provide quality. If your rental property offers quality, then quality tenants will be attracted. You don’t have to go overboard and invest significant money in remodeling, but providing above average quality will set a standard for the type of tenants that you want to attract.

6. Hire help if you need it. Doing everything by yourself can save you money, but it can also turn into a full-time job. Your involvement in the daily operations depends on how handy you are with repairs, how much time you have, and how close to the rental property you live. If you feel that being a landlord is taking too much of your time, you can always hire a property manager that can take care of the daily issues. This will cut into your profits, but it can also save you time and aggravation.

7. Do regular maintenance. Catching a problem with your rental property early on can save you quite a bit of money. Problems with the roof or the water heater can quickly escalate and cost you thousands to repair. Keep a log of all the appliances and fixtures, the times when they were changed, and when they need to be replaced. This way, you can shop around for better prices and take advantage of sales.

8. Have an emergency fund. Unexpected vacancies or repairs can happen at any time, so it is recommended to have some emergency cash on hand. When things break on your rental property, it is your duty to repair them as soon as possible, and not being able to may attract some trouble with your tenants.

9. Know the local rental laws. Many landlords get into trouble because they haven’t familiarized themselves with the local law. One of the biggest reasons that landlords are sued by their tenants is the security deposit. If you don’t follow the local law, you might end up having to return a tenant’s security deposit even if the tenant has damaged your unit.

10. Set contact hours. Let all your tenants know when you are available, so you won’t end up having to make repairs at night or during holidays. You can also set up a voicemail, so when a tenant calls outside of office hours, he or she can leave a message. However, it is recommended that you allow potential tenants to call at any time when you try to rent out a unit.

Taking care of your responsibilities with the unit and tenants as quickly as efficiently as possible is beneficial to everyone. Being a successful real estate investor and landlord boils down to being a good business person and keeping your tenants happy. By having the right attitude and knowledge, you can quickly turn being a landlord into a very profitable business.

The Three Techniques You Need to Master in Real Estate Investing

The Three Techniques You Need to Master in Real Estate Investing- 150x150Many industries have suffered due to the recent economic recession and are currently slowly recovering. One of these industries is real estate, which is not as profitable as it once was, but remains an attractive industry for investors. Real estate, like many other industries, has recently started to show improvement, and it looks like it will keep improving over the next years.

For someone with less experience and knowledge, real estate may seem like a pretty difficult industry to invest in, especially during these times. Fortunately, by learning a few techniques, any investor who possesses the right determination can make it in this business. In this article you will find the three main techniques that you need to master in real estate investing.

Technique Number 1: Find Rent-to-Own Homes for Home Buyers

A good alternative for people who are unable to get approved for a mortgage loan is the lease purchase. This gives the tenant the option of buying the home that he is renting, but at a later date.

A fairly large number of potential home buyers are unable to obtain a mortgage loan, due to loan requirements becoming stricter. This has created a large number of people and families who are renting because they have no other choice. Lease purchase gives them the option of purchasing the rental before the lease term is up, and even the possibility of allowing part of each rent payment to go towards the purchase price. This is a great opportunity for those who are unable to get mortgage financing, and for the real estate investor.

Because of the housing market being in recovery, you have a significant number of homes that won’t sell because sellers won’t budge on the price. Additionally, there are a significant number of people looking to buy, but can’t qualify for loans. In order to make a profit, you must find a seller willing to agree to a lease purchase option, and then find him a tenant buyer. Bringing the two together will resolve both their problems and get you a nice commission. Because both the seller and the buyer are motivated to move quickly, the transaction shouldn’t take more than a few weeks to finish.

Technique Number 2: Investing in Foreclosures

You could make huge profits from investing in foreclosures, but if you don’t have the proper knowledge, a single bad investment can wipe out all of your capital, along with ambition to invest in real estate.

There are three ways in which you can buy homes in foreclosure: pre-foreclosure, at the auction, or buying from the lender after the foreclosure. Buying a foreclosed property from the lender after the auction is referred to as buying REOs (real estate owned), and it’s the less risky option of the three. The next riskiest time to purchase a property is pre-foreclosure, because the home can have many issues that the seller didn’t disclose. The riskiest purchase is buying a foreclosed property at the auction. You won’t receive any warranty or guarantees that the home is free of any outstanding liens or loans.

The best way to buy a foreclosed property is to find a good REO agent that has the necessary experience to make sure that the transaction goes smoothly and you get a good deal. Sometimes, real estate agents who are specialized in REOs have a few foreclosure listings that need to be sold fast, so they will be searching for an investor who can make the purchase quickly. If you have good relationships with a real estate agent, the first person he calls could be you, helping you secure a good deal in a short time.

Technique Number 3 – Buying Short Sale Properties

Many home owners who have found themselves underwater on mortgage loans might require a short sale. This is a great opportunity for the real estate investor to make some serious profit.

You can negotiate a good price with the homeowner or with the short sale lender, buy the home, and then flip it for a profit. Like in the case of foreclosure investing, finding a good real estate agent can make a huge difference. The agent can locate properties for you, help you with your investment plan, and help you negotiate a better price.

These three real estate investing techniques can make you very successful if you use them wisely. You must remember that not all properties that seem like a good deal are worth investing in. Familiarize yourself with these techniques, with the investing process, and don’t be afraid to consult a real estate agent. Even if you have done your homework, agents have the necessary relationships to help you find great deals faster than other investors, and get you one step closer to becoming a great real estate investor.

The Power of Networking in Real Estate Investment

The Power of Networking in Real Estate Investment- 150x150Question: When it comes to finding out about real estate investment deals quickly, do I just have to network with the right people or is this a “boys club” situation?

Answer: Networking is a powerful tool in virtually any profession, so networking will certainly be advantageous in anything involved with real estate.

It is true that two heads are better than one. One of Warren Buffet’s investment rules is that “if you are alone you will move fast, but if you are more than one you will go far”. Networking is very important in securing success in real estate business. Real estate business networks enable real estate investors to create new relationships and sustainable models for real estate growth.

Networking Opportunities

  • Property Community- This is an excellent resource that enables you to find and join various social groups where you can connect with and meet real estate investors to discuss property trends and other real industry related information on forums. You will also find property listings by types and regions. Property Community saves you money on advertising costs for listings and should increase the likelihood of a fast sale. Also, you can easily ask questions about real estate and receive answers freely throughout the forums. Another benefit lies in the ability to send private messages to group members if you need to discuss a more private matter, such as negotiating a real estate deal.
  • Meetup- This is one of the most popular forms of networking for both formal and informal groups. Meetup.com enables you to find out about any real estate meetings and networks close to where you live. You can also start your own meetup so that others can join. Some networks have over 1,000 members. Most meetups have networking events where you can meet great connections within the industry.
  •  Real Estate Webmasters- Real Estate Webmasters provides you with realtor forums where you can easily introduce yourself and then start chatting about investment prospects. Real Estate Webmasters has links for easily finding properties for sale as well as for finding buyers for your property. You can discuss your experiences with Google, Facebook, Yahoo and Bing and tips for how these can help others. By joining this forum, you will gain access to a wide network of investors and real estate experts. As an investor, you will learn more about link building techniques and other useful online practices. If you want to develop a new website for your property listings, you will be able to meet various real estate web designers with ample experience. There will be a wide variety of real estate and related professionals on the forums so you will be sure to make plenty of worthwhile connections.

Real Estate Investment Clubs

There are usually several different investment clubs in most moderately large to major cities. Some clubs are even formed at the national level and may have local chapters. For some, local clubs may be more beneficial because they will be more tailored to discussion and resources for your area. On the other hand, a real estate investment club at the national level may create more opportunities in different states that may not be easily accessed otherwise.

A real estate investment club enables you to create useful networks, gain investment expertise as well as tips about commercial and residential properties available for sale and purchase currently. These clubs will also help you familiarize with various rules and regulations related to real estate in your local area and nationally. You can ask and answer questions while connecting with like-minded real estate investors who share common goals.

Real Estate Conferences

Conferences are invaluable knowledge centers for real estate investors. By attending conferences, you will gain access to engaging discussions about the future of real estate business and acquire more of the expertise required to achieve success in the constantly changing real estate industry. There will be most likely be a variety of meetings and events going on simultaneously at the conference, giving you multiple chances to network, creating new friendships, business partners, and finding more real estate deals.

Many of your questions will be answered as many professionals from government departments concerned with land and property are typically present. Emphasis will be on current investment opportunities and  future trends in real estate.

The Power of Business Cards

A business card is one of the most powerful networking tools. A business card represents you and your company as a brand. It informs them about your niche within the industry, services you offer, your contact information, and leaves an impression on the person it is given to. Even if you don’t end up working with the person that received the card directly from you, they may pass along your card or your name to others that may end up working with you.

Many real estate investors have formed fruitful friendships by handing out their business cards. There are some cultures that consider receiving a business card a great honor. Designing high quality business cards can improve the image of your business and make a memorable impression.

Real Estate Get-Togethers

They might start as informal groups with a few real estate professionals that you know. Just look at a get together as an ordinary hang out with some buddies. You get to interact with fellow investors, share challenges, ask questions and help one another. These get-togethers may grow into larger groups or simply closer knit groups. You never know, from these you may develop some invaluable real estate investment partners. The group will keep each other updated on new developments in local investments and you’ll be the first to know inside information. This can also save you time and money on advertising if someone in your group leads you to a deal.

The informal nature of a real estate get together means that you don’t incur subscription costs or abide by rigorous rules. They are becoming more and more common because you get to do business with like-minded friends in a sociable manner.

There are so many opportunities for networking in the real estate industry. With all of this information, there’s no excuse for you to not join in! Reap the benefits of a strong and influential network of real estate professionals and see what incredible things happen just because of the people you know.

Pre-Screen Your Leads- It Makes a Huge Difference!

Pre-Screen Your Leads- It Makes a Huge Difference!- 150x150When investing in real estate, one of the most important rules that you should follow is that not all leads are deals. New investors may get excited when they start generating real estate leads as they’re starting out, but a seasoned investor knows that they will never have time to contact everyone, so a screening system has to be used. Some leads have the potential to make you a great deal of money, while others may turn out to be a waste of time, so this is another great reason to pre-screen your leads.

Time is money, so spending too much of it on leads that may turn out to not be good investment opportunities will limit your opportunity to earn big profits from investing in real estate. Even if your marketing is top-notch, and you get a significant amount of leads, it won’t be beneficial if you can’t distinguish leads that you should follow from leads that you shouldn’t.

How to Pre-Screen Your Leads

When you have your first talks with a potential seller, asking the right questions will help you determine if the deal is worth investing in or not, which will, in turn, save you a lot of headaches and money in the future. Here is a list of the info that you should try to acquire when pre-screening leads:

  • Find out why they’re selling. This bit of information won’t directly allow you to decide how profitable a deal is, but it can help you determine how ready the homeowner is to sell his property. Usually, homeowners who really want to sell their home will tell you the reason, while those who won’t, probably aren’t ready to sell.
  • Find out the asking price. Knowing how much a homeowner is expecting to make by selling their home can help you come up with an initial offer much more easily.
  • Find out how much the repairs will cost. You shouldn’t base your decision solely on what the seller tells you in regards to what repairs need to be done, but you can get a general idea. Of course, before buying a home, you should have a professional home inspector look at it to determine if it has any problems that will be expensive to repair.
  • Find out if there are any outstanding debts. Knowing if there are any unpaid loans in the property will help you better determine how much you should pay for the home and how good of a deal it is.

Pre-screening your leads will allow you to avoid making some big mistakes that will cost you money and time, or may even put you out of business. Real estate investing is one industry where you have to be really careful before spending money. Simple mistakes can turn into costly problems overnight, so always make sure that you closely verify all the leads before investing, no matter how appealing they may seem.

Learn About Lease Purchase Investing Now, or Hate Yourself Later

Learn About Lease Purchase Now- 150x150The lease purchase is an alternative way to buy a home, and is especially helpful if the buyer is unable to finance a home immediately, but would like to have the option of buying the home in the future. As an investor, you are not facing more risk by investing in lease purchasing than you would by investing in traditional real estate, and you will most likely be able to close more deals than other real estate investors.

Lease Purchase and How it Works

Buying a home through lease purchase is a home rental lease that gives you the option of purchasing the property at a future date, during the term of the lease. You are required to pay a deposit upfront, and sign a rental lease contract for 1 to 3 years. During this period of time you will have the option of buying the home, which cannot be sold by the owner to another party.

During the rental period, should you decide to buy the home, the initial deposit and part of the amount that you paid as rent will count towards the down payment. If you decide not to buy the home, the initial deposit and the rent that you paid over the years will be kept by the owner.

Lease purchasing can be beneficial to all of the parties involved. It may not be a good choice for everyone, but here is how a lease purchase can benefit the seller, the buyer, and the investor:

  • The seller has a few distinct advantages by giving buyers the option of lease purchasing. The home will be listed for sale and for rent, which will attract more potential buyers. You will most likely receive your asking price for your home because of the delayed sale and more variables that can be negotiated. Knowing that they might buy your property in the near future, your tenant will take better care of your home, and may even make improvements. Last, but not least, the deposit that the buyer will make can help you avoid foreclosure, catch up on your payments, and increase your credit score.
  • Buyers who use lease purchasing have the advantage of not throwing money away by paying rent like in a traditional renting situation. Part of the money that goes towards paying the monthly rent will be used as down payment if you decide to purchase the home. Also, lease purchasing is a great option for home buyers with less than perfect credit, but has significant funds available.
  • Investors are able to control a home in order to generate profit from renting it out to a 3rd party. As an investor, you won’t need a large amount of money to make a lease purchase, as opposed to traditional real estate investing.

Lease Purchase Investing

A lease purchase investor has a few options when investing in a home, such as living in the house or apartment, renting it out for a positive cash flow, or reselling it immediately. In a slow housing market and economy, when a lot of sellers have to sell their homes before going into foreclosure, a lease purchase investor can easily make a profit.

Once a contract is signed, the investor is required to pay a deposit that will later be added to the down payment, if they decide to buy the home. The rent is set, and the investor is given the option of purchasing the home before the lease contract expires. The home’s selling price is set and it will not change for the duration of the contract.

In order to make a profit, the real estate investor can rent the home to another party for more, or flip it for a quick profit. Normally, lease purchasing is advantageous for both the seller and the investor. While the buyer makes a profit, the home owner will manage to pay their mortgage with the rent money that they receive from the investor, or even sell their home for a good price.

Challenges That an Investor May Face

Sometimes the deal doesn’t work out as expected, or the housing market takes a turn for the worse, in which case the investment won’t be profitable anymore. The good news is that, by using lease purchasing instead of a traditional real estate investment, the necessary capital won’t be that large, so you won’t be losing tens of thousands of dollars.

Depending on the state of the housing market, a lease purchase can be a profitable investment.  Lease purchase investing can be profitable for investors and play an important role for tenants in the journey to becoming a home owner, but, like any real estate investment, it features plenty of risk, and should not be done without having proper knowledge of the process.

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.

8 Excellent Lead-Finding Strategies for Real Estate Investing to Adopt Right Now

8 Excellent Lead Finding Strategies- 150x150The most important part of investing in real estate is finding real leads, but you will also find that this is the hardest part. Converting a lead into a good deal is what will eventually lead to profit. Being new in the real estate industry may seem a little overwhelming, and you might be tempted to give up, but the good news is that there are plenty of ways in which you can generate leads. From word of mouth and cold calling to putting up signs and creating a website, there are plenty of ways in which you can find leads for real estate investing.

The main thing to keep in mind is that you should constantly be prospecting for new leads. Dedicating several hours per week to working on your lead generation tactics and finding new ones is very important. Let’s have a look at some of the ways in which you can find real estate investing leads.

Use Bandit Signs

Commonly known as “bandit signs” in the real estate world, yard signs that advertise your business are a very effective way of finding leads. Strategically placing bandit signs in certain areas that you are interested in will lead to more people calling you. However, when using bandit signs, here are some important things to keep in mind:

  • The law. Before you start using bandit signs, find out if the laws in the area allow this. Generally, more upscale neighborhoods won’t allow bandit signs. It is not recommended to break this rule, as this will lead to your signs being immediately removed, and you might also be fined.
  • The size. It is very important for your bandit signs to be readable by passing cars. Spend more money and get larger signs, because they will be easier to see by those who drive by, and you will have more room for your message.
  • The message. Your message should be short and to the point, making it easier and quicker to read. Originality never hurts; it is actually best not to use the same old “we buy” or “we sell” messages, but don’t go overboard, as this may confuse possible leads.
  • The placement. Placing signs near stop signs, traffic lights, and gas stations will benefit you more because these are places where people will stop and actually get a chance to read the sign as well as write down your phone number or website.

Use Newspaper and Online Classifieds

The ‘For Sale by Owner’ section is a good place to look in the local newspaper or on a website. By doing this, you can get in touch with people that have been trying to sell their home or property for a while unsuccessfully, which could result in you getting a very good deal. If a classified ad lists a phone number that is out of area, it usually means that the owner might have relocated for his job or personal reasons, and this puts you, as a buyer, at an advantage, because most of these people will want to get rid of their old home as soon as possible.

The ‘For Rent’ section of the newspaper or website will most likely be filled with landlords who want to get rid of their property or properties. This is one of the best places to look for leads, and where you will be most likely to get the best deals.

Use Business Cards and Flyers

You most likely already have business cards, but it’s a good idea to print some flyers as well. Give them out like candy to everyone you interact with, even to people who you meet at the grocery store. Giving out more than one business card is always a good idea, because you never know which one of the persons that you’re giving them to have a friend or family who might become a lead. Another way in which you may generate leads is by posting business cards and flyers in high traffic areas, such as supermarkets, libraries, or post offices.

Use the Internet

One of the best ways to get leads nowadays is through the Internet. Getting leads online is more cost-effective and time efficient than most old ways. Here are a few ways in which you can use the Internet to your advantage:

  • Build a website. Building a website is now easier than ever, and almost everyone can do it even without spending a dime. A website can help you reach your audience more easily, and allows them to clearly find out what you are offering. Possible leads can contact you much easier through a contact form or social media.
  • Use social media. Not only is social media one of the best ways to reach people today, but it is also mostly free. Use social media websites like Facebook, Twitter or LinkedIn in order to gain leads or develop relationships that may bring in outside leads.

Use Direct Mail or E-mail Campaigns

If you have some money that you are willing to invest into your business, a good choice is to start a direct mail or e-mail campaign. You will most likely have to invest in an address list or an e-mail list, but you can also get these for free if you are willing to do the work yourself. However, you must make sure that you buy these lists from a reputable seller, because usually, once you buy a list, your money is not refundable.

When looking for real estate investing leads you must keep in mind that every person you meet is a potential lead. If they turn out not to be selling or buying a property, then maybe they have a friend or family member who might be interested. Making a good impression on people and being creative is very important in the real estate industry, so you shouldn’t be afraid to try out new tactics.

This Analysis Helps to Determine Property Investment Potential

This Analysis Helps to Determine Property Investment Potential- 150x150Despite the recent economic crisis, investing in real estate is still a profitable business. But in order to make a profit, investors have to determine the value of the property or properties that they intend to buy and estimate how much money they will make from their investment.

New investors in real estate might find analyzing a property for investment potential challenging, due to all of the factors that this process involves. Despite the fact that all of these factors seem overwhelming, determining if a property is worth investing in is not that hard. Essentially it is all about the numbers, as analyzing a property involves looking at its income, expenses, and applying a multiplier to determine its value.

The Process of Analyzing a Property

Properties that have good investment potential are the ones which generate positive cash flow and match the investor’s return expectations. Here’s what you should look at before investing in a property:

  • Calculate a property’s price based on how many units it has if you are investing in an apartment building, or base the price on its square footage when investing in a commercial property. This, of course, won’t be enough to determine if a property has investment potential, but it will certainly put things into perspective.
  • Find out the property’s gross rent multiplier by dividing its price by the annual gross rents that it generates. After you find a property’s GRM, you can compare it to other similar properties in the area. However, properties have different expenses that won’t be reflected in the GRM, so calculating the property’s gross rent multiplier will be only one factor that is involved in analyzing a property’s potential for investment.
  • Calculating a property’s net operating income (NOI) is another way in which you can find if the property is worth investing in. The NOI is calculated by subtracting a property’s operating expenses, such as management and accounting fees, maintenance, insurance, utilities and more, from the income generated by rent. The loan payments are not included when calculating the property’s NOI, but you will need to add a management fee and a vacancy factor in some cases.
  • The cap rate is the most used way by investors to determine if a property is worth its asking price. The capitalization rate is calculated by dividing the property’s net operating income by its price. You should then compare the cap rate to cap rates for the area that the property is located in to help decide if the property is worth investing in. Generally, the cap rate should be between 7 and 12 percent.
  • Another factor that can help you determine if the property is worth the investment is the cash-on-cash return. Cash-on-cash return is calculated by dividing the property’s annual cash flow by the cash that you will invest to acquire the property. Then compare your required return with the property’s cash-on-cash return. If the cash-on-cash return is greater than your required return, then the property may be worth investing in. Otherwise, the property will most likely turn out to be a bad investment.

Analyzing a property for investment potential is much easier than actually finding a property worth investing in. Determining if a property is worth the investment is very important. This will make the difference between you being a good real estate investor and a bad one. This analysis will also influence your profit and for how long you will be able to stay in business. How good an investment is and if it is worth investing in ultimately depends on you, your financial situation and your budget.

10 ‘Make it or Break it’ Real Estate Issues for You in 2013

Top 10 Real Estate Industry Issues in 2013- 150x150Since the housing bubble burst in 2008, most people don’t trust the real estate industry anymore. The housing market is slowly recovering, and statistics show that most Americans would buy a home in the next few years, even if they expect the prices to go up in the near future.

Prices on homes have already started to climb, with a steady increase in almost each month of 2012. National home prices have increased by over 6 percent in October last year. In California, one of the states that were the most affected by the housing market crash, more than 50 percent of the homes listed for sale received multiple offers from eager buyers. The same trend was followed by Florida and Arizona last year.

Being an industry that has just started to recover, the real estate industry still faces a lot of issues in the years to come. Here are the top 10 issues that you should be aware of:

Top 10 Industry Issues

1. An Increase in Home Prices. With builders not being able to keep up with the demand for new houses, prices for older houses will continue to increase. The construction of new homes is almost three times lower than it should be to keep up with the population increase and the recent job growth. The inventory of homes for sale is at the lowest since 2006, and economists predict a 5 percent increase in home prices for 2013.

2. An Increase in Rent Prices. The job growth will push most people, who moved in with their parents or with friends back when the economic problems started, to start looking for apartments and houses to rent. This will create a lot of demand for rentals, which will cause rent prices to increase by up to 9 percent in 2013.

3. Less Good Deals on Foreclosed Homes. Sales of foreclosed homes represented only 11 percent of all home sales in 2012, down from 28 percent in 2011, and are expected to be even lower in 2013. This happened because banks have sold many distressed home loans to companies who agreed on new terms with the borrowers, instead of foreclosing.

4. An Increase in Short Sales. Instead of dealing with an expensive and time consuming foreclosure, banks prefer that the borrowers sell their home for less than what the mortgage is worth. In many cases borrowers are not required to pay the difference, which will generate more short sales, while the number of foreclosures will diminish.

5. An Increase in First Time Home Buyers. It is predicted that the growth in demand for homes in 2013 will be caused mostly by first time home buyers.

6. Bigger Home Building Costs. Even if new constructions are at a low level right now, construction materials are at high prices. The labor costs are also high because many construction workers left the industry when the crash occurred. The demand for new homes will lead to even higher costs for new construction in 2013.

7. Property Management Increase. Foreclosed homes that have been sold to investors in the past are now entrusted to professional property management organizations to maintain and rent. The number of foreclosed homes that will be sold to investors will increase in 2013, and so will the number of property management companies needed to manage them.

8. An Increase in Mortgage Interest Rates. Current mortgage rates have been at an all-time low lately, so predictions indicate that they will only go up in 2013. However, the interest rates will only slightly increase, to an average of 4 percent.

9. Credit Requirements. In order to get approved for a mortgage loan, your credit score must be in the 760s right now, but this might change in 2013. As more and more people will buy homes, lender competition will make credit requirements much more lenient.

10. A Two-Tiered Industry. Because banks don’t give out many construction loans, the home builders will be divided into two types: large home builders with access to funds, who can handle big projects, and small to medium home builders, who depend on loans and can’t handle big projects. This will create less competition and bigger prices.

The real estate industry has suffered greatly in the last 5 years, but it’s showing signs of recovery. While the worst has passed, there are still plenty of issues that need to be resolved, but that will happen slowly over the next few years.

Can the Real Estate Industry Ever Be as Good as it was Before 2008?

Is 2013 the Year for the Real Estate Industry Comeback- 150x150The economy still has a long way until full recovery after the burst of the housing bubble. The real estate industry has seen some tough times in the last few years, and has only recently started to recover. Economists say that 2013 will be the year when the real estate industry will finally get back on the right path and see some noticeable growth. Economists also mentioned that the real estate industry comeback will be the main factor that will generate the economic growth in 2013.

Recent Changes in the Real Estate Industry

In the last months of 2012, the housing market started to become a sellers’ market, with home inventories low and higher home prices. Banks that have lots of distressed homes are holding on to them, planning on selling them when prices increase even more. Unfortunately, the most important thing that the real estate industry needs in order to stimulate the economy is inventory.

Another factor that influenced the real estate industry lately is the job market growth. Unemployment is still high around the United States, but the job market is definitely recovering. The lack of inventory is also affecting people who need to move in order to be closer to their job, but analysts hope that this surge of jobs will eventually help residential real estate recover and start growing more rapidly.

With interest rates at historic lows right now, and are expected to remain low in 2013 unless the job market sees dramatic improvement. While lenders are starting to ease up on qualification requirements, many home buyers still find it difficult to get approved for a mortgage loan.

Real Estate Outlook in 2013

The recent changes in the real estate industry point towards modest, but steady, growth. Home sales and prices are growing, and home builders are starting to recover in order to meet the new homes demand. All things considered, 2013 might just be the year for the real estate industry comeback. Let’s take a look at the factors that will influence real estate most in 2013:

  • The multi-family market has been experiencing a great recovery in the past months, and this trend is expected to follow in 2013. Low interest rates and more lenient restrictions have made apartments attractive for buyers, while the limited home inventory has attracted more investors in this market.
  • The single-family housing market has transformed from a buyers’ market into a sellers’ market and will most likely continue to remain this way in 2013. Without single-family home inventories, the real estate industry won’t be able to stimulate the recovering economy to its full potential.
  • The office space market started to recover, as well, and it’s predicted that it will grow even more in 2013. Unfortunately, the job market isn’t growing fast enough to cause a big increase in the office space market, but will regain more stability in 2013.
  • The industrial real estate market might see an increase in leasing, but a decrease in sales in 2013. Depending on the area, there are places where the industrial real estate market will grow, but also places where it will stagnate or even deteriorate, as it is closely tied to employment.

Whether 2013 will be the year when the real industry makes a comeback or not, one thing is for sure: the industry is recovering. The recovery might not come overnight, but, as long as industries that are closely related to real estate make a comeback, so will the real estate industry.