Reverse Mortgages – Not the Smart Investment You Thought They Were

Reverse Mortgages-Not the Smart Investment You Thought It Was- 150x150Being retired doesn’t mean that you don’t need a good source of income anymore. Utilities, food, gas, and pretty much everything continues to become more expensive each year. The large majority of seniors have limited incomes, so they will be the most affected by these increasing expenses.

One choice that retirees who need cash have is to take out a reverse mortgage. Reverse mortgages are pretty popular right now, and a good alternative to other loans, but they might not be such a smart investment. Yes, reverse mortgages can provide you with that extra income, but, as an investment, a reverse mortgage is a poor choice.

What is a Reverse Mortgage and How Does It Work?

A reverse mortgage is a type of loan which is only available to seniors over the age of 62, and which uses the equity in the borrower’s home as collateral. This loan is designed to help home owners who are in or near retirement and have limited incomes. The borrower’s existing mortgage will have to be paid off in order for him or her to qualify for a reverse mortgage, and there are no credit score requirements. The money borrowed through a reverse mortgage can be used for many things, such as paying off other debt, medical bills, or paying for utilities and food. There are pretty much no restrictions to how a borrower can use the reverse mortgage proceeds.

The borrower can choose to receive the money from a reverse mortgage in three ways: as a lump sum of money, meaning that the borrower receives all the money at once, as a monthly payment for as long as the borrower lives or until the home is sold, or as a line of credit which is similar to a credit card. If the borrower chooses to, the money can be received as a combination of these three methods.

A reverse mortgage can be expensive because there are no standard charges, so the fees will depend on the lender and type of loan. The borrower will have to pay a mortgage insurance premium, monthly lender fees, and several closing costs. The amount that you can borrow depends on which method you are using to take out the money, how much equity is in your home, and the borrower’s age.

Why is a Reverse Mortgage Not a Smart Investment

A mortgage is considered a good investment only when you live in a home for a long time. When taking out a reverse mortgage, you can turn it into a good investment by living in the home for over 5 years, but the odds are stacked against you at that age. If you become ill and have to move into a nursing home, the monthly reverse mortgage payments will stop. Also, taking the whole amount out at once can turn ugly if you are unable to manage your finances properly. Once that money is gone, you won’t be able to take out another reverse mortgage.

Reverse mortgages also have high closing costs and other fees to pay. Because the lender doesn’t require you to have a certain income or credit score, he must take certain precautions to ensure that he doesn’t lose money, so your interest rate and fees will be higher than on a regular mortgage.

Also, after you die, your heirs will probably have to sell the home in order to pay off the debt, so they will be left with very little or nothing. If you decide to move out at a certain point after taking out a reverse mortgage, you will have to pay off the debt, and this might prove difficult at a time when money is tight.

A reverse mortgage can be a life saver when you truly need it, but it is not a great investment. An alternative to taking out a reverse mortgage and leaving your heirs with debt would be to reorganize your budget, or even ask your children for help. The high cost and the problems that may arise if you wish to move out of your home or leave it to your heirs can make reverse mortgages something that you are better off avoiding.

Part 3: How to Procure Financing for Investment Properties

Part 3- How to Procure Financing for Investment Properties-150x150Question: Where can I get financing for residential real estate? I heard it’s easier to get financing for commercial real estate- is that true? Also, I would love some information on what variables affect a lender’s decision to give financing.

Answer: Many lenders are thought to prefer lending to commercial real estate investors rather than residential real estate investors. While that may be true, there are plenty of lender possibilities for residential real estate investment. In fact, here is a list of banks and lending institutions that provide loans for both commercial and residential real estate investment:

Lending Institutions for Real Estate Investment

  1. Wells Fargo
  2. PNC Real Estate
  3. MetLife
  4. Prudential Mortgage
  5. J.P. Morgan Chase & Co.
  6. Strategic Alliance Mortgage (SAM)
  7. KeyBank Real Estate Capital
  8. CBRE Group Inc.
  9. Northwestern Mutual
  10. Cornerstone Real Estate Advisers
  11. Berkadia
  12.  NorthMarq Capital
  13. CWCapital LLC
  14. Red Mortgage Capital LLC
  15. Walker & Dunlop
  16. Natixis Real Estate Capital LLC
  17. Pacific Life Insurance Co.
  18. Grandbridge Real Estate Capital
  19. Citi Community Capital
  20. Starwood Property Trust
  21. Beech Street Capital
  22. ING Investment Management
  23. M&T Realty Capital Corp.
  24. Principal Real Estate Investors

 What a Lender Looks for in a Borrower

Lenders seem to ask borrowers almost anything before considering them for a loan. The requirements are even tougher for first time borrowers. While some questions are predictable, lenders are becoming more inquisitive these days in order to minimize the risk of defaults. Lenders aggressively ask more questions so that they can provide reasonable proof to the underwriters that the borrower will actually manage to repay.

Except your family planning and health issues that are forbidden by the law, lenders want to know the following in a borrower:

  • Credit rating- a lender is first interested with your FICO or credit score. The score ranges between 350 and 850. The lender wants to know your outstanding debt in different types of accounts, the total outstanding debt and how well you’ve been paying your bills. Missed payments raise doubts with respect to risk of defaulting. Your credit history is very important to a lender and for this reason you should ensure that your credit report does not have any errors.
  • Debt income ratio- a lender wants to know the ratio of debt compared to your monthly income. The lender explicitly wants to know how much you have to spare each month after you’ve paid out all other debts excluding the mortgage. The debt income ratio disqualifies many people for a loan. You should therefore pay down many of your credit cards before applying for a loan.
  • LTV- this is the loan to value ratio which enables the lender to determine risk. LTV is determined by dividing the value of the home by the anticipated loan amount. In simple terms, it’s the amount of money a borrower is willing to pay for the house. The lower the amount put down by the borrower, the lower the level of doubt the lender will have about their creditworthiness.
  • Cash- lenders also love hard cash because it keeps them running the company. The lender will want to know how much a borrower has saved; this is not for purposes of down payment alone but also for meeting monthly mortgage repayments when they go into a financial stalemate.
  • Collateral- once the lender has assessed that your capacity and credit score meets expectations, collateral is the other most significant thing on the list. This is done by valuation of property by an independent appraiser in order to determine its current market value. The appraised value is used to determine the LTV.
  • Lawsuits- lenders are sensitive to risk, so they have to check out every possibility on your end that can make giving you a loan a bad idea. A lender will want to know whether you are the plaintiff or defendant in any lawsuit because if judgment goes against the borrower, then it will impact their financial position negatively.
  • Divorce- the number of divorces in the United States is on the rise. Lenders want to know the financial details in a borrower’s divorce because a borrower may be responsible for their ex-spouse’s debt. If a borrower includes alimony or child support as a source of income in their loan application, the lender will also want proof of such income.
  • Ethnicity- the Department of Housing and Urban Development (HUD) requires lenders to inquire about the borrower’s race for purposes of statistics. To avoid discrimination of an applicant, no further ethnic inquiries can be made. HUD also checks lender records routinely in order to ensure that they are not turning down applications from minorities or exploiting them by charging them unusually high fees.

This concludes the three part Q&A on procuring financing for investment properties. If you have other questions, send them our way and we’ll do our best to get answers to you shortly!

Part 2: How to Procure Financing for Investment Properties

 Part 2- How to Procure Financing for Investment Properties-150x150Question: Which type of lender should you target for a real estate loan?

Answer: There are several types of real estate lenders out there. With all of the options, it can be difficult to make a decision as to the best choice for your situation. Whether you choose a mortgage bank, mortgage broker, or other type of lender, there are pros and cons associated with each. Let’s take a look at the advantages and disadvantages of each to find one that works for you!

Types of Real Estate Lenders

1. Mortgage banks- Mortgage banks sell their products in the secondary market. Once you complete an application for a loan, the bank’s employees will carefully review your application and then make a decision.

Advantages of mortgage banks

  • Speed- mortgage banks process loan applications faster than all other providers.
  • First time program implementers- if the federal government launches a new program, mortgage banks are always the first ones to implement it.
  • Reliability- a local mortgage bank is an established institution. It has strong ties with members of your community and follows state and federal regulations to the ‘T’.
  • Savings- since a mortgage bank is the loan originator itself, you will end up with a lot of savings on the loan offer based on the mortgage terms and your deposit in the bank.

Disadvantages of mortgage bankers

  • Limited options- mortgage banks only offer their programs. They tend to be inflexible to the borrower’s needs.
  • Economies of scale- a mortgage banker may not bother to listen to you extensively because of the large customer base. They can be bureaucratic at times.

2.    Mortgage brokers- Mortgage brokers are middlemen who have access to mortgage loan information from different lenders across the country. A broker aims at finding you a loan that matches your needs. After loan application approval, you can get in touch with the lender directly.

Advantages of mortgage brokers

  • Savings- you may definitely access a mortgage at a very low cost because a broker has access to a variety of lenders.
  • Variety- a mortgage broker simply finds you the best loan product that matches your needs because they compare hundreds of lenders.
  • Speed- since brokers are professionals in their field of work, they get you the right lender very fast.
  • Easy qualification- an experienced mortgage broker will even assist you in putting together the required paperwork before directing you to a lender who will easily accept you without hassle.

Disadvantages of mortgage brokers

  • Hidden charges- many mortgage brokers increase their profits by including their price in the loan offer.
  • Not guaranteed estimates- many mortgage brokers rush to seal the deal so that they can walk away with a profit. That’s why they may present you with an offer that does not necessarily coincide with the bank’s terms.
  • They may not compare all lenders- mortgage brokers may not compare all lenders in order to find you the best offer. Moreover, some lenders don’t deal with brokers.

3.    Commercial banks and credit unions- The most popular lender in the world is a commercial bank. Credit unions in the United States are also popular. Understanding their upsides and downsides can help you in making an informed decision.

Advantages of commercial banks and credit unions

  • Competitive rates- compared to other traditional mortgage lenders, commercial banks offer competitive interest rates with very reasonable repayment terms.
  • Always available- since commercial banks have to keep their customers’ money working and earning interest, they are always available at your service.
  • Better terms- commercial banks offer affordable and friendly loan terms compared with a traditional mortgagor.
  • Customers are the actual owners- both commercial banks and credit unions treat their customers very well because they also have a stake in the company.
  • Credit unions are actually non-profit institutions- the aspect of non-profit basically means that they share their profits with their customers. You also get to save in taxes because credit unions are exempt from federal tax.
  • More savings- in addition to the lower fees that a loan from a credit attracts, you will also benefit from lower interest rates as long as you have a high credit rating.

Disadvantages of commercial banks and credit unions

  • Delay in loan approval- if you need access to your loan very fast, then a commercial bank may not be the best option because they take a long time to approve loans.
  • Tough qualifications- commercial banks have tough requirements for low-interest loan qualification, which typically includes excellent credit score requirements.
  • Limited access to new technology with credit unions- credit unions sometimes aren’t up to speed technologically, which may make it difficult at times for you to access their services when needed.
  • Restricted membership- credit unions center their focus on particular communities, professions or groups of people. This can make it difficult to find a credit union for which you qualify.

4.    Real estate agencies and home builders- There are many real estate agencies and home builders. A number of them are affiliated with mortgage brokers and bankers. Additionally, their services can be accessed online.

Advantages of real estate agencies and home builders

  • Pricing prowess- real estate agencies can easily tell how much it will cost you.
  • Experience- approaching home builders gives you assurance of the best residential property because of the experience they have in developing such property.
  • Speed- home builders working together with real estate agencies process your loan request very fast.
  • They do all the paperwork- if you are not very familiar with real estate jargon or not experienced with paperwork, then real estate agencies may be the best for you because they will handle the loan documentation paperwork for you.
  • No closing problems- there are several pitfalls that can kill a deal in its final hours of execution. Real estate agencies ensure that your property is in order.

Disadvantages of real estate agencies and home builders

  • Ethical considerations- some agencies may not consider all of the professional ethical considerations in conducting their business. This may land the investor in trouble with legal authorities.
  • Extra charges- since real estate agencies and home builders don’t directly deal in the money lending business, using those results in an extra cost because they are middlemen.

5.    Internet lenders- The internet is a business powerhouse worldwide. Many lenders have flocked to the internet, giving people  access to a loan at competitive rates.

Advantages of internet lenders

  • Easy access- shopping for an internet lender is very easy because you can do it from your PC or smartphone. You can access them 24 hours a day, 7 days a week.
  • Competitive rates- unlike other mortgagors who have a physical office, they save you extra costs because they don’t pay property taxes and other overhead costs.
  • Comparative base- there are many online sites where you make comparisons on loan amounts awarded, interest rates and repayments.
  • Convenience- you can apply for a mortgage from an internet lender any time you want and wait for approval from the lender without strict deadlines.

Disadvantages of internet lenders

  • Lack of personal advice- since you don’t meet the lender face to face, a lack of personal touch may not be the ideal experience for you
  • Scams- there are many illegitimate internet lenders who may con you and disappear with your money when you give them your personal information.
  • Out of date sites- there are many online lenders’ sites that remain out of date. This may not give you the right idea of current mortgage rates today.

As you can see, there are many options for you when it comes to choosing a lender. This information should give you a complete overview of what to expect with each lending option. Look out for part 3 of this question, where we discuss lenders for both commercial and residential investment loans as well as what lenders are looking for in borrowers.


Part 1: How to Procure Financing for Investment Properties

Part 1-How to Procure Financing for Investment Properties- 150x150

Question: How do I go about procuring financing for investment properties? What is a checklist of things that I need to have in order to get approved? 

Answer: One factor that kills the dreams of many potential real estate investors is lack of financing. Since lenders have requirements that borrowers ought to meet based on risk, it is important to prepare with the “risk factor” in mind. Below are some tips that can help                                                                        you to obtain funding from a lender:

Financing Tips for Investment Properties

  1. Check your credit report. Acquaint yourself with your credit report and get to know how it works. If you don’t have it, get it from free of charge. Review your report carefully for any errors because they can affect your score negatively. However, note that fixing errors will take some time.
  2. Don’t procrastinate. Fear and hearing about your friends’ negative experiences may discourage you from making a move. Procrastination may lead to regret and lost opportunities. Don’t hesitate to start looking around for a loan- you never know what good deals you might find!
  3. Have access to a regular source of income. Many applicants are declined because they don’t have a regular source of income. When lenders learn that you don’t have a regular source of income, they often shy away because of the perceived higher risk of default in repayments. Teaming up with a partner’s income will increase the chances of getting a loan.
  4. Shop for the right lender. Shop around for the best lender who can meet your needs comfortably. It may be beneficial to ask for advice and recommendations on the internet or from family members, acquaintances, bankers, and financial consultants.
  5. Have all the documents. Check with your lender or the lender’s website in advance in order to find out what documents are required. Some lenders may see your organization as a great quality to have in a loan recipient and decide to make you a loan offer. Having everything ready for your lender will streamline the process and make it easier for both of you. Among the documents required for getting a loan are bank statements, tax returns, pay stubs and W-2 statements. Lenders will also like to see your business proposal and business plan in order to establish the profitability from your real estate investment.
  6. Be informed. Knowledge is power. Adequate preparation by asking the lender questions will help you land a deal. Be confident and forthcoming as you supply answers to the questions that the lender will ask you. The lender will want to know what loan amount you are seeking, what your plans are with the loan, how you intend to repay the loan, and what your backup plan is if you do not receive the loan.
  7. Have a referral. All banks are working hard to manage customers’ default risk. If you are able, find a current customer of the the lender and have them refer you to increase your chances of receiving a loan offer.
  8. Discuss business risks with your lender. It is a fact that all businesses have an element of risk. One thing that all lenders will want to know is how you intend to manage particular risks facing real estate business. It is important to discuss all of these risks with the lender. Don’t forget that your lender may ask you how you will manage the risk of over-ambition and too much perceived success.
  9. Apply for the loan. If you are applying for your first loan, it may be more difficult to get approved compared to if it was your second loan. Many lenders prefer giving loans to lenders who have a good credit history. Once you have officially applied, all you can do is wait to see if you’re approved!

These tips should be very helpful for you if you are interested in obtaining financing for investment properties. Be sure to look out for the next article where we answer the second part of this question, “What type of lender should I target?”.

Financing Difficulties for Second Homes and Vacation Homes

Difficulties in Financing for Second Homes and Vacation Homes- 150x150Question: I work in a second home/vacation home market, and a lot of my customers have a hard time getting financed, even if they have very strong credit and assets. Some of my most common questions/roadblocks:

1. Does it really matter if it is a house or a condo? Why?
2. Why do I have to make such a big down payment? I only had to pay 20% down on my home in (some other state).
3. What’s the difference between an investment property and a                                                                       second home? What differences should I expect for each?
                                                          4. How will my insurance requirements be different for a                                                                                     vacation/second home vs. primary residence?

Answer: There are many factors to consider as a buyer when wanting to purchase a second property. Banks take on significant risk with customers that have two mortgages, so it will be more difficult for a home owner to obtain a second mortgage. We will go through and analyze each aspect of this situation so you are as informed as possible before attempting to purchase another place of residence.

Qualifications for a Second Home Mortgage

Many lenders have watertight requirements on second mortgage applicants. These are some of the requirements that need to be met:

(a) Location from the borrower’s principal residence- It is required that there is a reasonable distance between the location of the second home and the principal home. If the second home is located on a beach that is less than an hour’s drive away, then you will be granted a second mortgage. However, if it is farther inland, then the primary home must be located more than one hour’s drive away from the second/vacation home. The general distance accepted is at least 50 miles away.
(b) Must be occupied for some portion of the year- Lenders require that the second home be occupied for some portion of the year. Depending on the location of the home, this can be done seasonally or several times during the year. For properties located in a ski or beach area this can be seasonal. If it’s a lake house then you should make several visits there. The property must remain suitable for occupancy at any time during the year.
(c) Only one-unit properties can be financed- For purposes of a second home, only a one-unit property can qualify. Duplexes or multi-unit properties are considered to be investments by lenders. A condo is one of the houses that can qualify for a second mortgage.
(d) The property must not be rented out- Being your home, the lender is strict to ensure that you don’t rent it out or subject the property to a timeshare arrangement. The borrower must have exclusive control over the property. Agreements with property management firms to take control of the property are also not allowed.

Buying a Second Home

There are several options for purchasing a second home. These include:

(a) Cash- According to the National Association of Realtors, 36 percent of all home buyers in 2010 paid for their houses in cash. This is the best option, but the majority of people are unable to save enough money to purchase a home in cash.
(b) Conventional loan- This is the most common option that many borrowers tend to choose. Borrowers must be prepared to make a larger down payment (more than the usual 20 percent for the primary mortgage) for the loan to be processed. You will also pay interest at a higher rate and meet other tighter requirements compared to those of a primary mortgage. For a second home guaranteed by Freddie Mac or Fannie Mae, the down payment is 20 percent. However, the rate is higher for individual lenders, usually 30 or 35 percent. This rate is higher because lenders argue that a borrower has two loans and the risk of defaulting is high.
(c) Home equity loan- If a homeowner has substantial equity in their home, then a home equity loan becomes the best option. It’s only unfortunate that many homeowners have lost equity in their homes because the value of homes has drastically dropped in the market during recent years. Additionally, many lenders fear that if a homeowner bumps into financial difficulties then they will prefer to clear their primary mortgages in preference to second home mortgages.

Investment Properties and Second Homes: The Difference

Many people tend to use the terms “second home” and “investment property” interchangeably in an attempt to describe property that does not qualify as a primary residence. However, there are a number of differences between investment property and a second home.

Investment Property

Investment property can be defined as property that is purchased or acquired for purposes of generating income, taking advantage of particular tax benefits, or enjoying profit from appreciation. If you purchase property that will be used to make some gains instead of being your residence, then it is legally defined as investment property. It must not be your primary residence.

Different types of investment property include commercial property, residential rental property, and property purchased with an intention to resell.

In comparison with primary and second homes, loans for investment property are charged a higher interest rate. A larger down payment must also be made.

Second Home

A second home is defined as property that becomes your residence in addition to the primary residence you have already. In simpler terms, it is a vacation home that you visit occasionally.

Several conditions must be met if a property is to be allotted the name ‘second home’. They are referred to as the Second Home Rider. The conditions include:

  • Property must always be kept available for owner’s exclusive use and enjoyment whenever they wish
  • Borrower is the only occupant of the property, being the secondary residence
  • Property cannot be subjected to any agreements that need the owner to rent it or pass the rights to a property management firm
  • Property should never be subject to a rental pool or timesharing arrangement

A second home mortgage usually has a lower interest rate than an investment property loan. It may also have a lower down payment especially if it is approved by Fannie Mae or Freddie Mac.

Insurance Requirements for Different Places of Residence

Insurance coverage protects your home from storm damage, lightning, burglary, fire, vandalism and other perils. It may also include some minor cover for risks from accidents such as a dog bite, a slip-and-fall accident, or an injury as a result of an accident on the property itself.

Depending on the location and the weather conditions in the area where your second home is located, getting insurance coverage can be difficult. For instance, you will need to get a flood insurance cover for your second home because it is not covered in the standard insurance policy for a second home. If the home is located in a forested area, then installing a fire-prevention system will reduce the overall cost. Earthquake insurance is usually not covered and you will have to purchase this independently.

Second home insurance is generally higher than primary home insurance because it is more susceptible to burglars as a result of your absence many times during the year. Damages caused by storms may also be common because you are not always around to fix the house. Taking steps to keep your second home secured and maintained can save you more than 20 percent of the insurance cover.

The following tips can help you to keep the insurance cost lower:

  • Taking a nonsmoking discount if you are not a smoker (reduces risk of a fire) or a loyal customer discount
  • Taking discounts for an up-to-date second home that is fitted with the latest electrical systems, plumbing and the overall structure
  • Taking safety discounts for a second home with a security system, especially with an independent security agency
  • Taking a multi-policy discount for a homeowner that bundles their home and car insurance to one insurer

With all of this information, you should now feel confident and informed going into the process of purchasing a second home.


Property Tax Liens: A Smart Investment?

Property Tax Liens- A Smart Investment- 150x150Many investors who are affected by the stock market’s rising volatility and the near historical low interest rates are looking for an alternative that will generate a good return. One of these alternatives is investing in property tax liens, an investment which has the potential for providing great rates of return, but it also features a high risk, especially for those who are new to investing.

What are Property Tax Liens?

When a home owner doesn’t pay local or county taxes on his or her property anymore, then the city or county places a lien on the property. Having a lien on your property makes it impossible for you to sell or refinance your home until the taxes are paid. A popular practice is for the taxing authority to sell these property liens to the highest bidder at an auction. By selling property liens to third parties, the city or county in which the property is located has the chance to recover the money that should have been paid by the home owner as property taxes.

Investing in Property Tax Liens

When the taxing authority issues a lien on a property, they create a tax lien certificate which shows how much is owed and any penalties. These certificates are then sold at an auction or through an online auction to the highest bidder. Investors have a chance to buy the tax lien certificates sometimes for as little as a few hundred dollars, but most of the time they will cost much more.

After buying a tax lien certificate, the investor gains the right to all the tax-related debt on the property, as well as the interest. The investor will collect the interest, which is assigned by the taxing authority, until the debt is paid off. The repayment period usually lasts from 6 months to 3 years. If the repayment period has ended and the debt isn’t paid off, the investor has the right to foreclose on the property. This usually doesn’t happen, because most home owners manage to repay their debt on time. The investor can also become the owner of the property for a small percent of the market value of the home.

Risks Associated with Investing in Property Tax Liens

Investing in property tax liens comes with some great risks and is not recommended for beginner investors. What may seem like a good deal can quickly turn ugly and result in a waste of time and money. Here are the biggest risks associated with investing in property tax liens:

  • The investor has to make sure that he or she knows the property value before investing into a property tax lien. Investing your money before having the property inspected is very risky, as the property owner may have neglected making repairs, so the home may be worth less than you were expecting, or even be worthless.
  • The home owner may declare bankruptcy. If the owner of the property declares bankruptcy after you have invested in the property’s tax lien, then your  home investment may be at risk, because the Internal Revenue Service can have other claims on the home, which will make your tax lien worthless.
  • There may be other liens on the property. Having a title search on the property that you are about to invest in is very important, as it may have other outstanding liens, making it impossible for you to make a profit until the debt is paid off.

Property tax liens are a smart investment, but only if you are an experienced investor. Beginner investors can have success in this business, as well, but it is much easier for them to fall into a trap and end up losing money. Researching the property that you are about to invest in, and having a clear understanding of the property tax lien investment process will ensure that you make a good investment that will generate a profit, without having unpleasant and expensive surprises along the way.

How to Attract and Keep Great Tenants without Hassle

How to Attract and Keep Great Tenants without Hassle- 150x150Attracting and keeping great tenants is paramount to long term success in real estate investing. Vacant property means lost revenue, so you want to keep tenants with hopefully long-term potential; having tenants in and out constantly will be stressful and time consuming for you. Your bank account will be thankful if mortgage repayments on the property are made by tenants and not you!

In most cases, managing your own property becomes a bit easier than managing your tenants. As careful as you may be in choosing tenants, you are still susceptible to getting bad ones. Paired with a solid lease agreement, following a few other guidelines will ensure that you have the best tenants in your property.

Guidelines for Rental Success with Tenants

1.    Develop or Buy Property in an Ideal Location
You may have the best property in town, but is it located in a place where people want to live? People may be turned off if your property is located too far from schools, shopping centers, work, gas stations or public transport. The property must meet the lifestyle requirements of potential tenants.

Focus on areas that are equipped with social amenities, entertainment hubs, employment opportunities, education centers, retail centers, and a vibrant neighborhood. Even though not all of these are critical, many tenants will consider at least some of these factors in the surrounding area when deciding on a rental.

2.    Maintain an Updated, Quality Home
The general rule of thumb is that the better a home is, the better the tenant(s) it will manage to attract. A well-maintained home with curb appeal is likely to attract a better tenant. The more updated the house and its amenities, the better. Other than attracting and retaining great tenants, this will also help you command a higher rent price.

3.    Make a Killer First Impression
The first impression is always critical. You can turn off a potentially great tenant if the initial impression doesn’t meet their standards. If the potential tenant sees a well-maintained home, they will more than likely want to take care of the property as if it were their own. Not only does your property need to impress them, but you need to impress them with your professional manner and dress. If you are hiring an agent to handle your property, be sure they exude the professionalism you expect.

4.    Screen Tenants
Screening a potential tenant may not seem to be a very friendly tactic but you can present yourself as a serious and motivated landlord. It’s important that you do this so you don’t waste your time with tenants who aren’t serious. During the screening process, the potential tenant may reveal some red flags that will give you the tip-off that they may not be the best fit for you and your property.

Scrutinize all of the tenant applications very carefully. Any inconsistencies in providing information should hint to the type of tenant they have been before. Through a background check, confirm whether the client has a criminal record and also call to confirm previous addresses. You may also consider checking their business and personal references to give you a valuable insight about their conduct.

5.    Target Families
Families traditionally stay longer in one place than single tenants. Generally, families with school-age children will want to stay at the same school and avoid moving too often for the children’s sake at least. Families have more of a tendency to maintain a cared-for home because they take pride in making the home a clean and enjoyable place to live.

6.    Take Care of Your Tenants
A good tenant is an asset that adds to your net worth. If you find a suitable and responsible tenant, you should strive to look after them and the property so they hopefully stay as long as possible. If they always pay their rent in on-time, then you should ensure that you promptly attend to any problems with the home. You should also consider locking-in the rent price so the tenants can plan their budgets accordingly. If you do want to raise the rent price, be prepared to explain why and give the tenants plenty of notice to decide if they are ok with this price or want to move out.

7.    Market a Fair Rent Price
When deciding how much to charge tenants for rent, you should be very realistic. You should take into account current market prices, condition of the property and the location, among other factors. If you have taken all these factors into account and still have no renter possibilities, consider revising the price again. A slight difference between your rent price and what other similar, nearby properties are asking for may cost you a potential tenant. It’s better to lower the price a little and make a smaller profit than incur huge losses by leaving the property idle.

8.    Hire a Property Manager
This applies if you are not the one managing your property. Before you decide to hire a property manager, check their reputation from reviews and do online research. Since they are representing you, they should have your best interests in dealing with your tenants. Asking friends, acquaintances and family members can help you find a good property manager.

9.    Be Real Estate Market Savvy
As a good leasing agent, you should know where potential tenants are going to get information about the best properties in an area. They may be using newspapers, trade publications, websites, brokers, local periodicals, among other resources. Once you discover what mediums are being used the most by potential tenants, you can invest in advertising your services there.

10. Develop and Maintain a Real Estate Network
Securing and keeping exceptional tenants needs more than just advertising; you need a network for the real estate industry. Advertising will attract some potential clients, but referrals from other clients are typically going to be your best source of finding clients. If you treat your tenants professionally and respectfully, then they are likely to refer others to you. You can develop this network in part by your online activity, especially with blogs, fan pages, and other social media networking.

Real estate, like any other industry, has its ups and downs. Investing in real estate is a tough industry but has a multitude of opportunities and options for you to become a landlord, flip properties for profit, or even invest in your own home. However, finding and keeping great tenants typically presents the greatest challenge. Follow these steps to help attract and maintain ideal tenants in your properties for financial stability and stress-free business.

Working Home Auctions – How to Get the Home You Want

Working Home Auctions - How to Get the Home You Want- 150x150Buying a home at a real estate auction can prove to be very profitable, if done right. Home auctions have become a very popular way of buying and selling quicker than through the regular process. Auctions attract plenty of home buyers and investors who are looking to get a good deal, and can also be a great opportunity for sellers who need to make a quick sale.

Home auctions are conducted by government agencies or specialized firms who act as an intermediary between the buyer and the seller, making it unnecessary for a real estate agent to represent you. Homes bought at real estate auctions have the potential of being the best real estate deals you can find, but they are also the riskiest way of buying a home. Properties can be bought with discounts of up to 70 percent of their housing market value, but there is also the possibility of ending up with a property that will cost you more than the market value because you have to invest significantly into repairs.

The Home Auction Process

There are three types of auctions used to sell homes. One type is the absolute auction, in which the buyer who offers the largest amount of money gets to buy the property. The sale is guaranteed at an absolute auction, so this will attract a large number of home buyers and investors. Another type of auction is the one who uses a minimum bid, minimizing the seller’s risk. The third type of auction is the one where a reserve can be used, allowing the seller to accept or refuse an offer, based on the amount offered. This way, the seller has more control over the selling price, but the auction won’t attract as many potential buyers.

Home auctions are normally held by professional auction firms. In order to recuperate some of the taxes and cost of maintaining foreclosed properties, the auctions are also hosted by banks or government agencies. Auction companies can organize auctions for real estate agents, banks, or individuals who want to sell quicker than it would normally take to sell a home. The auction organizer will normally receive a small percent of the final sale price.

Buyers who take part in a home auction have a chance of making a great deal, and purchasing a home at a price much lower than market value. Another benefit is that there is very little negotiation involved, and the whole purchase time is a lot lower than when buying a home the conventional way. The seller also has the advantage of selling his or her property a lot faster than by going through the regular home selling process. All the people who attend the home auction are potential buyers and, because homes are sold “as is”, the seller isn’t required to make appointments and show the home.

Steps to Making Sure that You Get the Home You Want

Doing your homework before attending a home auction and researching the properties that are being sold can make the difference between getting the home that you want and ending up with a home that is not what you were looking for. Also, because the homes are sold “as is”, doing some prior research will ensure that you don’t have to pay a fortune in repairs after you have bought the home. Here are some steps to follow when buying a home at a real estate auction:

  • Make sure you have financing readily available before attending the auction. By doing this, you will know exactly how much you can spend, helping you narrow down the properties that you can bid on.
  • Find a home that meets your criteria. Obtain a list of all the auctioned properties and research them until you find something that meets your needs. If you’re not familiar with how to evaluate a home and estimate repair costs, then hiring a professional is something that will probably save you a lot of money.
  • Inspect the home before bidding. The description in the auction catalog might not be too accurate, so visiting the property and seeing it with your own eyes is always a better choice. You can also talk to the owners if they are willing to answer some of your questions.
  • Check for second mortgages and if taxes are owed on the property. The IRS can seize a property even after the auction sale was completed, if there are any taxes owed by the previous owners.
  • Bring with you the amount of money that you will have to put down as deposit. Most auctions require a $10,000 or a 10 percent deposit, which is nonrefundable.
  • If everything goes smoothly and your bid wins, you will have to sign a purchase contract and a bid confirmation. Within 30 days of winning the auction, the closing will take place and the property title will be transferred from the seller to you.

Home auctions provide an excellent opportunity for finding a great investment property or a home for yourself at a great price. But before attending such an event, you will have to make sure you understand the process of buying a home through a home auction, and what risks this involves. If you have done your homework, you will find that home auctions provide great advantages for all parties involved, giving you the chance of becoming a home buyer quicker and for less money.

Investment Property Mortgage Rates- Is it Time to Invest?

Investment Property Mortgage Rates- Is it Time to Invest- 150x150The housing bubble burst that happened a few years ago resulted in a lot of investors losing their money, and made real estate investing seem like a scary thing to put your money in. Fortunately, low prices and near record low interest rates make this the best time to invest in real estate. Not only that, but the economy seems to be on the right track to recovery, which means that prices and interest rates have already started to increase, and do not seem like they are about to stop their growing trend.

Why Invest in Real Estate?

The recent economic crisis created many opportunities for those who have the means to invest in real estate. The high volume of recent foreclosures has created a larger pool of renters, which means that rental properties are a better investment than ever. Finding people to rent your properties should be easier now with more and more people finding jobs, and selling properties for a profit should be getting easier as well.

Mortgage rates are still at near record lows, which means that investing in properties is even more profitable. However, rates have already started to climb, so there isn’t too much time to take advantage of them. Add to this the fact that real estate prices are currently very low, and you have higher chances of making a lot of money by investing in this current market.

Investing in short sales is also a great opportunity right now, as more people prefer this option to foreclosure. Buying a short sale is a much better option than buying a foreclosed property, because there are bigger chances of a property being vandalized since it was foreclosed.

No matter what happens in the future, investing in real estate is still a good long-term investment. Current real estate prices are higher than they were thirty years ago, and having tenants makes the investment even more profitable.

The Future of Investment Property Mortgage Rates

Recent forecasts predict that mortgage rates will continue to increase over the next couple of years, but not significantly. Of course, even a 1 percent increase in interest rates will cost the investor a relatively large amount of money, but the increase will most likely come slowly without taking anyone by surprise.

At only 2 percent per year, the economic growth is slower than anticipated, which means that mortgage rates will also slowly increase over time. The only thing that would stop the economic growth and rates increase would be a new war or a new economic crisis in Europe. Currently, the job market is also experiencing a steady growth, meaning that more people will be relocating and looking for new homes or rentals, to the advantage of the investor.

Even if mortgage rates go over 4.5 percent in 2014, they will still be lower than before the economic crisis, keeping real estate investing still more affordable than ever.

Low mortgage rates are creating the perfect opportunity for investors to make a nice profit, but 2013 may as well be the last chance you will get to take advantage of rates this low. The good news is that any increase in mortgage rates comes slowly, so real estate investors can still make a profit in the near future. While rates are, indeed, increasing, so is the number of people who are looking for a home or a rental, so, even if the profits won’t be so great as the rates increase, the number of opportunities to make a profit will be greater in the years to come.

Real Estate Dealers and Investors- What’s the Difference?

Real Estate Dealers and Investors- What’s the Difference-150x150Many real estate investors don’t mind whether they are considered an investor or a dealer. The difference between the two can have a big impact on how much money you make in this business. Real estate investors benefit from several tax advantages, while dealers do not. The biggest difference is that investors are taxed at the capital gains rate while the dealers’ profits are taxed like regular income, which can be significantly higher. It’s up to the Internal Revenue Service (IRS) to determine who is taxed with each rate.

What is a Real Estate Investor?

A real estate investor is someone whose main goal is to purchase a property from which he or she can generate a profit. The profit is made by selling or renting the property to other parties.

One of the options that a real estate investor has when purchasing a property is to finance it with a loan. Other real estate investors, ones who have a better financial situation, choose to purchase the property without getting a bank loan. The goal is to sell the property for a profit when the prices increase. If the property’s value increases over time, the real estate investor will be able to receive a large return on their investment.

Some real estate investors choose to rent a property that they have purchased, generating a profit through rental income. The real estate investor becomes a landlord, with the responsibility of providing proper living conditions for the tenants, and maintains the property. The investor must determine the cost of running a rental property, taking into account things like repairs, regular maintenance, taxes, insurance and mortgage. After determining all of these costs, he or she can determine the appropriate rent amount that the tenants will be charged.

What is a Real Estate Dealer?

Dealers, like real estate investors, buy and sell properties for a profit as fast as possible. While real estate investors make long-term investments in properties, dealers are in it for the quick profit, and try to resell their purchases as soon as they can.

The Internal Revenue Service doesn’t allow real estate dealers, who are basically short-term investors, to benefit from the same tax rate that real estate investors benefit. Real estate investors are charged a long term capital tax rate, which is much lower than the rate that real estate dealers get from the IRS.

Factors That Determine Investor vs. Dealer

The Internal Revenue Service doesn’t have a clear set of rules that you could use to determine whether you are considered a dealer or not. The IRS analyzes your business in order to determine your classification, using the following factors:

  • Ownership Duration. If you own several properties for less than 2 years, you will most likely be considered a real estate dealer. If you hold on to properties for more than 2 years, they will be considered investments, and you will be classified as a real estate investor.
  • Statement of Intent. If your intentions of buying and reselling are expressed, then you will be considered a real estate dealer.
  • The Level of Advertising. Significant advertising and strong efforts to sell will be regarded as a real estate dealer tactic.
  • Number of Sales. The more sales you have over time, the greater the chance that you will be regarded as a real estate dealer by the IRS.

There are no fixed criteria to determine if you are a real estate investor or a dealer. The difference in tax between the two is significant, but it is up to you to decide if being a real estate dealer is worth the extra money that you will have to pay to the Internal Revenue Service. Understanding the difference between a real estate dealer and an investor will be important for your ability to take advantage of the lower tax rate, and save you a considerable amount of money.