Property Investing Advice – The Best And The Worst

May 14, 2013 By Leave a Comment

Two extremes

Sometimes I am asked by novice property investors what types of advice I’ve received in my investing career.  And what was the best advice I ever received – as well as the worst.

The absolute best advice I ever got about property investing:

Roll, baby, roll. Leverage is EVERYTHING in real estate.  It is unlike any other investment asset class, in that you can increase your leverage with each new property you acquire.  Forget about the bank “owning” the property.  They’re simply your “partner.”  Lenders are what allow you to grow your business steadily over time…even without the need to put more of your own capital into each new acquisition.  If you manage your acquisitions properly, maintain them, improve them, then refinance them, all on a planned, strategic acquisition schedule, you’ll be able to roll your property investments up – that is, increase your leverage with each new property acquired.  Ultimately, you can build your own version of a “real estate empire.”  Keep things realistic, and you will succeed in property investing.  Keep growing your property portfolio with high leverage  – always putting down as little of your own funds as possible.  That’s the absolute best property investing advice I ever received.

On the south side…

The worst advice I ever got about property investing:

Anyone can do it.

WRONG!

It takes a certain temperament, a certain je ne sais quoi, to be a good property investor.  Basic personality qualities include being entrepreneurial, being decisive, and having a proper aptitude (though not genius-level)  with math, as well as being meticulous, grounded, and having stick-to-itiveness.  These are some of the basic qualities a good property investor will display.  Notice I did not include:  being good with people, or being a  “wheeler-dealer” type.  These two traits are not something you need…and they can be learned, as well as delegated to others.  That’s what property managers , as well as real estate agents come in and can do for you.

What are the traits that make a good real estate investor?

So be cognizant of what makes you tick – and what your passions are….Active investors in real estate (those that prefer to control their own properties, as opposed to investing in Real Estate Investment Trusts, REITS, for example) don’t get in strictly for monetary rewards alone.  There are too many pitfalls to running a successful property investment business to take on the added risks.  Rather, hands-on property investors enjoy wearing many different hats:  being the site locator, searching for properties, then being good numbers crunchers to see which are the most attractive properties available at any given time.

They then switch hats to become buyers, making offers, negotiating, then finding financing for the properties.  Finally, there’s the investor who needs to wear the hat of property manager – acquiring tenants, refurbishing units, and keeping them continually maintained properly.  This requires great diligence and attention to detail.  You are running an active business, not simply parking your investment dollars in a fund that will (hopefully) offer you positive returns.  So heed the worst property investing advice I ever got – that anyone can do it.  And make sure you have the right temperament and personality for the job.

 

photos courtesy of newmusicworld.org, dionisteam.ca, carterrealtyagency.com, sanpedrosquareproperties.com

Filed Under: Featured, Tools & Resources Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Is It Time To Cash Out?

April 18, 2013 By Leave a Comment

Never cash out your money-maker unless it’s an emergency

With residential rental property, always stick to your long-range goals of steady yearly cash flow growth, combined with the tax advantages of depreciation and holding your investment property asset, as well as capital market appreciation in the long term.  The only time you should be cashing out should be reserved for emergencies.

Recent data from the National Association of Realtors (NAR) suggests property investors are intending to hold onto their rental property for at least eight years now (up from five years the prior year).   However, some are finding the strong demand for properties coupled with a decreasing inventory of foreclosures and investment properties in general, as well as continued low mortgage interest rates to be too irresistible.  And so they are placing their cash cows on the market now.  Again – big mistake if you’re not in an emergency situation, and must have the cash on hand quickly.

Investment drop-off

Since real estate investments peaked in 2011, there was a dropping off of property investing last year as inventories declined, and foreclosures available to the marketplace lessened.  With decreased inventory and market valuations rebounding, many investors decided to begin cashing out.  As noted in my prior articles, only negative-cash flow rental property (or, the “dogs of war”) should be jettisoned when consistently non-performing, or when you are unable to make positive cash flows when still renting out at full capacity and at top market rents.  Positive cash flow properties should remain within your stable of properties for increased leverage to acquire additional property, as well as future cash growth and appreciation.

Institutional investors

As foreclosures have dwindled in the past year or two, so too are property investors that originally came into the marketplace by swooping in and purchasing large numbers of foreclosures, fixed them up, then rented them out for positive cash flows.  As prices have been on the increase of late, and with fewer foreclosures readily available in the marketplace, investors (especially institutional hedge fund type investors) have cut back on their rental property investment.

Higher entry costs into the market

In addition, with the rebound in the entire housing market over the last year, prices to get into the rental property acquisition market concurrently have risen.  For example, according to the NAR, the median investment property price rose 15% from 2011 to 2012 – from a median price of $100,000 up to $115,000.  Significant to note is that while the median down payment on all investment properties remained the same, at 27% of property price, the percentage of buyers who paid all cash for their investments rose to almost 50%.

The combination of increasing prices and tight credit have also produced a scenario where investors are lessening their current buying schemes for investment rental property.  However, the NAR data also shows that 47 % of real estate investors intend to purchase another property at some point within the next two years.  Though with current tight credit standards in the mortgage industry, roughly half of all investors will continue to make all-cash buys.

 

photos courtesy of  clearlyderby.blogspot.com, mathforgrownups.com, flickr.com, infrawindow.com

Filed Under: Featured, Rental Investments Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Rental Property Rates Should Remain Strong This Year

April 11, 2013 By Leave a Comment

The latest jobs report’s effect on rental property

With the latest news out of Washington showing that U.S. employers added only about 88,000 jobs last month, compared with 268,000 in February,, residential investment rental property is poised to remain quite strong through the remainder of this year.  The latest Labor Department statistics reveal that this is the third Spring season in a row where employers cut back on hiring after starting the year more robustly.  And while the unemployment rate went down ever so slightly, from 7.7 to 7.6 percent nationally, the major cause appears to be that more workers were dropping out of the work force.   Clearly, not that many people were hired over the last month.

A dwindling work force

The work force of the U.S. has been dwindling for some time now – and stands at about 63 percent of the total U.S. population – a figure which has not been that low since 1979.  Retirement from baby boomers would certainly account for part of this figure.  But a large helping of psychological pessimism seems to be wreaking havoc with both employers and potential employees in such a lack-luster economy as we currently are in.

Probably the greatest drop in the worker participation rate can be attributable to young, new workers just entering the economy.  Many of those fresh out of college are rapidly giving up hope of finding entry level positions in their fields.  And in turn, they are choosing to continue their education on the graduate level, thereby deferring their entrée into the job market until a (hopefully) better jobs picture develops in the not-so-distant future.  Of course, in so doing, they take on more debt to finance their education, thereby showing a higher overall increase in outstanding consumer debt loads nationally.

Keep watching the unemployment rate

As I had mentioned in an earlier article, the unemployment rate will be one of the most important figures to keep a watchful eye on for the remainder of this year.  With the stagnant nature of today’s economy, and more workers feeling driven out of the work force, continue to look for overall U.S. rents to  increase as homebuyer malaise sinks in.  Housing valuation increases and continued drops in housing inventories and days on market are more a reflection of institutional property investors swooping in and purchasing massive amounts of foreclosures over the past year.  While displaying quite a positive sign for the housing market numbers overall, keep in mind that the general malaise in the workplace lurks right behind the cheery reports

Beware a false housing market rebound

Any rental property investor should be fearful that the housing market rebound will continue in its robust way.  Once the foreclosures are worked through, the overall psychological component of an unsettled workforce will play havoc on the housing arena.  And this means that the rental market should remain quite strong for the rest of this year, with landlords able to squeeze out higher rents as vacancy rates continue to edge downward.  So individual rental property owners should be able to see increases in their cash flow as the year progresses. Clearly, residential rental properties will become even more valuable than they were in 2012.  So it would behoove the individual property investor to continue to search for and acquire additional rental property for the remainder of 2013.

 

photos courtesy of flickr.com, sultharproperties.com, davegi.com, diegoviera.girlshopes.com, ericksonsdrying.com

Filed Under: Current Events Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

A Quick Peek At The Current Mortgage Landscape

January 23, 2013 By Leave a Comment

Traditional lending sources remain difficult to obtain

In the current investment property mortgages landscape, traditional bank loans remain a tough road for financing. And many property investors have had to hold onto their existing, long-held properties while paying off those older mortgages that were set at much higher rates. These investors are finding it nearly impossible to refinance their debt loads, and tap into their equity to help finance new investment property acquisitions. So it’s a double-whammy: not only can they not finance new opportunities, but their cash flows are reduced due to their old, higher-rate mortgages remaining in place.

New Lender Rules = Tighter Credit

The latest news from Washington means traditional bank mortgages will continue to be hard to obtain. This is because the new “qualified mortgage” definition could adversely affect investors who require jumbo mortgages that are too large to qualify for government backing. Most recently, the Consumer Financial Protection Bureau created a rule that spells out exactly how lenders can avoid legal liability under a new law that holds these lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that meet the new qualified mortgage definition will get a clean bill of health – and they will have shown compliance with the new ability-to-repay part of this law.

Fortunately, some jumbo mortgages won’t be considered as qualified mortgages, and would be exempt from the new rules. Any loan that features an interest-only provision for an initial period won’t be considered as part of the new regulations. And any loan where a borrower’s total monthly debt payments exceed 43% of his or her income would also not be considered a qualified mortgage under the new rules.

Interest-only mortgages increased during the housing boom because they were marketed as being more affordable. It allows property investors the ability to carry a mortgage, and gain a tax deduction – all this while making a minimum loan payment. Later down the road, the investor can refinance or pay off the loan before they are required to make principal payments. Or at least, that was the thinking behind this type of mortgage. The debt-to-income rules, meanwhile, could wreak havoc with investors who have lots of cash and other assets, but whose incomes are harder to document. This includes some small business owners or self-employed professionals who have incomes that fluctuate widely from year to year.

The true meaning of these rules for property investors

Since the current real estate market is rebounding, investors are now looking to refinance their existing investment property mortgages and search for new, additional properties for their stable of investments. However, finding traditional bank loans for new investment property purchases, as well as trying to refinance existing loans has become much more difficult with the qualified mortgage rules. Even borrowers with excellent credit and income, who still show a steady rental revenue, are having trouble getting a bank mortgage on an investment.

As such, a great number of property investors have been financing recent acquisitions with their own cash. Of course, this is a horrible way to grow your business, since no leverage is being utilized. More importantly, these investors who bought all-cash thinking they’d be able to refinance afterwards, and pull out some of their equity on their income-producing properties, are being left high and dry when they find that traditional lenders, tied down by the qualified mortgage rules, are simply unable to extend mortgage loans to them.

Hard money lenders

Likewise, it is just as onerous for those investors who acquired investment property in recent years using hard money lenders. Since hard money loans are always short-term, those investors who could not refinance their investment property mortgages at a bank, and who are unable to come up with their own cash resources to pay off those loans, are being forced to sell those properties that they had originally intended to be long-term acquisitions.

To help fill this void, a recent trend has been for hard money lenders to offer additional short-term mortgages to fill the gap. These non-traditional lenders now offer two- to- five year loans on investment properties, all at a much higher interest rate than traditional banks would offer, of course. However, these mortgages have allowed many investors to retain their properties until they can qualify at a traditional bank. And they don’t have to place these properties on the market just yet. These loans, even at their higher rates, allow investors the ability to reduce their monthly costs, increasing their overall cash flow. And they also allow investors the ability to pull some cash out for future purchases.

photos courtesy of etsy.com, allmandlaw.com, answers.yourdictionary.com, realtor.com, worldpropertychannel.com, hardmoneylendersutah.com

 

Filed Under: Financing Property Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Genie’s Predictions For 2013

January 1, 2013 By Leave a Comment

Watch the unemployment rate

The unemployment rate will be one of the most important figures to keep a watchful eye on in the coming year. If it starts ticking upwards because of the effects of no deal being reached by Congress on the proverbial fiscal cliff, then look for overall U.S. rents to continue to increase as homebuyer malaise begins to sink in.  So individual rental property owner’s should be able to see increases in their cash flow as the new year progresses.  Clearly, residential rental properties will become even more valuable than they were in 2012.  So it would behoove the individual property investor to continue to search for and acquire additional rental property in 2013.

If, however, the fiscal cliff is averted, either by tax rate reductions in early January, or some short-term debt reduction package enacted by Congress in the next month or two, then the unemployment rate should continue to tick downwards.  And residential rental rates may suffer over the course of next year.  This would occur as consumer confidence increases, throwing more renters back into the buying game, especially first time home buyers.  With fewer renters, rental rates will start to go down, negatively affecting property investor’s cash flows.  On the other hand, housing valuations, by and large, should increase slowly but steadily over 2013.  So any currently held investment property should begin to appreciate in the new year under this scenario.

Result of higher taxes on the rich

If taxes do rise next year on upper income workers, and their disposable income is reduced, look for housing values to remain stable throughout the country.  The net effect of soaking up disposable income on the “rich” will be minimal for the housing market.  It really should have a negligible effect on consumer confidence, and the demand for housing in this country.  As mentioned above, it is the unemployment rate that is most important to property investors.

Credit markets and property investing

I fully expect lenders and the overall credit market to remain in stasis over the next year, regardless of Congressional maneuvers with the fiscal cliff.  Banks will continue a policy of strict lending guidelines, making only the most credit-worthy recipients of mortgage loans.  So the tight credit market will continue into 2013.  That said, non-conventional sources, like hard money lenders, will continue to flourish as those investors with less than stellar credit ratings seek to close deals that are cash-positive.   

The European debt crisis becomes orderly 

The situation with Europe’s money crisis should continue to stabilize in 2013, building on the positive work and financial bolstering and deal-making done by the International Monetary Fund in the last half of 2012.  This can only help to further stabilize U.S. credit markets.  While some countries like Greece, Italy, Spain and Ireland continue the long road back to financial stability through austerity budgets, high unemployment and Draconian fiscal measures, enough sound restraint has accompanied their efforts to take the strain off of their own fiscal cliff.  Proof of this can be seen in the news media, as we no longer hear of the doomsday forecasts, which for the first half of 2012 espoused daily reports of the demise of most of  the European Union countries, save for Germany.

Looking at things in reverse, the U.S. fiscal cliff situation appears to have little effect on European nations.  I believe Europe is already on the right economic course, with enough corrections over the past year, and the U.S. situation will be resolved very soon, although probably with a short-term political fix.  And the resolution will have little impact on foreign markets.  Overall, U.S. credit markets should remain unaffected by the European debt crisis, as they work through their mess.  Thus, look for further stabilization by banks here in the U.S., and little or no change in mortgage lending policies and standards in 2013. 

The fiscal cliff redux

I don’t believe Congress, in all its machinations on the fiscal cliff, will allow the full sequestration cuts to go through.  The country would be placed in a very real jeopardy for a new recession if this were to occur, especially if there are major cuts to the defense budget, as well as social programs.  If sequestration were to occur, the overall unemployment rate would zoom up in 2013 and beyond. And if that unemployment rate were to go up next year, look to continue acquiring residential rental property, since rent prices will then continue to escalate.  And cash flows on rental properties would commensurately increase as well. 

Wall Street and property investing 

As we know all too well, Wall Street is highly reactive to the smallest of maneuvers that take place in Congress – especially when they involve taxes and spending programs.  So I expect a real roller coaster of a ride through the first half of 2013 in the stock market.  However, that should not affect home buyers if consumer confedence remains upbeat.  And it certainly shouldn’t dissuade you from continuing to search for additional investment properties to add to your long-term portfolio. 

Again, look to the unemployment rate as the main directional pointer for how you should invest in 2013.  If you see unemployment rise, continue to invest in residential multi-family property.  If you see it go down, start switching to single family home acquisition to fix up and rent out or speculatively sell (flipping) in the short-term. 

The commercial markets in property investing 

Here too, that unemployment figure becomes the major indicator of your actions in the next year.  If it ticks upwards due to Congressional inaction on the fiscal cliff resolution, there will be less investment by companies in equipment, inventory and personnel.  Therefore, look for higher vacancy rates overall in the office building, retail space and manufacturing (plant and warehouse) markets.   As the economy falters in this scenario, look for more company cutbacks and outright dissolutions.  That will obviously have a deleterious effect on space demands, especially in the retail and office building arenas.  Likewise, hotels (and the travel  business in general) will take a hit during any new recession, so you would also want to steer clear of hotel investments if unemployment starts upwards.

However, if the fiscal cliff is averted in the next month,  the U.S.will continue to show modest productivity gains over the next year (as was done in 2012), and then you can look for the unemployment rate to continue to slowly decline, just as it has this past year.  Then we can expect greater stability in the commercial markets.  With this, one can expect small increases in rents for commercial space, be it office, retail or manufacturing.  Vacancy rates should also drop with increased productivity.  This should make commercial property a good addition to your property portfolio in 2013. 

The flipping outlook  for property investors

Here too the bell weather unemployment rate will dictate how you approach flipping in the next year.  If the rate drops as the fiscal cliff is averted, credit markets will remain stable, and consumer optimism will remain at a slow and steady growth pace.   Then it would be an excellent time to get further into flipping properties. 

Over the last year we’ve seen small increases nationally in home market valuations, as well as a marked decrease in time on the market averages for homes nation-wide.  With the fiscal cliff averted, consumer confidence stays high, unemployment will tick down, so you can then look for a more robust housing market.  With this, look for  further  reductions in days on the market for the average single family home in the U.S.  Prices will slowly rebound upwards, and this will make for a much better backdrop for  flipping – certainly much better than the last several years have been. 

In the event of a recession

My best suggestion for property investors in the unlikely event of a Congressional meltdown and a descent into another recession, is to consider taking the properties you already own, and use the time to properly maintain and upgrade them in a downturned economy.  Use the downturn to your advantage, and try to rebuild your weaker, or deferred maintenance properties.  You’ll be able to address all necessary repairs, and/or increase their valuation by upgrading the properties. In so doing, you’ll also be able to increase the  rents you charge on all your improved units.

Also consider the next year as a good time to try refinancing your investment properties to help increase your overall cash flow on all your collective properties.  With rates at all-time historical lows, and with an economic downturn occurring, you’d be able to lock in excellent rates for the long-term on your portfolio of real estate holdings.  So in the event of a recession, look to revamp, refinance, increase your rent rolls and build cash flow on existing properties owned in 2013.  And hold these properties in the short term until you see signs of a recovery.

The bottom line

I still feel Congress will avert turning the economy into a major downturn though.  And so, I strongly believe you’ll want to remain in a steady acquisition mode through next year.  Make sure that in either the commercial or the residential rental arena, your cash flows work out to be positive before making any offer on a potential investment property acquisition.  You can’t avoid doing the basic homework of research and numbers crunching analysis.  Remember to always crunch your numbers properly, and always look for the discreet changes in the economy on a daily basis.  If you’re going to play the property investing game, it certainly pays to stay informed.  Above all, as noted above several times, watch that ever-changing unemployment rate as your main direction arrow.  That figure will point you in the right direction as you go through 2013.

 

photos courtesy of seerchat.com, en.wikipedia.org, myweathertech.com,  socalfools.org, the666.com, onlyhdwallpapers.com, onlyhdwallpapers.com, browninsuranceservices.com, intomobile.com, tmgnorthwest.blogspot.com, home.howstuffworks.com, psdgraphics.com, appraiserjobs.com

Filed Under: Current Events Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Taking Advantage Of Investment Property Tax Deductions

August 8, 2012 By Leave a Comment

The hidden gold mine

Some of the best financial advantages of investment property ownership are the many ways you can utilize tax deductions on any given property you acquire.  As standard investment property advice however, it is always recommended that you consult your tax professional to help you fine tune and go over all the deductions available to you individually.

Here are just a few of the most basic tax deductions available to property investors.  Keep in mind, these deductions are for rental properties.  Shortly-held properties (flips) will not be allowed these types of deductions, and are subject to either regular income tax rates, or capital gains rates, depending on how long you’ve held the property.

The most basic expenses

Rental properties throw off a great deal of standard deductions that can effectively reduce the gross income of your investment property, thus saving you in taxes.  These would include items such as any fees for your property management, insurance on the property, taxes, regular landscaping services (like lawn cutting and snow removal), tax preparation, and any losses from theft or any non-covered insurance losses.

In addition, mortgage interest on any investment property is fully deductible.  You’ll need to remember that your total mortgage payment covers both principal and interest (albeit usually a small amount of principal each month).  You’ll need to make sure you get your total yearly interest only amount from your lender.  In addition, remember too that costs associated with obtaining your mortgage are not considered deductions.  So items like appraisal fees, commissions or processing fees could not be deducted.  Rather these costs would be rolled into the cost  “basis” of your property.  They then could be amortized over the life of your mortgage.

Other common deductions

Another common deduction, especially if your rental property is a condominium, are home owner association fees.  Many single family homes also belong to local home owner associations to share open space or a beach, for example.  These are paid with the home owner association fees.  In addition to these fees, if the condominium made any repairs to common areas and you were billed for them, then those costs are deductible as well.  However, condominium improvements are not deductible.

Don’t forget that any travel related expenses are deductible as well.  Your cost to travel to and from each of your investment properties is fully deductible when you go to collect rent, or meet with a tenant, inspect a unit, or make repairs to a unit. You’ll have a choice of either deducting the actual costs or using the standard mileage rate.  Either way, you’ll need to keep very careful records of your travel.

Deciphering repairs versus improvements

All repairs done to your investment property are fully deductible too.  Just make sure they are considered repairs and not improvements. Basic investment property advice will tell you that if you’re doing something to your property to keep it in good shape, then that’s a repair.  But if you’re adding value to the property, then that’s an improvement.  For example, when you first acquire a property and paint all the units – that’s a capital improvement.  But after a tenant you’ve been renting to moves out, and you hire a painter to come in and re-paint the unit to spruce it up, that can be considered a repair.  Adding carpeting?  That’s always going to be considered an improvement.  Fixing a leaky faucet?  Certainly, a repair.  Changing to a new faucet?  Improvement.  You get the idea…

When you make improvements, while the costs are not deductible, they can be amortized and recovered through depreciation – as well as when you go to sell the property.  Make sure you keep accurate records of all repairs and improvements!

Always consult your tax pro

As mentioned earlier here, proper investment property advice says that you’ll definitely want to consult with a tax professional (whose fees will be deductible) before taking any deductions on your taxes.  Overall tax laws are voluminous and a tad confusing to the layman.  You’ll certainly require the help of a pro in this area so you don’t make any costly errors based on ignorance.  After all, the IRS can be very unforgiving.  And you’ll also want to feel comfortable knowing you’re utilizing all the possible deductions potentially available to your situation.

 

 

photos courtesy of discoverspringtexas.com, ehow.com, trexglobal.com, working point.com, omaharedcross.blogspot.com, taxes.lovetoknow.com

Filed Under: Rental Investments Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Did You Hire A Contrarian As Your Contractor?

August 1, 2012 By Leave a Comment

Butting Heads With Your Contractor?

Proper investment property advice says that if you’ve used a contractor for any  property renovation, and you’ve butted heads with them, or if they worked very slowly, or did poor work, you know it’s time to look for another contractor.  Another way of telling if you need to make a switch is if your contractor uses one or all of the following infuriating statements or questions while on the job:

“Oh, that’ll never work!”

“You want what?”

“Can’t  be done”

“Oh, you can’t do THAT!”

 Go for upbeat

What you really want is a contractor that is not a contrarian.  Basically, someone with a positive disposition.  Someone who is intelligent about his craft, upbeat, and has a real can-do attitude.  Basically, you’ll know you’ve got the right contractor when he uses one or all of the following soothing statements or questions while giving his all on your project: 

“Sure, we can do that!”

“Difficult,  but let me see what I can do…”

“Let me know if you think this will work for you”

“I have a few ideas you might like”

Learning through trial and error 

A really good contractor is one who brings his own experience melded with his creativity to your renovation.  It’s  not enough that he’s technically proficient.  There are plenty of ways to accomplish a look you desire, without breaking the bank either.  Solid investment property advice dictates thats you should look for the contractor that will be cognizant of both – and look out for your best interests – and not simply try to pad the job with work you don’t necessarily need or want.

Being held hostage

You’ll also want to be sure he can provide the number of laborers he promises when he bids on your job.  Otherwise, you may end up with just him and another guy doing all the work.  And if they are truly slow, you will definitely be held hostage as your job drags on.  And it will be impossible to cut him loose in the middle of a project if he already has a relationship going with the local building inspector, or electrical inspector, for example.  Switching out might be an indicator by inspectors of potential problems with your job, which could ultimately cost you more delays and money to fix.

Should you switch out or not?

Further, switching contractors in the middle of a project could actually delay you even more – and be even costlier.  Certainly, trying to obtain a new contractor “on the fly” will require some wait as they try to clear their schedule to fit your project in with their other ones already ongoing.  And at best, squeezing you in with their other projects means more delays for your project, as you will not get their full attention (as they split their time/days between their different projects and yours) until the completion of your renovation.

 The bottom line

So even if you do your homework and get a good referral and have checked his references, but he still turns out to be a real contrarian, you will be stuck with him until your project is completed.  The best property investment advice in this situation is to be sure to immediately start looking for a better, more positive-looking contractor when your project is done, well in advance of any future project.  And make sure to spread the word about his poor performance and contrary attitude to others who might ask you about his services.  In this way you can at least help prevent someone else from suffering the same fate – and hopefully drive him out of business.

 

photos courtesy of carwoo.blogspot.com, j2solutionsinc.com, inquiringhands.com, ehow.com, acanthusandacorn.blogspot.com

Filed Under: Fixing Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Investment Property Information Series – The Basement Conversion

February 7, 2012 By Leave a Comment

Adding inexpensive habitable space to your investment property

As part of this investment property information series, investors should understand the relatively inexpensive way to add value to an investment property, as well as throw off more rental income, by transforming an existing unfinished basement space into habitable space. Since you’re utilizing already existing space within the footprint of your building, the incremental cost to upgrade your property is substantially less than if you were to create an addition by adding an extension or entirely new level to your property.

The most important features

Basement apartments can be very attractive to prospective tenants as long as they feature several key components. First, there should be ample natural light in the unit. While basements typically are partially below ground, smaller windows are the norm. However, more light can be added by adding more windows to the unit.

You must conform to building codes

Secondly, you’ll need to make sure the basement conforms to your local building code. Your contractor or architect will advise you as to the necessary solutions to issues like emergency exits. As part and parcel of this, you can usually add an emergency exit by creating a large window exit, solving two problems at the same time.

Proper headroom is also a common problem that most basements lack. Your contractor or architect will also advise you whether your state will allow exemptions if you don’t meet the headroom requirements. (Building codes have headroom requirements not for the tenants’ sake, but rather for firemen. In case of fire, firemen with their helmets on battling a blaze in the dark need to be protected first and foremost from very low ceiling heights. It’s not something the average person thinks about – but makes a lot of basic common sense.)

Basement water problems

Third, you’ll need to make sure there are no water issues in your basement. Most basements have some sort of water problem, but there’s always a solution, depending on the type of problem. Dampness alone can be mostly ventilation-related. However, actual standing water is usually a sign of either poor landscaping around the perimeter of the house and the resulting water seepage through foundation wall cracks, or a high water table and/or hydrostatic water pressure, where water begins to seep through the basement flooring, and not through the foundation walls.

Water problem solutions

All these types of basement water problems come with relatively easy solutions. Ventilation problems can usually be addressed by adding more windows and/or room ceiling fans to create better air flow. Standing water can be dealt with through the addition of French drains. They function as an interior gutter system installed in the perimeter flooring of the basement. Water coming in from foundation walls is then collected in flexible piping. The water flows by gravity to the lowest perimeter point, where a sump pump is fitted into a permanently constructed sump pit. Water is then discharged automatically far away from the house.

Simple landscaping can also help prevent water seepage problems. This may involve  building up berms around the sides of the house to ensure water rolls away from the building.  However, sometimes a larger scale landscaping project is required to place waterproof barriers around the perimeter foundation walls.

Keep the rehab simple

Probably the single biggest rule in this investment property information series, is to keep things as simple as possible.  Once the basement is water-proofed, a licensed electrician and plumber will be required when adding lighting, adding a kitchen and a bath, and ensuring that the new rental unit meets all building codes in your area.  However,  always remember to keep it simple when undergoing the cosmetic renovations.  Keep the rehab on the bland side – nothing flashy, and make sure it appeals to most everyone, and that there’s nothing objectionable about the renovation. In this way you’ll appeal to the largest pool of tenants.

Once completed, you will have added value to your building by increasing the habitable square footage of the property, while at the same time increasing your rent roll on it as well.

 

photos courtesy of southeastmichiganhomeimprovementremodel.com,

customcomfortconstruction.com, decorateitonline.com,

 roomadditions.us,  nickgoodman.com, quality1stbasementsystems.com,

 newjerseyremodelers.com

 

 

Filed Under: Fixing Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Investment Property Finance Update: Easy Credit Score Tune-Ups

January 17, 2012 By Leave a Comment

Keeping score of the game – the FICO score

With the average 30-year fixed rate mortgage  hovering around a 3.65 percent interest rate right now for investors with the highest FICO (Fair Isaac Corp.) scores, it’s a good time to review how to tune up your credit score to help qualify for the best rates.

As a reminder, FICO scores were created to measure an individual’s financial fitness.  The score ranges between 300 and 850, and is used by the vast majority of lenders in the U.S.  While there are other scores used by banks, FICO is the lending industry standard for assessing overall credit risk.  The main use of this scoring tool is to simply show the risk of possible default by any individual borrower.

Who qualifies for the best mortgage rates

Before the financial meltdown of the last several years, FICO scores of 720 and above were considered uniformly as the scores that would qualify borrowers for a bank’s best mortgage rate.  But more recently, that number has been pushed upwards, and now 750 and above tends to be the new standard for qualifying excellence.  About a third of U.S. consumers fall into this top-ranked category, while the median FICO score was 711 last year.

So naturally, as part of your overall investment property finance plan, you’ll want to check your credit score to see where you’re positioned before applying for any new mortgage.   You can find yours through sites like freecreditscore.com or freescore.com.  If you’re already at 750 or above, trying to improve your score will be a pretty fruitless endeavor, since lenders don’t really create a pecking order of default riskiness once you’re in the top echelon, and you’re showing the least borrowing risk.  However, the goal for most will be to try to take some easy steps to help improve your overall FICO number.

Try these simple, easy credit score tune-ups:

Pay your credit card bill early

That is, pay your bill several days before your statement closing date each month.  (This is not the statement due date!)  Paying early will ensure you show a zero balance going into your next statement period.

Try to get any late payments removed

First, make sure there are no errors, and second, if you did unfortunately make a late payment, simply ask to have it removed as a “one-time-only” courtesy.  If your credit card company says no, well, at least you tried…

See if your credit card company will increase your credit line

Remember, you’re seeking an increase to ultimately boost your FICO score – not to actually use the increased credit line!  This is accomplished by helping your “utilization” ratio, which weighs the amount of actual debt you have outstanding with the total amount of credit you can actually use on any given card.

Apply for new credit cards sparingly

Each time you apply for new credit, your FICO score will drop a little bit.  So avoid applying for a credit card for every store you walk into that’s offering a “10% off” promotion if you sign up for one of their store cards on the spot.

Don’t close old, unused accounts

Even if you haven’t used a credit card in some time, do not close the account.  By remaining open, the available credit line helps to effectively lower your utilization ratio (mentioned above), and your FICO score won’t be adjusted downward.

Set up automatic bill payments

Good, on-time payments can help bump up your FICO score, by as much as 50 points if done regularly on all your cards for at least six months.  If you don’t like the concept of automatic deductions, you can arrange for your credit card company to send you timely email alerts as payment reminders.

Pay down some debt

If you receive a windfall, tax refund, bonus or the like, consider making a sizeable dent in your debt load.  Any outstanding debt over 35% of your existing credit line on any one credit card will drag your score down.  However, paying the debt down to get the ratio under 35% will yield a nice boost to your FICO score.

The key to your bottom line

Try utilizing some or all of these credit score tune-up tips, and get your FICO score up over that 750 mark.  That way, when you next apply for investment property financing, your score will help qualify you for the bank’s best mortgage rates, ultimately either saving you money on a monthly basis, or allowing you to purchase more house for the money.

photos courtesy of anchoragehomesearch.com, lgfcunewsworks.org, infinitecredit.com, southwaterfront.com, credit-qna.com, money.cnn.com

Filed Under: Financing Property Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
 
Social Toolbar Pro - A Premium #Wordpress Plugin http://t.co/WsuLJ43sDC via @socialtoolbar #custom #social19 hours ago