November 6, 2020

If you are considering building a new home from the ground up, you will likely need to obtain a construction loan to complete the project.  Construction loans are short-term loans that can be used to finance land, materials, labor and all of the other expenses associated with building a new property.  It is important to understand that construction loans come in different varieties.  Some construction loans have to be paid off once the home is built, and some can be converted into a mortgage that can be paid off over time.  The right type of construction loan you choose will depend on your budget, your timeline and how you plan to use the property once it is built.  Below we will discuss some of the key points you should know before moving forward and securing a home construction loan.

What Are The Different Types Of Construction Loans?

There are three main types of construction loans you should be aware of before starting a new construction project.

An owner-builder loan is for homeowners who also want to act as the general contractor for their own construction project.  These loans can be less expensive and offer lower rates than the other two options, but lenders often see them as a high risk, so they may be harder to obtain and you generally have to be a professional contractor to secure these types of loans.

A Construction Only Loan is a short-term adjustable rate loan used only to complete the building of your home.  Once the home is built, this loan either needs to be paid off in full or refinanced into a mortgage loan for permanent financing.

A Construction To Permanent Loan finances the construction costs as well as the finished home.  It converts from an initial adjustable rate construction loan to a fixed rate, permanent mortgage loan once the work is completed.

As with any mortgage, you’ll want to explore all your financing options, and compare offers from a few different lenders.  The right type of construction loan for you will depend on your finances, your timeline, and who can offer you the best interest rate for you situation.

October 28, 2020

Venturing into real estate investment is an exciting opportunity which can generate significant profit for investors when executed correctly. As with all investments, however, there are certain financial risks that can be costly if you do not know what you are getting into ahead of time. Successful real estate investment requires a strong knowledge base, research, and careful consideration before diving into it. Below are some tips expert investors recommend when investing for the first time in real estate.

Do Your Homework

One of the best tips long time investors can offer is to do your homework ahead of time and “know what you don’t know”.  Understanding that all geographical markets are unique and taking the time to learn the specifics of the area you wish to invest in ahead of time can avoid many headaches down the road. It is important to be thorough during the underwriting process and to make sure you are able to acquire a property on the best possible terms. Experts recommend that you go over all legal documents with a fine-tooth comb and have someone you can trust to carefully draft any agreed upon terms. Unless you are already an experienced real estate professional, having a strong mentor relationship in place to discuss your investment and business plan can make the difference between whether or not your first-time investment is successful or not.

Choose A Location You Understand Well

When investors are first starting out, experts recommend investing in an area you know well and preferably one that is within an hour’s drive of your home. Attractive investments on paper can often turn into nightmares when they fall outside of the scope of your general understanding of where the property is located.  By investing close to home, you can more easily get to know an area and be responsive on short notice when your immediate attention is required on site.  Having the ability to physically step foot into a property and walk the surrounding neighborhood can offer many valuable insights that may get missed if you attempt to invest in a property that is in a location you know little about or is not within a reasonable distance from your primary residence.

Go Beyond Your Feelings

There are many different metrics that often get overlooked by first time investors when they are starting out in real estate. Understanding and analyzing data to drive your decision making is much more effective than simply acting on impulse based on how you feel about a specific investment property. Job growth, population growth over the last five years, median household income and crime rates are just a few often overlooked indicators of whether or not a property will make for a sound investment.  Taking a step back and objectively looking at all of the data available in the real estate market you wish to start investing in is not only a wise approach that will help set your mind at ease on making the right decision but can also help you to find investment properties you might have otherwise overlooked when you are first getting started with investing in a property.

Don’t Over Commit Financially

Experts stress the importance of understanding your financial limitations and avoiding scenarios where you over commit even if an opportunity sounds lucrative.  It is important to have alternative means of income when investing and to not place all of your eggs in one basket financially, especially when you are first starting out.  While abandoning your day job and becoming a full-time real estate investor may sound appealing, it comes with its own pitfalls. Understanding your individual financial and comfort levels and what investment criteria’s and exit strategies are right for your situation ahead of committing to any investment can make all the difference in your success, especially in real estate. Long time investors recommend you always have sufficient cash reserves post-closing to cover unforeseen vacancies and expenses. Furthermore, they recommend you consider options such as purchasing multi-unit properties vs. single family properties to help avoid incidents like having a tenant who suddenly stops paying rent or a down turn in the market.  Having a clear understanding of your financial standing ahead of time will make any issues that arise down the road much less painful for all parties involved.

Regardless of your background, experts agree that before investing in your first property, it is important to do your homework, choose a smart location, analyze all of the available data at your disposal, and perhaps most importantly, to not over commit financially and strain your ability to make future investment moves when they come along.  Understanding the above expert tips regarding first time property investment will hopefully help guide you in the right direction before you sign on the dotted line and secure your first investment property.

October 16, 2020

Most real estate investors spend a lot of time looking for creative ways to increase the income they receive on their rental properties.  While there are some obvious ways to increase the value of a property, like adding an extra room or upgrading the kitchen and bathrooms, there are also many ways to maximize your income on a rental investment without breaking the bank.  Below are just a couple of ways clever real estate investors can help ensure they are getting the most out of their rental property investments.

Allow Tenants to Have Pets

While many landlords have valid concerns and worry that allowing pets could damage their investment property, pet owners are becoming more and more frequent in this day and age. Pet owners are often limited in finding nice properties that allow pets and therefore will often settle for less desirable locations in order to live somewhere that will accommodate their fur babies.

Understanding this demand can easily add additional revenue to your monthly rental income if you are wise and know how to protect your asset accordingly.  Charging a nonrefundable pet deposit that will cover any deep cleaning and potential damages that a pet could cause is one smart way to create a win/win scenario for both you as a landlord as well as your prospective tenant.  Currently, a nonrefundable pet deposit of around $250 seems to be an industry standard in most real estate markets.  Additionally, many landlords will add on “pet rent” of around $25 to $50 per pet per month in order to offset any additional costs they may incur while increasing their overall rental income annually.

Consider Short Term Rentals

Considering lease terms shorter than 1 year can give you additional pricing power and a competitive edge over your competition.  Being flexible with tenants and offering them 6-month leases can easily add up to 10% additional monthly rental income compared to a 12-month annual lease.  Another often overlooked option is allowing for month to month leasing. Many renters who are in transition between housing or traveling for business are willing to pay top dollar for properties that do not tie them down to a long-term rental agreement.  Understanding the needs of your prospective tenants can help you secure the most out of your rental properties and set your place apart especially in a competitive market.

Supply Furniture

It is often the case, especially with short term rental agreements, that renters are looking for a place ready to go and set up with all of the furniture they need to move in and start living right away.  Whether a prospective tenant is needing to rent a place because they are traveling for business or they are a family in the process of building a new home, supplying furniture to your rental property is a need that many landlords overlook.  For those seeking furnished properties, the added convenience of a true turn key property adds a value that many are willing to pay top dollar for. Understanding the market you are in and being willing to offer a property furnished can set your property apart from the competition and secure you with happy renters for years to come.

Additional Amenities

There are plenty of creative ways you might be able to increase your property’s income potential if you are willing to think outside of the box.  For example, adding a doorbell or alarm system to a property in an urban setting can add additional security protection to your tenants and may significantly increase the amount a renter is willing to spend. Understanding exactly what your target audience is looking for and effectively delivering a desired amenity that other properties do not offer might leave you surprised as to how much additional rental income your property can bring in.

Understanding the growing demands of prospective tenants can be the difference of whether or not you are able to consistently rent out your investment property, especially in a competitive market. Allowing pets, agreeing to short term rentals, furnishing your rental property and adding additional security measures are only a few ways to set your property apart from the competition.  Regardless of what route you take to add additional value, researching the market you are in and being willing to step outside of the box will add the most potential income to your rental investment and leave your tenants happier and willing to spread the word to future prospects down the line.

October 8, 2020

Many real estate investors are turning to ground up construction as an option to diversify their portfolios and maximize profits on their rental and fix and flip projects.  While ground up construction loans are often a necessity, they come with their own unique requirements which investors need to know how to navigate in order to achieve a profitable outcome.  Below are a few of the most important areas to focus on before investing in a ground-up construction project.

Ground-up construction loans differ from owner occupied loans

It is important to understand that ground-up construction loans are short term loans used to cover the costs of construction only as opposed to a long term 30-year mortgage like an FHA loan for owner occupied properties. If you decide to hold the property as a rental, you may need to refinance the loan into a permanent mortgage in order to extend the loan terms to a more manageable time frame. Additionally, the amount you are allowed to borrow on a ground up construction loan may vary widely depending on what financial institution you obtain funding from so it is important to do your research and make sure you are getting the best deal possible before signing any agreement.

Understanding Construction Draws

Before borrowing money, make sure you fully understand what documents you’ll need to provide in order to receive each draw of funds during the construction process.  Different agreements may have specific fees you are required to pay at each draw and understanding the structure of the loan clearly will help guarantee your success in having enough cash on hand to keep your project running while the draw process occurs. Make sure to inquire about “commitment funding” as this will allow you to avoid interest payments on construction loans until you need to utilize them.

Expect the Unexpected

It is crucial to understand what will happen if any number of worst-case scenarios drag out your project time line. Weather delays, contractor issues, and market changes are just some of the ways your project timeline can be extended unexpectedly. Often, hard money lenders will hide payment requirements in the fine print of the agreements.  From prepayment to loan extension penalties, these hidden requirements can make the difference on whether or not your construction project turns into a win or loss for your investment portfolio.

Ground-up construction can be a valuable option for real estate investment as long as you understand what obligations will come with any funding you obtain. A successful construction project can provide an investor with a bigger payout down the line than a typical commercial or residential investment and can also offer instant equity depending on the deal. Once completed, new construction projects can be just the opportunity an investor needs to expand their portfolio and level up on their competition. Having a clear understanding of the obstacles you will likely face before undertaking a ground-up construction project will help maximize your return on investment and limit the amount of stress created during the construction of any new investment.

September 18, 2020

Investing in a second home can be a great way to build equity and is a wise financial strategy to consider as part of a longer-term retirement plan. Even better, if the property is in a desired vacation destination, you can utilize the property when you want and rent it out the rest of the year with ease. Unfortunately, most individuals require a second mortgage in order to purchase a second home and these terms often require larger down payments and additional underwriting requirements.  Here are a few important ideas to keep in mind before purchasing a second home.

Many Additional Costs

Individuals purchasing a second home can often assume the cost is similar to the experience of purchasing their primary residence. While some expenses are the same, there are many additional costs to investing in a second home. Some of these additional costs include furnishing the home in order to be able to rent it out, maintaining all of the wear and tear that can be caused by having multiple tenants occupy the home when you are not utilizing it, and added insurance rates required when renting out the property.  Combine these additional costs with monthly utilities and taxes and the expenses can add up quickly. It is important to have a crystal-clear picture on what your total monthly expenses will be before purchasing a second home.

Tougher Underwriting

Most individuals have a budget they need to maintain in order to uphold all of their financial obligations. Since purchasing a second home likely means you already have a mortgage you are responsible for paying, you can expect the underwriting requirements to be tougher on a second home. Lenders must guarantee you will be able to repay any money they lend. Credit score requirements are higher when purchasing a second home and almost all second homes will require a higher down payment. The more debt you have will also impact the underwriting terms of a second home. Investors should be prepared to have their debt-to-income ratio scrutinized much more closely when applying for a second mortgage.

Financing Options

On a positive note, you may have more options in financing your second home if you have a large amount of equity built up from your primary residence. Whether you utilize a home equity loan as collateral to obtain a line of credit or simply refinance your first home and pull out some of the equity to use for the down payment on your second property, you may be able to use the asset of your first home to fund the purchase of a second home.

Understanding all of the ways that purchasing a second home is unique from buying a first home can make the difference between whether or not you are successful in acquiring a new property. While second homes do have added expenses and tougher underwriting, there are also often more options when coming up with ways to finance this new investment opportunity. As with any big decision, doing your homework ahead of time and having a clear picture of what responsibilities will be required is the key in obtaining a successful outcome.

September 25, 2020

Many investors feel that hiring a real estate agent is unnecessary and with the proper time and research they can acquire new properties all on their own. Whether they wish to simply save on commissions and fees or whether they have had previous experiences which left a bad taste in their mouth, investors need to step back and look at the larger picture. There are quite a few benefits of dealing with a real estate agent to maximize your investment opportunities. Below we will discuss a few of the many reasons why it is best to utilize a real estate agent when investing at a new property.

Access to Listings not on the Market

In one of the most competitive markets out there, seeking out listings through the local MLS (Multiple Listing Service) in your area will likely not yield the most lucrative investments. Seasoned real estate agents have spent years building a successful career by networking with other real estate agents, land owners, and investors.  Real estate agents often have inside access to listings that are off the market and never posted on the MLS.  These investment opportunities more times than not will offer a higher return and make the difference between whether or not it is worth the risk to invest your money in real estate.  Gaining access to all of the opportunities that occur off the market in real estate is one great reason to spend the added expenses involved in hiring a real estate agent.

Property Negotiations

Another great reason to work with a real estate agent when purchasing a new investment property is their ability to negotiate the deal on your behalf. The negotiation process can be one of the most stressful aspects of acquiring a new property. Having a third party negotiate the terms of an investment often results in a better deal in the end for all parties involved. Established real estate agents are well versed on the local real estate codes, market values, and numerous legal hiccups that can save you a lot of time and money down the road and ensure that you are making a sound investment before you sign on the dotted line. Additionally, removing the “personal” element from the negotiation process helps to focus all parties involved.  A good real estate agent knows when to hold firm on an offer and what to give in on during the negotiation process to help you get the results you are looking for.

Saving Time

Perhaps the largest benefit of hiring a real estate agent is the amount of time and hassle they will save you.  Acquiring a property requires a ton of paperwork and many hours of scheduling and viewing potential opportunities. When you hire a good agent, all you need to do is let them know the type of properties you are interested in and what your budget is and they will do all of the leg work on your behalf. They can weed through all of the properties that do not fit your criteria and schedule viewings when they are most convenient to your schedule.  Once they find a property you wish to move forward on, they will gather all of the necessary paperwork, negotiate the terms of the deal, and ensure that you check off all of the legal requirements in the properties area.

As the saying goes, “Time is money” and hiring a good real estate agent is one of the best ways to maximize both your time and money not to mention setting your mind at ease. From accessing listings which are off the market, negotiating the terms of an agreement, or saving you countless hours. Hiring a real estate agent is more than worth the added commissions you will pay and will helps you to make the best decision when investing in a new property.

Written by Shawn Patterson

September 21, 2020

Whether you are just starting out or a seasoned veteran in real estate investment, very few people have the amount of capital needed to put a large payment down to secure a new property. Luckily, there are several secrets top investors use to minimize the amount they have to come up with in order to successfully invest and secure a new property. Below are a few clever ways to invest in real estate without needing to put down a large down payment.

1. Hard Money Loans

Typically used for flipping properties and bridging the gap between investments, hard money loans are one great way to utilize outside funds to secure a new investment property. While interest rates are typically higher than going through a financial institution, there is also more flexibility with the terms and fewer hoops to jump through to secure these loans. Another added benefit to using a hard money loan to invest in real estate is you do not have to use your own money to secure a new property. It is important to research and go with a reputable company and understand the terms on repaying these loans in a timely manner. That said, for quick deals, hard money loans are a great way to grow your portfolio without putting up a lot of your own funds.

2. Invest in Turnkey Properties

Turnkey companies can offer a great way for new investors to get their feet in the door if they are brand new to real estate investment. A turnkey company finds, buys, rehabs, rents and manages investment properties to sell them to real estate investors. While you typically won’t get to take advantage of all of the profit generated, these investments are intended to be hands off and do not require the amount of work involved as most other real estate projects. Best of all, turnkey companies typically focus on areas where property prices are much lower and are a great place to get started for the first time. As with any investment, it is important to understand all of the terms and obligations you will be required to agree to before putting up any of your own money.

3. Invest in Real Estate Mutual Funds

Real Estate Mutual Funds can be a great way to pull multiple investors’ money together to grow your wealth while minimizing your financial risks. These funds offer diversification of your investment portfolio but are not as liquid as other investment options. Typically, the prices for these funds are only updated once per day and some do have a large minimum amount to invest. Again, doing your homework ahead of time can help you to find mutual funds with a low amount of upfront cost and risk. It is also important to understand whether or not a mutual fund is passively or actively managed as actively managed funds tend to come with additional fees and more expenses than passive mutual funds.

Regardless of what method you utilize, few people have all of the money necessary to purchase real estate out of pocket with large down payments. If you do not have the savings built up for a full down payment or simply want to minimize your upfront risk, the above options are just a few ways to secure a new property or get started in investing in real estate without putting up a lot of your own money.

September 16, 2020

Investing in real estate can be quite profitable, but like any investment it requires capital in advance in order to enjoy the benefits it offers. This capital is essential to keep your real estate business moving in the right direction. From purchasing your first duplex to paying for the upgrades on your previous fix-and-flip, without the proper funding, you cannot call yourself a real estate investor. Luckily, there are many options for investors to raise the capital they need to fund their real estate projects. Below are three smart ways for raising the funds you need in order to be successful.

1. Secure funds from a private lender

Know someone who is interested in investing money and wants to receive a higher return than simply having their money sit in a standard bank saving account? Getting a loan from a family member, colleague, or friend is one smart option before going to a bank to fund your latest real estate project. While you will need to pay the loan back with interest and guarantee a certain return on their investment most of the time; you can typically get the funds you need much faster, and with less red tape than going through a financial institution.

2. Find a highly rated hard money lender

There are many hard money lenders nationwide who are happy to fund a loan if the terms are right. It is important that you do your research ahead of time on any hard money lender you go with and select a reputable company to do business with prior to signing on any dotted line. Directories such as hardmoneyhome.com are great resources because consumers are able to leave reviews of their experiences with different lenders, making it much easier for you to research and find the best company to meet your needs. While higher interest rates are usually standard with most hard money loans, there is less red tape and it is easier to qualify for these loans. Hard money loans are best suited for quick projects such as fix and flips or bridge loans to float you in-between real estate projects.

3. Partner up with someone you can trust

Partnering with someone you can trust is a great way to share the responsibilities and workload of investing in real estate. It is important that each partner is clear on the expectations of each deal and any potential profit or loss on an investment prior to moving forward with a partnership. While partnering with someone is not without its own obstacles, it can be a great way to share the risk and reward on investments. Dividing and conquering your responsibilities is also a great way to gain a competitive edge on your competition.

Regardless of which method best fits your needs when securing funds for real estate investment, few investors have all of the capital needed to fund their investment projects. Researching all financing options and picking which option is best for you is critical to you being successful within the real estate industry. Hopefully, using one or all three of the above options will benefit you in all of your future investment endeavors and help you to grow a diverse and profitable portfolio.

September 3, 2020

Many experts agree that purchasing an investment rental property is a sound strategy to grow wealth or as a secondary source of income. Real estate has produced great wealth for many throughout the country, however, like any investment, there are certain pitfalls one must consider before jumping into and committing to purchasing a rental investment property. Below are four tips every first-time investor should consider before buying their first property specifically for leasing to renters.

1. Pay Down Debt

Before purchasing a rental property, it is important to pay down your personal debt and reduce your financial liabilities. It is critical to consider paying down any outstanding medical bills, student debt, credit card bills with high interest rates, and child support.  Also, consider if you have any dependents who will attend college in the near future if you are going to be successful in purchasing a rental property investment. It is always important to have a cash cushion for unexpected expenses to ensure you always have the funds available to make your payments on time.

2. Watch out for High Interest Rates

While interest rates are lower in 2020 than in previous years, typically rental property investments come with a higher interest rate than owner occupied primary residences. It is important to compare available interest rates in the geographic area of the rental property to ensure you are getting the best possible rate and not decreasing your prospective margins by paying unnecessarily high rates when repaying your loan to a private lender or financial institution.

Once you acquire a new rental property, it is important to keep an eye on the ever-changing interest rates to guarantee you are paying the best rate and maximizing your return on investment. Many seasoned investors may decide to refinance their loan if a significant decrease in interest rates becomes available and you should consider doing the same.

3. Calculate your Profit Margins

According to top real estate investors, they aim for a 5%-7% return on their investment properties due to added overhead costs such as staff.  As an individual investor without staff, it is reasonable for you to estimate a 10% return on your investment. There are many factors that must be accounted for when purchasing a rental property such as homeowner’s insurance, property taxes, homeowner association fees, as well as monthly expenses such as lawncare, pest control, and pool services to name a few. Tack on maintenance and repair costs for unexpected events like needing to replace an old AC unit, roof or broken fencing and the cost can add up quickly if you are caught off guard and have not done the proper research and planning when calculating what a reasonable return on your first rental property should be.

4. Know your Legal Obligations as a Landlord

It is critical that you research and understand your obligations as a landlord prior to purchasing your first rental property. Landlord laws can vary widely from state to state so it is important to learn the specific legal requirements you will be obligated to fulfill once you have tenants renting a property you own as an investment. Some key items to keep on your radar are eviction rules, security deposit obligations, and various leasing requirements in the property’s location. Doing your homework on these requirements ahead of time can save you from numerous legal headaches down the line.

As with most investments, rental properties will not typically produce an immediate large return. However, while it is not without its challenges, investing in a rental property can be a great way to build up your personal investment portfolio and grow substantial equity for your future. Setting realistic expectations and doing your research ahead of time will help ensure you make the best decision and pick the proper rental property to maximize your investment opportunities.

There are so many people out there who are interested in investing in real estate and starting with their own fix and flip property. However, if you are looking to do more than just a single fix and flip—and really looking to take your investing efforts to the next business with a fix and flip business, then this is an entirely different undertaking.

This is a big decision and a big adventure, but there are a few tips that can help you get started with your venture so that you can set yourself up for success:

Get a Real Estate License

Before you go all-in with your fixing and flipping business, you want to get a real estate license. It can open up more opportunities for you as a flipper and it can be a major asset as you go through the process as you will understand all of the processes and terminology involved. Plus, if you can act as your own real estate license, you can save a lot with real estate fees.

Get Access to the MLS

Not everyone has access to the MLS, but if you are a real estate agent, you will be good to go. The MLS, or Multiple Listing Service, is the best place to go for accurate information on properties. It is much more reliable than other online sites. You will need this before you buy, before you price and before you sell. The MLS is going to be your best friend and essential for finding comps.

Partner with a Brokerage

You may not have plans to work full-time in a real estate office, but you should be partnering with real estate brokers as they can provide you with some valuable support, information and insights. They can be a valuable resource for helping your find potential buyers and learning the ropes of the industry.

Purchase and Renovate Your Own Home

Everyone has to start somewhere, and if you are looking to begin with a fix and flip business, you will want to start with your first fixer upper. It, of course, will go easier with your real estate license. Make sure that you do your research and know the comps in the area. Don’t go with too big of a home on your first fix and flip. It is important to start small both when it comes to financial commitment and the size of the house.

Your first fix and flip will have a lot of bumps in the road and you will probably make a few mistakes along the way, but it can be a great first step to building a reputable business.

Keep these tips in mind as you make the big decision to move forward with your upcoming fix and flip business. Starting an entire business like this can be a big undertaking, but it is one that can help you make a great deal of money in your future if you take your time and do it right.