Monday, January 23, 2012

Finding and Evaluating Property for Real Estate Investing

Today, investing in real estate can be easier and more profitable than ever. But whether in a healthy market or a down one, and with new tools to find and evaluate potentially profitable properties, you can still lose a lot of money in a short time.

To maximize the odds of winning, consider these tips...

The process of finding those 'diamonds in the rough' of real estate investing has been revolutionized by the Internet.

You can spend hours online finding, evaluating, and comparing descriptions, prices, photos, and useful legal info about properties close by your neck of the woods, or thousands of miles away. Unless you restrict yourself to FSBO (For Sale By Owner) ads on eBay, Google Base, or Windows Classifieds, though, prepare to pay sometimes hefty realtor fees.

Visit Realtor or estate agent businesses.

If you can afford it, obtain an MLS, a multiple listing service, and get the same information they get. In some locations, a license is required, even if you have the cash to play.

Even if you use the web to find a great value, be prepared to do some 'leg work'.

The only way to judge property properly is to do due diligence. You have to visit the property and the surrounding area. Is the neighborhood maintained in a way that won't depress the selling price? While you're driving around, look for FSBO signs, For Rent signs, and talk to some of the neighbors. After all, the next door neighbor might know something about that impressive it turns into a swamp after a few days of rain!

Be prepared to make more than one visit, in different kinds of weather and at different times of day, if possible. Property, land and houses, look and act different in the cool of the night than they do in the heat of the day.

And the best way to check for a leaky roof is to go when it's raining - exactly the weather you don't enjoy evaluating property in...right?

Well, neither will your competitor for that property. Going that one extra step could be what puts you ahead in the race.

Information is power.

After the informal inspection, you can strike some sort of contingent deal.

'Contingent', here, usually means the deal is dependent on a satisfactory professional inspection. Find an inspector who is experienced and reliable, even if you have to pay a little more. The price will be repaid many times over, especially if you use them regularly in the future.

Learn the craft yourself if you have time and interest, but at minimum learn at least enough to keep the inspector honest. Most are, anyway.

Review the report carefully. It's not required that everything is 100%, but every major and minor flaw should be recorded. Leaky plumbing or roofs, stained carpets, damaged walls or floors, inoperative air conditioning or heating systems, etc. Look especially for any standing water in basements, near foundations, etc.

Everything is negotiable, so there's no rule about who pays for repairs, if anybody. But information is power. Still, be realistic. Very few properties, even newly constructed ones, are perfect. If they are they're expensive enough to eliminate your profit, unless you plan to keep the investment for an extended period.

If you are really serious about real estate investing, educate yourself. One place to get started is at your local library. There are also many publications and services available online, but, before you shell out a ton of money, pick up a copy of "Investment Property Success", and study it carefully. You can download a free chapter to get a feel for the book, and, if you like what you see, you can order your own copy for immediate download for less than $30.

Now, I am going to be a smart-aleck.

If $30 is too much for you to pay for a quick, in-depth look at the world of real estate investing, then you do not have enough money, or moxie, to get into the field. If you just want to jump in feet-first without at least studying some equivalent training materials, you will kiss a lot more than $30 good-bye! If you spend the $30 and realize that real estate investing is not for you, you just saved yourself thousands of dollars.

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Tuesday, January 03, 2012

Real Estate Investing - Creative Financing For Investors

For decades, just about the only way to finance a property purchase was 80-20, i.e. 20 percent down, 80 percent on loan.

Certainly, there have been many who put more down, but 20 percent was considered the bare minimum.

Happily for the real estate investor, things have changed.

There are now a dozen or more ways to finance a property purchase, whether for pure investment or to acquire a primary residence. One common method is to have more than one loan, usually in the form of a second mortgage, which is often used to finance the down payment.

The buyer puts 5 percent in, and effectively borrows the other 15 percent on a separate loan, usually at a much higher interest rate.

While it's nice to invest less for the same property, the downside is not limited to the higher interest rate on the second mortgage loan. Since the buyer doesn't meet the standard 20 percent minimum, lenders almost always require PMI (Private Mortgage Insurance). Fees can be pretty hefty for this coverage.

Though it's certainly theoretically possible to have the lender remove the PMI requirement after enough payments have been made, it rarely happens in the real world...or "real estate" world. In theory, once the loan(s) have been paid down so that the LTV (loan-to-value ratio) is at 80 percent — usually by a combination of paying down the second mortgage and appreciation of the value of the property - the lender will be willing to consider removing the PMI cost from monthly payments.

Most often, before that happens, the loan is refinanced or the property sold.

The ambitious real estate investor, however, can find other sources of financing. When considering property in a new development, such as a planned community or new housing tract, manufacturers will often be willing to fund a home loan for early buyers. Such loans are frequently available at only 5 percent of the purchase price.

For the really daring in the world of real estate investing, it's possible to 'buy' a property, then sell it, without ever owning it - at least not for long. It is indeed possible to buy a property, establish a contract, and then sell the contract for anywhere from $500-$5,000 without ever taking possession or even being on the title. Profits on this form of real estate investing are usually smaller, but the cash is obtained quicker, though such deals require excellent credit.

'Sub2' deals are another form of creative financing. The typical 'subject-to' deal involves having a seller deed you the property while leaving the existing mortgage in place. You, the real estate investor, never legally assume the loan, but simply start making the payments. There are lots of variations on this new way of buying property.

This one is NOT recommended for the beginner.

Another way to finance a property investment is by forming a limited partnership. Types of arrangements cover the spectrum. In some, each partner puts up some percentage of the cost, usually half and half, but sometimes profit is apportioned according the original percent invested. In some cases, it's possible for one partner to invest money, while the other(s) performs services...such as repairs on a 'fixer-upper'.

The deals are as varied as the people involved.

For those with low incomes, with military service, or other special circumstances various government loan programs are available - though they're usually not good for serious real estate investing as they are commony limited to individuals intending to occupy the property.

In the last few yeras, it's even become possible to fund a property purchase with personal credit cards, but there are several obvious downsides to this method. Apart from the substantially higher interest rates, lenders will look at all outstanding debt when judging whether to grant a loan on the remaining balance. Taking out a cash advance to cover a shortfall between the needed 5-20 percent down will usually get you turned down.

Friends, family, and other sources of money are usually viewed the same way, unless you can prove to the bank that the money is a gift and not just a loan.

Mortgage lenders have seen it all! Don't try to fool them.

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