Investor Fequently Asked Questions

The Best of Investing in Real Estate

What is the goal of investing in Real Estate? To make money. How much money? The obvious answer would be, “as much as possible.” But how much is enough? Let me tell you something. No job or income comes without its problems, worries, and issues you have to deal with. And the obvious, it takes money to make money.

When people think of real estate investing, their minds wonder over two areas, flipping property and renting property. Which brings in the most amount of money, and which is easier? The answer to that question depends on a lot of different factors. First we will take a look at the money factor involved.

When it comes to flipping, which is buying a foreclosed property, fixing it up, then reselling it for a profit, where do you begin? The Internet is flooded with all kinds of advise including self proclaimed experts on the subject of flipping. Some so called experts have half hour or one hour TV commercials telling people how easy flipping is. But is it really that easy? If it was that easy, everyone would be doing it. And what would stop the thousands of Real Estate Agents who get advanced notice of every foreclosed home from buying the best and reselling them for a profit? Those self proclaimed flipping prophets are not telling the whole truth. Their advertising focuses on elaborate homes that are clearly under valued. They try to make it appear banks are stuck with those properties, have no idea what property values are, and price properties as low as they can just to get rid of them. That could not be further from the truth. Banks order Broker Price Opinions on every property it sells. Licensed Real Estate agents in the local market send banks information on similar properties including recent sales and active properties offered for sale. The report includes prices, location, size of the properties, and other information the bank needs to make an informed decision. The condition of the property is considered, and the market price is set. Banks use computers going into great detail. They know how much it will cost to complete the necessary repairs, and how much it will cost to resell the property, including closing fees, commissions, and of curse, taxes. The bank considers a meager profit margin, then prices the property accordingly. So how much money can you make flipping property?

How much you make is based on a few factors. Your first consideration has to be – collect all the information the bank obtained to make its decision. Gather all the market data the bank was smart enough to obtain before setting its price. The other factor of course is the repair and remodeling costs. How much work and time you put into the repairs helps to reach the maximum profit level.

I’ve worked with dozens of investors. I choose not to work with a number of them. I will not work with investors who cut corners in the name of profit. I’ve seen people attempt to sell moldy flips without properly treating the mold. Lawsuits stemming from those moldy flips raised liability insurance rates over 300%. Instead of pulling licenses from those agents and investors and dealing with them individually, powers in charge decided to have insurance companies pay out. And as we know, the rest of us have to pay higher insurance rates. The rest of us have to pay through the nose for a few bad apples to stay in business because the people in charge think their moldy flips help grow the economy. Nothing could be further from the truth. Put those maggots out of business and this country is filled with legitimate investors to fill their void.

Don’t cut corners on remodeling. Know what the average buyer wants, and remodel accordingly. Don’t rely on personal likes and dislikes, but proven remodeling and new home concepts that have worked. Do your research. Tour a few new construction homes for sale to see what a luxury home really is, then work some of those aspects into your project.

When looking for an investment to flip make sure you have the basics in place. Location is always number one. Size and layout is another consideration. The kitchen and master bedroom are important considerations. So is the garage, basement, including the foundation. Of course there are other factors involved. Rely on your Real Estate Agent who has viewed and sold hundreds of properties. They know what buyers want, and what buyers prefer to avoid.

Renting is another avenue of investing. You have to know how to crunch a few numbers to be a success. Find out what rents are in the area for the size of the rental you are considering buying. You have to budget for the mortgage, taxes, maintenance, and other factors. And you have to purchase an investment property at a price you can profit on down the road. That may require a bit of fixing up and remodeling. You also have to deal with people. You have to know how to screen potential renters, fill out forms, and a good back ground in taxes and budgeting. Like I said, no investment is going to be easy. You will need a good network including a Real Estate Agent, Lender, inspector, general contractor, maintenance personal, and a good accountant. Put the right team together and with the proper planning, you will see a regular income flowing in.

Of course I can’t cover all the aspects and details of investing in one article. Each investment is unique. We have to look at your situation, skills, cash flow, and of course the property you are considering. That is where the work begins. Give me a call and we can sit down and discuss your goals.

Investor Fequently Asked Questions

Investing with Hard Money

If you are interested in investing in Real Estate, do you have the funds available to begin and finish the project? There is the old saying, “a fool and their money are soon parted.” Over my 15 years of Real Estate experience I’ve seen too many people with big dreams and small bank accounts. Some people watch 10 minutes of a half hour home improvement video and think they are qualified to handle any home remodeling job. I have news for you. The property will cost money. Tools and material cost money. And of course you have to pay those property taxes. I will cover facts about choosing the right property for investment in other articles. This article will deal with Investing with Hard Money.

Hard money lenders are a catch word in the Real Estate market for investors that loan money to people who buy, remodel, and sell homes. They are commonly known as flippers. Is hard money lending a good idea? It may and may not be. You have to know who you are dealing with. I would personally avoid any overseas lending companies you find on the Internet. They may or may not actually exist. If you don’t have a substantial amount of funds for a down payment and unexpected issues, you may want to stay out of Real Estate investing. Like everything else, it takes money to make money in Real Estate.

Look for local hard money lenders. Someone who you can meet face to face. They do exist. Have your attorney look over the paperwork and agreement. A consultation with an attorney could wind up saving you thousands down the road.

Hard money loans are generally for properties that will be purchased and quickly sold. Normally within 6 months. Interest and up front costs do vary. You will be paying a much higher rate than normal banks will charge. Check with local lenders to see what loan packages they may offer. A home equity loan may be a good source of funds.

I’ve seen investors try to use hard money loans to build an empire of rental properties. The problem is, hard money loans charge high interest rates, may be short term, and require high renewal fees. All of that cuts into your profit.

Image result for building house of cards wikiI’ve seen investors whose kingdom is a house of cards. Borrowing from one source to pay off one loan, then another, and another. Applying for charge cards, borrowing on those until they reach the limit, then searching for other sources. This is usually in the rental sector. You would expect to have tenants pay their rent on time. But that is not always the case. I’ve heard it before. All of a sudden a rash of tenants comes up short. Short enough that payments are not made and the foreclosure bandwagon moves in to pay their tune. You don’t want that to happen to you. Local banks have investment packages. But you have to watch out for certain conditions on those loans. I will cover those details in another article.

Hard money loans normally carry from 10-18 percent interest. Do the math. Gather all the figures and see what the sale price could bring. Then look at your profit. Is it worth all that time and work? Everyone wants a piece of your pie from the lender to the tax man and the insurance agency. Plan accordingly.