Real Estate

5 Myths of Real Estate Investing

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Misconception #1: You must have money in order to make money in real estate.

Truth

This is most likely the biggest myth of all. Most of the time it does “take money to make money,” but not always so in real estate. There are many creative ways to get around this common misconception. All it takes to succeed in real estate is careful research and lots of planning. The first thing I would recommend is to start reading as many books on the subject as possible.

 

Misconception #2: Stay away from big deals when starting out because they are too risky, stick to the small deals instead.

 

Truth

When starting out many people feel most comfortable starting small but there have been plenty of stories of big deal success, all it takes again is lots of careful planning and make sure you do your research. Don’t shy away from the big deals if they happen to come your way, you never know that one deal might set you up for life financially!

 

Misconception #3: Anyone can get rich “flipping” their way to success.

 

Truth

This approach has been compared to day trading in the stock market by some experts. With every transaction you take a risk with no guarantees of ever making a profit. Another thing to consider is if you are financing one hundred percent of the property cost, you will more than likely be paying a higher interest rate which means less profit for you. However, there are many good deals to be found which in the end can net you a nice profit even after paying a higher interest rate. Just make sure you do your homework first.

 

Misconception #4: You never have to be concerned when investing in real estate.

 

Truth

This statement is unfortunately far from the truth, especially now days. Just about everyone who invests money in one thing or another, be it real estate or stocks will be somewhat concerned about their investments. To help make confident investments and lessen the worry factor just make sure to use common sense and also do your homework before making a single move on a deal. A word of advice, don’t let worry keep you from going after potential opportunities.

 

Misconception #5: To make money in real estate takes a lot of time.

 

Truth

The truth is that some people do spend a lot of their time on real estate deals simply because this is all they do. One thing to keep in mind is that we all have the same 24 hours in our day, it is how each of us spends this time that will determine what we will individually accomplish in life. If you don’t think that you have the time it takes to invest in real estate then I challenge you to sit down and look closely at your schedule and how you are spending your time. Chance are you will find the extra time that you need. You could be giving up a fortune by just sleeping in an extra 30 minutes a day. That extra half an hour per day equals a full 15 hours per month!

Little-Known Real Estate Secret to Sell Your House Fast

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I recently saw a man wearing a “buy my home” sandwich board outside a local Internet café. He had photos of his house plastered on both sides of the board. As he handed flyers to passers-by, many of them stopped to view his walking billboard. It was one of the most clever real estate marketing strategies I have ever seen.

I have witnessed a lot of crazy ‘buy my home’ marketing schemes throughout my career as an investor. Recently, I boarded a charter bus and traveled to Las Vegas, Nevada. This wasn’t your typical gambling trip. Instead, it was a road show for investors and buyers to visit multiple homes for sale.

 

It’s rather surreal to pull up in the middle of a cul de sac and witness homeowners parading around in their front yard carrying picket signs and shouting, “Buy my home, buy my home.” These people work it too. They have their children manning lemonade stands and offering freshly baked cookies.

 

Homeowners are going to great lengths to sell their house fast. Some offer pairs of tickets to sporting events and concerts. Others are willing to leave their household furnishings, big screen TVs, and even their pets. As they say, desperate times call for desperate measures.

 

Are homeowners being forced to go to extremes in order to sell their house below market value? The answer depends on how desperate they are to sell their home.

 

Many sellers are willing to sell real estate under market value in order to obtain financial relief. Others have obtained short sale approval and need to sell their house fast or face foreclosure. Some sellers need to move immediately due to job transfers or aging parents who require additional care.

 

With the massive number of foreclosure houses many homeowners find they cannot sell their property. Between the housing slump, skyrocketing unemployment and credit crisis few people qualify for a mortgage loan. Those that do must possess a high FICO score and the financial means to produce a large down payment.

 

Every homeowner is painfully aware of the stiff competition in the real estate market. They realize they must either sell their house considerably under market value or possess valuable real estate that buyers are willing to pay full purchase price for.

 

One little known secret for selling a house fast is to seek out private real estate investors. Nearly every state has investor networks which can easily be found via the Internet or through realtors and real estate brokers.

 

Most private investors buy houses with cash. There is no need to enlist the services of a realtor; however, experts recommend hiring a real estate attorney to ensure legal documents and title transfers are properly executed. Selling house for cash expedites closing and saves both parties money in closing costs and escrow fees.

 

There is no need to walk around town advertising your home. Nor, should you have to endure a busload of people walking through your house. Instead, seek out credible real estate investors and leave the marketing antics to your neighbors.

When to Switch From a Variable Mortgage to a Fixed Rate Deal

The following is a guest post from Nigerian real estate developer Michael Chudi Ejekam.

The cost effectiveness of most mortgage deals is dependent on market interest rates. Those that currently have a variable rate deal may be wondering when or if it will be better to switch to a fixed interest option. Homeowners coming to the end of a deal and those looking to switch to try and save money may want to consider the pros and cons of fixed or variable mortgage products.

How Market Conditions and Interest Rates Affect Variable and Fixed Mortgages

Each type of mortgage deal comes with a potential cost benefit. But, this benefit is not guaranteed. Choosing the right deals at the right time could save homeowners money. Making the wrong decision could see them paying more than they technically need to.

For example, variable rate mortgage deals give the best cost benefits when interest rates are dropping or are at a low point. These products will have repayments that rise or fall depending on market conditions. In a decreasing or low rate scenario, payments go down. As soon as interest rates start to go up, then this kind of deal becomes more expensive.

Fixed rate deals work in a different way. Here, the homeowner is given a guaranteed fixed repayment for a period of time and market conditions have no effect. So, if interest rates go up, then the mortgage holder will potentially be saving money as their repayments will not rise. But, if rates drop significantly, then they could be paying more than if they had a variable product.

When is the Best Time to Switch From a Variable to a Fixed Rate Mortgage?

Although it is possible to anticipate what might happen to market interest rates, it may not be possible to guarantee accuracy. Some consumers will look to fix a deal when rates look likely to rise. This may work if they are particularly low (i.e. there is nowhere to go but up) or if market conditions make interest rate increases likely.

The best time to switch to a fixed rate deal from a variable product will happen at a point where switching saves people money (i.e. when their fixed rate payment is less than their variable payment would be). It can, however, be hard to get the timing exactly right.

Some that move early may end up paying more on a fixed rate deal ahead of market rises actually taking place. Those that move later when rates start to rise may find that the costs of their fix are not as good as they were in the past.

The Best Strategies to Avoid Foreclosure: Sound Plans for to Prevent a Mortgage Default

With the holidays coming up, homeowners will be stretched financially. Foreclosures rose to unprecedented levels in 2016 due to the loss of jobs and the steep decline in real estate values. Banks and mortgage companies also face the strains of a tough economy. Stressed homeowners should consider the following strategies to avoid being evicted from their home during this holiday season.

Proactively Call the Mortgagor/Bank

The best strategy to avoid foreclosure is to call the bank before a payment is missed. Borrowers, who let the bank know they have lost their job or face some other serious financial strain, will be more likely to get relief if they call before they are behind in their payments. While there are lots of items to be concerned with when a job loss occurs, “call the mortgage company” should top the list.

Compose Assets and Liabilities

Think like a business here. The faster a borrower can provide the bank or mortgagor proof that he/she faces financial hardship, the easier it will be to get some relief. Taking a half day to gather all sources of income and sources of expenses will go along way. Be prepared to send out multiple copies of the latest documentation (i.e., paystubs, bills, canceled checks, etc.).

Keep Records of Bank Contacts

Be patient, but persistent once the information is sent to the institution. Borrowers should keep a regular record of exactly who they talk to at the bank and when they called them. A good paper trail can help the bank stay on to of their records. Don’t be surprised if the people at the bank are frustrated and overwhelmed. Many banks were not prepared for the sheer number of people that would be calling and requesting modifications.

Be timely with all requests. Any requests for information should be completed the same day or the next day. Remember, the sooner the bank receives the information, the sooner the borrower can receive some kind of relief.

Be Open to All Options (Short Sales, Deferred Interest, Reduced Rate, etc.)

Most banks are willing to work with borrowers in good times, so it should be no surprise that they are willing to offer borrowers a variety of solutions to their problem. If the set back is temporary, they may consider changing the loan to interest-only for a period of three to six months. If it seems longer-term, the bank may suggest a short sale. Be open to all options. Even if a borrower has to sell their home at the bank’s request, they still maintain a good credit rating and have the opportunity to move to a place that they can afford.

Always be patient and kind. Remember, the borrower needs the bank much more than the bank needs the borrower. Additionally, banks are understaffed and that staff is definitely overworked. Be willing to explain the situation as many times as necessary and be timely with documentation. These strategies should help most troubled borrowers avoid foreclosure.

New Short Sale Program Can Benefit Investors: Federal Push for Foreclosure Alternative Means Buying Opportunities

Investors in property who have several years of experience and are committed to their real estate investment plans are always alert to opportunities to add to their portfolios. They do not hesitate to pursue alternative ways to acquire properties at good prices because they always remember the real estate adage that profit is made at the time of purchase – in other words, profit is ensured by paying the lowest price possible for a piece of real estate.

In the United States, enterprising investors are about to get a helping hand from the federal government, albeit indirectly. As its name suggests, the Home Affordable Foreclosure Alternatives program (HAFA) which took effect April 5, 2010, seeks to discourage foreclosures. The program provides incentives for lenders to accept deeds in lieu of foreclosure and also encourages more property owners who are in arrears in their mortgage payments and more lenders that hold those mortgages to participate in short sales.

How and Why HAFA Encourages Short Sales

In real estate, a short sale occurs when a mortgage debtor sells his or her property for less than is owed on the mortgage and the lender has consented to accept that amount. In a traditional short sale, the debtor must agree to pay part or all of the balance that remains due on the mortgage after the proceeds of the short sale have been applied to the debt.

As explained on the HAFA Web site, owners who engage in a short sale under HAFA and lenders that consent to it must accept the proceeds of the sale as payment in full of the underlying debt.

The federal government has estimated that the value of about 11.3 million U.S. homes is less than what is owed on their mortgages. The government also believes that more than 5 million households are in arrears on their mortgages and at risk for foreclosure. HAFA offers mortgage debtors who meet certain requirements the short sale as an alternative to walking away from their homes and handing over the keys to their lenders or going through the foreclosure process.

According to David Streitfeld in his New York Times article “Program Will Pay Homeowners to Sell at a Loss,” under HAFA, lenders will use real estate agents to determine how much a home is worth, that is, the minimum that a lender will accept. This figure will not be revealed to the homeowner-debtor, but if an offer is made for the property at or higher than the acceptable minimum, the lender is obligated to consent to the short sale.

Traditionally, lenders were cool to the idea of short sales and preferred to take possession of properties through the foreclosure process rather than accept less than the amount owed on a mortgage. But the burst of the housing bubble resulted in a glut of homes on the market, going unsold for months and even longer. This in turn has meant that lenders have much larger inventories of homes (real estate owned or REOs) on their books and for longer periods of time.

The HAFA guidelines specify that every homeowner-debtor who may qualify for the program must be considered for it before the delinquent loan is referred to foreclosure or the lender allows a pending foreclosure sale to proceed. HAFA also allows $1,000 from the sales proceeds to lenders for administrative and processing costs, and $1,500 to the seller as relocation assistance.

The Post-Foreclosure Phase and REOs: Properties Taken Back by Lenders Offer Buying Bonanza for Investors

After a property in the United States has been auctioned by a county sheriff or other court officer for the unpaid balance of a mortgage, and after the statutory redemption period has ended, the former owner loses all rights and claims to the property. This is known as the post-foreclosure phase.

If a real estate investor was the successful bidder at auction, he or she now can fix up the property, use it as collateral for loans, and even sell it like any other investment property. If the mortgage lender that initiated the foreclosure proceedings was the successful (or sole) bidder at auction, the property belongs to the lender.

Real Estate Owned (REO)

When a lender obtains title to real estate that had served as collateral for a mortgage loan, the property is designated real estate owned (REO) on the lender’s books. The lender considers REOs to be nonperforming assets, in other words, assets that accrue or return no interest or other income.

No lender wants a glut of REOs on its books. Similar to the “toxic assets” so often mentioned in the discussion about the current state of the banking industry, REOs are a drag on a lender’s value. Not only do they not produce any income, they cost the lender money to maintain.

Lenders Manage REOs

It used to be that lenders virtually ignored the condition of their REOs. The properties would sit empty and neglected, sometimes for years. Times changed and new realities set in. With the rate of foreclosures at record highs, mortgage lenders are getting stuck with larger inventories of REOs. At the same time, because of the record amount of homes on the market these days, lenders have started to realize that if their REOs are to compete for the attention of the small number of available buyers, the REOs cannot fall into severe disrepair.

Still, pouring money into the upkeep of a nonperforming asset is no guarantee to the lender that an REO will sell soon or at all. This situation produces opportunities for real estate investors who want to add properties to their portfolios at below-market prices and who are financially prepared to take an REO off a lender’s hands.

Advantages REOs offer to Investors

Unlike bidders at foreclosure auctions, investors who are interested in REOs are able to inspect the properties. If repairs are needed, investors can negotiate with the lender-owners over this issue. There are two other key advantages to buying post-foreclosure property from a lender. To pass title that is free and clear to the buyer of an REO, the lender-owner must arrange for the removal of any secondary liens on the property. Moreover, before placing an REO on the market, the lender-owner must evict any occupants on the property.

Although these proactive steps by lender-owners add to the price of an REO, many investors welcome the freedom from the uncertainty, time, and expense that those steps represent and that are not present in the pre-foreclosure and foreclosure phases.

Finding REOs

Many lenders do not advertise their REOs. Instead, they may dispose of their REOs by means of specific real estate agents or networks of private investors. For the novice investor in foreclosed properties, it is advisable to develop relationships with various lenders to become part of such a network of private investors. It is also prudent to cultivate relationships with real estate agents and brokers who specialize in marketing REOs.

There are also many online services that list bank-owned REOs (some for a fee). These services are readily found by searching the term “finding REO properties.” However, these listings may not be updated as frequently as an investor may want.

For a good guide to the foreclosure process, see HGTV’s frontdoor.com, which includes video clips.

Effective Marketing Vital For Real Estate Agent: How Good Photography Can Help Sell A House

An online magazine spoke recently with Aaron Ewer, a young real estate agent working in Halifax, NS, since 2006, about how he markets himself, why having good photography skills can help sell houses quickly and why his age doesn’t affect his business.

When asked what his best marketing plan or strategy for attracting a potential home owner was, Ewer said with each listing, he tries to imagine what the buyer is thinking.

“I think about what will be important for them to notice about the property and accent it both in the photos and the property description,” he said. “It’s almost certain that the buyer will find the property online, so having a solid web presence is essential.”

Having Good Photographs Of Houses Helps Them Sell Quickly

Having effective advertising is essential for a real estate agent, Ewer said, adding that he markets himself through previous clients and through his own website.

“I am very fortunate to have a great group of clients who are willing to refer me to their friends and family,” he said. “I try to keep in touch throughout the year whether by mail, e-mail, phone or going out for coffee.”

Ewer said he’s attempted some Facebook advertising which works great when promoting properties, but admits when he tries to advertise by himself, it falls flat.

Referrals Are The Best Form Of Advertising

“It proves to me over and over again that referrals are the best form of advertising,” he said. Ewer is also an avid photographer who shoots the houses he sells.

“I work hard at perfecting my photography skills since it’s the first thing most buyers will look at when browsing through real estate,” he said. “With so much competition, it’s important for me to always find a way to have my listings pop out to potential buyers as they sift through listings online.”

Through the last couple years, Ewer said he has discovered what shots work, and what don’t.

“I’ve moved beyond a few snapshots of a house to focusing on capturing the unique quality of each home,” he said, adding that he will spend hours re-arranging furniture and adjusting lighting to get the perfect picture.

Starting a Real Estate Career

Ewer began his career by coordinating the marketing for a Halifax real estate firm.

“The position involved a lot of design and photography, but most importantly allowed me to job shadow some of the most experienced agents and learn how the industry works,” he said. “About eight months later, I got my real estate license.”

Ewer said the top three things that separate him from competition are:

  1. His marketing approach
  2. His age
  3. The company he works for

Ewer, 24, said he hasn’t noticed people choosing competitors over him because of his age.

“I’m sure there are some who are skeptical. The way the industry works is so heavily based on referrals that most of my clientele is coming from previous satisfied clients,” he said. “I work hard on just being confident in my job, and doing what it takes to put deals together.”

Real Estate Investment Dream Team: Advice from Experts Can Lower Costs for the Real Estate Investor

Before plunking down money for a property, real estate investors must ask themselves many questions, such as whether the tax write-offs for a particular property will boost the return on investment (ROI) and whether the area in which a property is located will mean higher property insurance premiums. When deciding whether to sell properties in their portfolios, investors face questions about the timing and characterization of a sale, among other things. Unless investors have the expertise to answer these questions, they should include tax professionals and insurance agents — not just real estate agents and lawyers — on their team of experts.

Tax Advisers and Real Estate Investment Plans

Before putting a property purchase or sale in motion, an investor should consider speaking with a tax professional. Advisers such as tax attorneys, certified public accountants, or other tax experts who have experience with real estate investing are excellent sources of information about the types of investments that fit an investor’s particular investment plan and capabilities. The tax adviser should be familiar with the tax laws of the jurisdiction in which the investor’s property is located.

Competent tax advisers can help can help an investor’s bottom line by recommending specific strategies for buying or selling property, such as:

  • Owning property as a specific type of partnership or corporation
  • Selling property outright or over time by taking back a mortgage
  • Structuring a sale as a 1031 tax-deferred exchange, in which the investor delays payment of the capital gains tax on the sale of one property by buying another property of the same kind and of at least equal value

Tax laws are extremely complicated and always changing. Understanding the various tax laws and rules and how they interplay is beyond the ability of most non-tax professionals. For these reasons, the smart investor does not hesitate to make a competent tax professional a permanent member of the team of experts.

Insurance Agents, Real Estate Operating Expenses, and ROI

The cost of premiums for fire and liability insurance on a property is often overlooked by investors when trying to estimate the ROI on a property. An experienced, independent insurance agent – which means that the agent is not committed to only one insurance company – is ready to disclose what insurance companies consider to be an insurable risks and the range of premiums charged by insurers in particular areas. This helps the investor make an informed decision about whether to avoid certain areas because of the high premiums charged.

An insurance agent also helps an investor look at a neighborhood from the perspective of the insurer. For example, out of concern about declining property values, some insurers are reluctant to issue policies for properties that are near boarded-up buildings or on streets where there are several “For Sale” signs.

An insurance agent will also ask the investor to find out certain facts about a property, such as the age of the building, roof, heating system, and hot-water heater, and the dates when the plumbing and electrical systems were last upgraded. Some of this information can give leverage to the investor when negotiating with the seller about price or concessions.

With the assistance of an insurance agent, an investor can also find a comfortable level of deductibles and determine which type of insurance coverage is either indispensable or unnecessary for the location and type of property involved.

Optional Members of the Real Estate Investing Team

A real estate investor may also want a mortgage broker or lender, an appraiser, and a title insurer on the team of experts on an ad hoc or even permanent basis.

How Realtors Juggle Real Estate With Family Life

Rick Braden, Broker/Owner of MaxWell Realty in Lethbridge, Alberta, a Realtor for 16 years and a married father of two, finds it easy to balance real estate and family life. “I adore my family and most days I can’t wait to see them. In my line of work I meet a lot of people and far too often I see split and/or blended families that are a result of one or both parents not paying attention to their home life. All I have to do is reflect on their position and how unhappy they are and it becomes very easy to keep my family a priority.”

John Evans, Broker/Owner of Re/Max of Terrace in Terrace, B.C., a Realtor for the past 23 years, and a married father of seven-year-old Landon shares his thoughts, “I’ve gone through a transition of how I conduct my business depending on the stage of my life. Right now family is a strong priority for me. When I first started, I could work mornings, evenings, weekends – it didn’t matter. Now I have to work at keeping my time to myself or for my family. In the past couple of years I’ve worked less than 10 evenings per year. About 50% of my Saturdays are tied up and I have a rule that I just don’t work on Sundays. That is difficult to do in our business but most people understand.”

Mary Ann Keary, Broker/Owner of Royal LePage Riveredge Realty Ltd. in Brockville, Ontario, wife, and mother of Ashley and Zak, established a system to keep her family a priority. “Our team concept was developed in 1999 for two reasons. One was to provide professional and quality on-demand service to our clients when they required it in their busy lives. The other was to enable my husband, Rodney, and I and our two children to enjoy uninterrupted family and vacation time together. When we are “off duty”, our clients are covered by another trained and experienced team member. We attend church every Sunday as a family and share the rest of the day together. Our team does not conduct Open House tours on Sundays nor do we encourage home viewings on a Sunday, respecting our clients’ needs for quality family time and that of our team members. We enjoy family vacations and spend time individually with our children in their choice of pursuits.”

Is Organization the Key to a Balanced Life?

Most Realtors who are able to balance family and career credit their organizer. Rick Braden shares, “As a commissioned salesperson, my life revolves around my Daytimer. If I book an activity with my wife and/or daughters, it becomes an appointment, even if all we are going to do is watch TV. All I say to the client is, ‘I’m sorry, but I am already booked at 6:00, but I am available tomorrow at 4:00 and 7:00. Which would work best for you?’ I think one of the biggest misconceptions Realtors have is that customers won’t wait or adjust their schedules. I disagree. I think customers appreciate dealing with busy, successful people. They don’t need to know what my appointment is, just that I am busy. On the extremely rare occasion when no other time is possible, I will find another agent in my office that is available to cover for me.”

Like Braden, John Evans does not sacrifice family time for clients. “I simply say I have a meeting with my family. You aren’t always able to get out of it but most people understand. Most reasonable people are going to appreciate that you have a life outside of real estate and are going to respect you for being honest with them and work with you.” Evans does admit to losing a few clients every year who aren’t willing to work with his schedule but he averages 100 ends per year so he is doing something right.

Some Realtors involve their families in their career in ways that benefit each family member. If your spouse has always wanted to go to Hawaii, make it a goal to take him or her once you have sold a certain number of properties. Keep a chart tracking your progress or watch the stash of money grow in your ‘vacation fund’ jar. If the children want new bikes or a whitewater rafting trip, involve them in the same way – by working together as a team to reach the goal.

How to Balance Real Estate and Home Life

Braden offers some tips on balancing real estate and family:

  • Make family time an appointment.
  • At the beginning of the year, when you are setting your goals, pre-book family time. It doesn’t have to be a week-long exotic vacation; it just needs to be uninterrupted and committed to.
  • Have a buddy in your office that can lend a hand when you have conflicts with your schedule. It might cost you the occasional referral but that’s a heck of a lot cheaper than losing touch with your family while you are chasing that almighty dollar!
  • I don’t care how new you are or how broke you are, set aside one day a week to unwind a get away from work.
  • Do stuff as a family – go to a hockey game, go to a movie, go on a holiday, eat dinner, watch TV, take a class.
  • Let your family “in” on your day. Share the best and worst parts of your day with them and ask them to do the same.

Evans makes a good point, “There is no real real estate emergency. We are not doctors – it’s not a life and death issue. Some of our clients might think that it is. Most calls can wait for an hour for you to finish dinner with your family.”

Keary sums it up, “I recognize that it is definitely not easy to maintain the balance. Each and every day, I have to check myself and make the choice not to allow my priorities to get out of order.”