What To Look For In A Fixer-Upper
Buying fixer-uppers has been a common investment technique for many years. These days, with millions of foreclosed homes available at bargain basement prices, fixer-uppers can be an excellent choice for buyers who are shopping for a home to live in, as well as for real estate investors.
Fixer-uppers are properties in need of repairs. They may be liveable in their present condition, or they may need quite a bit of work before they can be occupied, but in either case, there are some very important considerations when choosing the right property to help insure that you can achieve your personal objectives.
1. The Location
It used to be pretty rare to find a fixer-upper in a nice neighborhood, but the housing crisis has changed that. Today, fixer-upper properties are readily available in many of the nicer neighborhoods, especially in those states that have been hit hardest by high rates of foreclosure.
Don’t be impatient. Look around your chosen area carefully before making a final choice. It’s very important to be familiar with the local market. Choosing the right location will result in better property appreciation, and more demand when you are ready to sell, or better tenants and higher rental rates.
Avoid locations that have too many vacant properties, locations that have too many other investors in the area, or are places that you would not want to live yourself. Investor over-crowding tends to increase your competition and will therefore reduce your profits.
2. Know The True Market Value.
A property is not always a good deal just because it is a fixer-upper. Don’t let anyone sway your judgement about a property simply because it’s a fixer-upper. Just because a home has been foreclosed on does not automatically mean it is a good deal. Good deals are made through knowing what the true market value is, then negotiating a price that is as far below the true market value as possible.
3. Find A Fixer-Upper Project That You Can Handle.
Whether you are planning to live in the property, fix it up to sell or fix it up to use as a rental property, the most common mistake is that of taking on a project that is beyond your ability to handle.
I’ve done dozens of fixer-upper projects, including managing them for other investors. The biggest problem I’ve seen consistently is investors who take on projects that are bigger than they can handle. This leads to cost over-runs, projects that take too much time, and even running out of money and another foreclosure. I’ve seen numerous projects that were never finished after the buyer got over budget and ran out of money.
It’s easy to rationalize a project before you start, and inexperienced investors often believe that they can renovate an entire house in 4 weeks, working only on weekends in their spare time. That is a common mistake.
One biggie I suggest is to avoid any fixer-upper that needs walls moved in order to be functional. Moving walls and things like staircases can create unexpected problems unless you are planning to use a contractor who has adequate experience and a crew that can get the work done correctly. I’ve seen projects that began well and got totally out of hand and over budget after the investor decided to make extensive changes to the original floor plan.
If you choose a fixer-upper property in a desirable location, keep your rehab budget and necessary work within your ability to control, and you have a good renovation plan that you can stick with, you should find yourself owning a great property at a below market price. That means you’ll have some positive equity or a positive cash flow right from the start. And after all, that’s the main reason why you should consider buying a fixer-upper.
Common Methods to Deal With Wholesaling Real Estate
Wholesaling Real Estate is regarded as a no risk strategy that may get huge benefits for first-time investors and also old-timers who had long been in the field of property investing. It takes little or no financial risk and that’s the reason why it is popular with most investors. There are a few ways about how you can get started with wholesaling: look for handles lots of equity, locking up the deals and lastly finding the investors who’d be interested to buy the deal.
Here are a few of the common methods to deal with the challenges in finding deals with high equity.
Search for sellers in classified ads or Craigslist. If you’ve a tight budget and wants to try wholesaling real estate this is one of the best means for newbies investors. You can get leads there for free. There may not be a lot of good leads but you will soon discover some that are worthwhile like those who advertise that they’re in pre-foreclosure.
One other approach to market where you’ll not need to spend anything is to put a road sign like “We Buy Houses” and add your contact number in some high traffic intersections in your area. By doing this you will be able to target certain areas for some small investment. The only setback with wholesaling real estate method is that other municipalities restrict road signs so you need to ask around or do your research first before you place your road signs.
But here is one most targeted practice of marketing when flipping houses and that is through mail or flyer campaigns. Flyers are considered an ideal option since you can do these with a limited budget. Just print out some flyers announcing that you are a cash home buyer with your contact details. Then look for the prospective area that you’d like to distribute your flyers to.
But if you’ve enough budget, you may try mailings to targeted homes in area you wish to acquire. There are also companies out there that may help do this for you at an affordable price. At the same time assist you in finding motivated sellers like those in foreclosure.
After you have good leads coming into your wholesaling real estate pipeline, the next thing you need to do is get them under contract to buy. Try and see if you can get yourself a season investor or an attorney in your area to have a contract that would work well for you. It’s crucial that you ensure that you have the right to assign the contract before closing. In some other states, you’ll have the right unless the agreement states that you cannot assign the agreement and the term where buyer has the right to assign agreement can be added. So that you can then start marketing it to buyer’s list when you get the deal under contract.
Building A Solid Rapport with Sellers
Rapport is what makes a seller feel that they have been understood and that you have something in common, a mutual understanding. If there is no rapport there is no trust and a lack of trust means that people will not want to do business with you.
Let your buyers and sellers feel that you have an interest in them – the person – not them the cash cow, i.e. not what money you can make out of them.
Most of your option opportunities will come via the telephone, so it is vitally important that you get your telephone skills right.
Useful tip: Answer the telephone yourself, don’t use an answer phone or a call centre.
My mother had a saying, “It’s not what you say but the way that you say it.”
If – as research claims – that just seven percent of what we say is communicated in the words we use and that the rest of it is communicated by the use of the tone of voice, the rhythm and the inflections in our voices then the saying is very true.
Useful tip: Make frequent short calls rather than a few long ones.
Of course the words used matter, but too much talking from the investor is a big mistake. It overloads the seller with unnecessary information, it confuses them and a confused mind is one that switches off. Switching off means a “no” answer, keep the talk to a minimum, keep it simple, listening is king.
When it is your turn to speak, keep the tone of your voice warm, don’t sound as if you are reading from a script, smile as you talk – it reflects in your voice.
Match the rhythm and pace of your voice to that of your caller, this shows understanding. You can adapt your style of speech to reflect them too, for example if they use “Hiya” respond with “Hiya” if they use “Hello” then you do too, but do not make them think you are mimicking, if you do you are in trouble. If they are a person of few words, reflect this, if they want to be more verbose, likewise.
When asking questions make sure that they are open-ended, this encourages your caller to expand and give you vital information. However, do not enter into a full-blown negotiation on the telephone.
After the initial contact has been made, rapport can be further built through face-to-face contact, again it is more personal.
At this point the seller has been qualified and you will have spoken on the telephone a few times, trust levels will be quite high, so when you go to visit the property for a viewing the time is right to build on that.
After ringing the doorbell – step back. This leaves the seller to their space, it does not crowd them and has the advantage that they can check to see who is calling. These days no matter what we all double-check to see who is there.
Greet your seller warmly, be as personal as possible without being over imposing. Remember that every seller is different. Some people are very cagey letting anyone into their home, some like to feel that they are dealing with a company and not just an individual – I suppose this comes from the horror stories of bogus sales people.
The main thing is that the visit is an excellent opportunity to seal a deal, to continue to build that rapport – remember people do business with people they know, like and trust.
by: Sally Benton-Tarry
Real Estate IRAs: A Financial Alternative
Tired of stock market risk and the daily roller coaster ride? Many IRA holders are looking for investments that can help create different rate of return possibilities but also help them manage their different forms of risk. Did you know that IRAs have been around since 1974? That’s right, IRAs have been around since the Employee Retirement Income Security Act of 1974 and have grown in popularity as more and more people learn that real estate is an IRA investment alternative to traditional stocks, bonds, mutual funds and Certificates of Deposit.
Most financial institutions do not offer Real Estate IRA services and only give their clients the choice of equity type investments. If someone wants to invest their IRA monies in property, they must change to a real estate friendly IRA custodian. Today there are more Real Estate IRA custodians, but deciding which custodian is right for you will require some research.
There are three steps to take when looking for a new IRA custodian. First, determine what property the IRA should purchase. Second, learn about the two different ways in which an IRA can be used to purchase real estate. And Third, choose the proper custodian to navigate the education, implementation and administrative process.
Let’s discuss the three steps:
First, determine the property you want to purchase. The old saying, “location, location, location,” still holds true today. Also, consider how the property will be used, the holding period and how these affect your short and long-term objectives.
Second, decide how to structure the Real Estate IRA transaction. When someone structures their IRA to purchase a property there are two different ways to structure the Real Estate IRA transaction. In Method #1, the property is titled so that the IRA holds title. Because the IRA holds title, certain guidelines and rules apply as to how the property can and can not be used. This approach is used when the IRA holder wants to invest for investment purposes only.
With Method #2, the property is titled individually and is owned outright. When the individual holds title, different guidelines and rules apply as to how the property can be used. This approach is used when the IRA holder wants to invest for personal use. The pros and cons of each method should be carefully studied and understood before you make any changes to your IRA.
Third, decide which custodian is best for you. Your custodian/advisor must be able to help you decide which purchasing approach is best for you and help structure your transaction so that you will use the proper documents and correctly purchase the property. In addition, your advisor/custodian should provide ongoing service and compliance reviews to keep you informed of any tax law changes.
Real Estate IRAs are similar to 1031 Tax Deferred Exchanges; both have been around since the 1970′s and real estate investors must learn about them before either can be used. Knowing that Real Estate IRAs are an option can help investors/IRA holders take advantage of today’s buyer’s market and accomplish something they did not previously know was possible.
By: Alan Potts
HUD Homes for Sale: What Are They?
HUD homes are properties where buyers obtained FHA financing which government is financing that offers a low down payment of 3.5% and this FHA loan is guaranteed by the government so that when the homeowner defaults Hud-FHA then pays that lender off so they do not lose any money. When these homes are foreclosed on and sold back to HUD at the foreclosure auction then they become HUD owned homes or government owned homes. After HUD receives title then HUD places the home on the market for sale with a Real Estate Broker. You cannot buy a HUD home directly from HUD. HUD properties are listed with Real Estate brokers and placed on the multiple listing services for sale. The best way to find out about HUD properties is to find a certified HUD broker who will submit a bid for you and give you advice.
Only licensed broker who are certified with HUD can sell HUD homes to the general public, however registered non-profit organizations and government entities may submit offers without the use of a broker. HUD gives priority to owner occupants however anybody can buy a HUD home. Owner occupant by HUD is some who has not purchased a HUD home in the last 24 months and someone that will occupy the property. Falsifying owner occupant status is considered a felony and subject to a $250,000 fine (18 U.S.C. 1010,3559;3571).
When HUD properties are listed for sale they go into one of the following categories:
IN (Insurable)-qualifies for FHA Financing.
IE (Insurable with escrow)-qualifies for FHA financing with repairs of $5,000 or less. These repairs will be responsibility of buyer but can be added to loan amount.
UI (Uninsurable)-these properties do not qualify for FHA financing. These properties typically have repairs exceeding $5,000.
UK (Uninsurable)-these properties do not qualify for FHA financing FHA 203b but will qualify for FHA 203K which is an FHA program that allows you to add repairs over $5,000 to the loan.
To submit a bid you must be pre-approved by a certified HUD lender and if you are paying cash you will need a bank statement proving you have funds in the bank to close. Bids are submitted through HUD’s website by a certified real estate broker. Bids must be submitted by 11:59 PM CST by the bid deadline date.
All uninsured (UI) and uninsured -203K eligible (UK) properties are assigned to a lottery program for 7 days. Also properties in designated Revitalization areas are also assigned to a lottery program. These properties are only available to good neighbor next door (GNND) participants and HUD approved nonprofit organizations and government entities. A government entity usually includes school teachers, and law enforcement. These properties are not listed in MLS and must be submitted through HUD website hudhomestore.com. These offers must be full price and HUD does not pay commission or closing costs of these properties.
The good neighbor next door (GNND) program offers properties in designated revitalization areas at a 50% discount to:
Officers
Teachers
Emergency Medical Techs
Firefighters
These buyers must meet some eligibility requirements but the main one is that they sign a silent note for the discounted mortgage amount that is removed after the buyer has lived in the property for 3 years. The main purpose here is to get get citizens to move into areas that need to be built up.
After the 7th day on the market HUD properties normally become available to owner occupants only and investors generally are not able to make offers until the listing status is changed by HUD to include investors. HUD will pay a certified broker up to 3% commission of the sale of the property. HUD will also pay 3% towards buyers closing costs but HUD accepts the offer that has the highest net to them. For example if the selling broker makes an offer on a property for $200,000 and takes a full 3% commission and the buyer asks HUD to pay 3% for closing costs than this total amount is deducted from the sales price and the net sales price that HUD looks at is $200,000 minus $$12,000 for commission and costs which leaves a net figure of $188,000. The $188,000 is the price HUD looks at.
Investing in Real Estate Vehicle for Wealth Building
Real estate is one of the best vehicles of building wealth. Historically real estate has outperformed other asset classes like stocks or bonds, and is reasonably predictable and less volatile. There were times when real estate went down and there were times where it went up but on an average it has given a sizeable annualized return Development report, the price of an average single-family home has gone up from $22,300 in1968 to $206,100 in 2003, an increase of 824% in a span of 25 years
There are many ways to invest into real estate. With 100 percent financing options, low interest rates and good credit it’s fairly easy to get started. Numerous articles and books have been written about investing in real estate and success stories are a plenty.
Here, in a nutshell, are some of the most important reasons for investing in real estate.
Appreciation. Traditionally real estate has been viewed as a “buy and hold” type investment vehicle. Real estate has recovered from cyclical declines and regional corrections and it may continue to do so in future, primarily because of tight supply and demand. Land is finite and housing is a necessity. According to the U.S. Census Bureau: the nation’s population is projected to increase to 392 million by 2050 – more than a 50 percent increase from the 1990 population size. These factors presents a bright outlook for real estate investors. The fact that land is finite, and population is growing will cause most real property to rebound even if there is a market decline.
Properties can be bought and held for appreciation provided one has the staying power. To avoid occasional declines, a smart investor should buy properties below market value by using creative acquisition techniques and realize a gain by quickly turning around and selling for a reasonable profit. Of course, properties bought below market value can be held for cash flow and long-term appreciation as well.
Leverage. Leverage in real estate means making money on borrowed money. The power of real estate resides in using “other people’s money.” One can buy a property with zero down (100 financing) and make a profit upon sale as if it had been paid off entirely. Let’s assume you decide to buy a duplex worth $500,000 with 100 financing. Income properties have been appreciating at an average of 7 percent per year. With a 0 percent down your property at the end of the first year is worth $535,000. At the end of the second year, it’s worth $572,450. By using leverage or borrowed money to purchase a larger income property, you have increased your profit by $72,450 in just two years. A 14.49 percent return on a borrowed amount of $500,000. This is the power of leverage. Leverage coupled with appreciation can yield high profits.
Tax Benefits. There are numerous tax benefits of owning real estate, gains from sale of primary residence up to ($250,000 for single, $500,000 for married filing jointly) is tax-free. IRS allows taking deductions for depreciating real estate assets. Legitimate expenses like interest, depreciation, insurance premiums, management fees, legal fees, repairs etc are all tax deductible. You only pay taxes on net profits.
Real estate investing is an extremely rewarding process, but it needs perseverance and knowledge to achieve success. There are several proven techniques to make quick money but the key to success resides in buying properties below market value and selling them at the market or higher market price. Great deals can be found in foreclosures, fixer uppers, distressed properties and auctions etc.
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