Owning real estate investment properties and living the life of a landlord can be quite profitable and fulfilling. Just be sure to purchase investment properties the right way.
Because of the volatility of the stock market many people are turning to real estate investment properties as a way to earn stable long-term income. While not everyone is cut out to be a landlord, those that pursue this option can generate significant wealth through their investment properties.
After you’ve decided to purchase investment properties the hard work begins. Finding the right investment properties will take time, patience and lots of research. To get a good start with your new rental property you will need the following:
Understand Your Investment Timeline
When you make any investment you need to know what your timeline is. Owning investment properties is no different. It is a very good idea to know how long you expect to own the property before you purchase it.
The longer you own the property, the more likely you are to have to spend money on repairs and maintenance. If you plan on owning an investment property for a long period of time you should set aside funds for items that may need to be repaired or replace.
On the other hand, if you plan to keep the home for a short time you will be more affected by market fluctuations. When you keep a home for 20 years or more you can expect reliable appreciation in value. The same may not be true if you keep the home for just a year or two.
Build Your Referral Network
Real estate investors find their investment properties in a numerous ways. The best way to find investment properties is through referrals. By tapping into Realtors, mortgage brokers, bankers, town clerks and other landlords you can find the best deals that are available.
Fix Your Credit
Having a high credit score and low debt will help you obtain the best financing available. When you purchase investment properties lenders typically want to see higher credit scores, larger down payments and a stronger financial position than when you purchase a home to live in.
It is also best to have cash reserves left over so that you are able to handle the unexpected repairs and expenses that invariably arise.
Don’t Overpay
An old real estate adage is “you make your profit when you buy a property, not when you sell it.” Buying your investment properties with the best deal possible is vital to your success as a real estate investor. If you pay too much for the home you will never be able to recoup that initial loss.
Understanding your investment timeline, building a referral network, fixing your credit and not overpaying are essential to profiting with investment properties.
Monday, March 9, 2009
Thinking About Buying a Home in Charlotte
As I discussed in my Real Estate and Home Buying Blog I am trying to Charlotte Homes for Sale. My idea is to find a future retirement home that can earn positive rental income for a few years.
I've been very unsuccessful in my search. Please give me a shout if you know of any good Charlotte homes for sale.
I've been very unsuccessful in my search. Please give me a shout if you know of any good Charlotte homes for sale.
Thursday, March 5, 2009
Buying Investment Properties
Buying investment properties is an important business decision. You should be sure to have a good understanding on the principles and practices involved before taking action. Help from professionals such as attorneys, accountants, Realtors and mortgage lenders will be vital. Before contacting these people and requesting help it is a good idea to have a plan of attack. Below is the plan I recommend when buying investment properties.
Choose the Type of Property You’d Like to Invest In
Under the right conditions any type of property can be profitable as an investment. Rental houses, raw land, apartment buildings, commercial properties, mobile homes and industrial complexes all offer different levels of risk and rewards for the investor. If you are just starting off I would suggest beginning with a rental house or a small apartment complex. They provide steady income, fewer management headaches and low levels of vacancy. These are all positives when you are buying investment properties. It is also very easy to find information on investing in small rental properties.
Choose the Area You’d Like to Invest In
Ideally, when buying investment properties you will find an area that offers a wide array of employment opportunities, safety, good schools, public transportation and an interesting social environment. These are the qualities that a good tenant looks for when searching for a home. They will lead you to better tenants, less problems and greater long term price appreciation for the property.
It is also very helpful if the neighborhood you invest in is close to your home. It makes it easier to check on your investment and handle any problems that may arise.
Remember, when buying investment properties the old real estate adage “location, location, location” strongly applies.
Understand Property Values and Rental Income
This information is usually easy to obtain through the newspaper and the internet. Understanding the amount you are likely to pay and the income you are likely to receive is imperative when buying investment properties. You should have an understanding of how to determine the value of investment properties.
Research the Property
Develop an understanding of the property’s value, potential income and related expenses. Try to determine the seller’s motivation for selling. Do not rely on the words of the seller. Try to understand his true reason’s for letting the property go. Understanding the actual income and expense figures is your responsibility. You can not blame the seller for providing you with inaccurate information.
Make an Offer
When you understand the value of the property and determine expected income and expenses you are ready to make an intelligent offer for the property. Be sure to make the offer contingent on a thorough inspection, approved financing and approval of your accountant and/or attorney.
By following the plan outlined above you will be well on your way to success in buying investment properties.
Choose the Type of Property You’d Like to Invest In
Under the right conditions any type of property can be profitable as an investment. Rental houses, raw land, apartment buildings, commercial properties, mobile homes and industrial complexes all offer different levels of risk and rewards for the investor. If you are just starting off I would suggest beginning with a rental house or a small apartment complex. They provide steady income, fewer management headaches and low levels of vacancy. These are all positives when you are buying investment properties. It is also very easy to find information on investing in small rental properties.
Choose the Area You’d Like to Invest In
Ideally, when buying investment properties you will find an area that offers a wide array of employment opportunities, safety, good schools, public transportation and an interesting social environment. These are the qualities that a good tenant looks for when searching for a home. They will lead you to better tenants, less problems and greater long term price appreciation for the property.
It is also very helpful if the neighborhood you invest in is close to your home. It makes it easier to check on your investment and handle any problems that may arise.
Remember, when buying investment properties the old real estate adage “location, location, location” strongly applies.
Understand Property Values and Rental Income
This information is usually easy to obtain through the newspaper and the internet. Understanding the amount you are likely to pay and the income you are likely to receive is imperative when buying investment properties. You should have an understanding of how to determine the value of investment properties.
Research the Property
Develop an understanding of the property’s value, potential income and related expenses. Try to determine the seller’s motivation for selling. Do not rely on the words of the seller. Try to understand his true reason’s for letting the property go. Understanding the actual income and expense figures is your responsibility. You can not blame the seller for providing you with inaccurate information.
Make an Offer
When you understand the value of the property and determine expected income and expenses you are ready to make an intelligent offer for the property. Be sure to make the offer contingent on a thorough inspection, approved financing and approval of your accountant and/or attorney.
By following the plan outlined above you will be well on your way to success in buying investment properties.
Mortgages for Investment Properties Through Freddie Mac
Even with the tightening in the credit markets mortgage giant Freddie Mac still offers Mortgages For Investment Properties. Here is a basic rundown of their options:
Investment Property Types
Investment Property Types
- 1, 2, 3 and 4 unit investment properties are eligible for financing.
- Condominium Hotels, or condotels are not eligible.
Eligible Mortgage Products for Investment Properties
- 15, 20 and 30 year fixed rate mortgages
- 5 and 7 year balloon mortgages
- Most ARMs (adjustable rate mortgages)
- A-Minus mortgages (unless the borrower owns multiple investment properties)
Investment Property Transaction Types
- Purchase
- No cash-out Refinance
- Cash-out Refinance
Down Payment for Investment Property Closing Costs
- Gift funds are not allowed
Eligibility for Mortgage on Investment Properties
- Loan Prospector result of "Accept" or "A-Minus." Manually underwritten loans will be accepted
- Minimum Credit Score of 620
- Maximum Debt Ratio of 45 percent
- No more than 4 properties owned with mortgages. Additional requirement for borrowers that own more than one Investment Property
- The borrower may not have any relationship with the builder, developer or porpert seller
- Minimum reserves equal to 6 months principle, interest, insurance and taxes
It should be noted that Freddie Mac changes the requirements frequently, particularly their requirements for mortgages for Investment Properties. This post is accurate at this time, but may need to be updated in the future. Contact your mortgage lender or broker for more information on obtaining mortgages for Investment Properties.
Wednesday, March 4, 2009
Determining The Value of Investment Properties
One of the biggest and most frequently made mistakes people make when investing in real estate is paying too much for their investment properties. Paying too much is likely the top reason that many beginning real estate investors fail. Most people that begin investing in real estate do not have the financial resources to overcome purchasing their investment properties too expensively. Learning to accurately estimate the value of a property is the most crucial aspect of making money investing in real estate.
What is “Market Value?”
The Appraisal Foundation's Uniform Standards of Professional Appraisal Practice, defines market value as: "The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the sale price isn't affected by undue stimulus.” Your goal when buying investment properties is to accurately determine the property’s market value and then purchase with a profit.
There are two common methods for determining the value of investment properties, the Comparison Sales Method and the Income Method.
The Comparison Sales Method uses the recent sales prices of comparable properties in the same geographical area to determine the value of the investment property in question. The properties used should be comparable to the subject property in size, quality, amenities and features.
The Income Method is used to estimate the investment properties value based on the net income produced by the property. Under the Income Method a property’s value is determined using the Capitalization Rate, which is the property’s net operating income divided by it’s purchase price and The Gross Rent Multiplier which is calculated by dividing the purchase price by the property’s monthly gross income.
When determining the property’s expenses always assume that the seller has not been completely honest. You should always review the following:
1. Schedule E (Supplemental Income and Loss) of the owner's latest federal income tax return.
2. The property's latest annual tax assessment.
3. All of the rental agreements for the past year.
4. Water, sewage, solid waste, gas and electric bills for the past year.
5. Repair and capital improvement bills for the past year.
You will often find that the seller understates his expenses to potential buyers and overstates his expenses to the taxing authority!
When trying to determine the market value for investment properties you should always do the following:
1. Use the internet to find comparable sales in the subject property’s neighborhood. Remember to use properties with comparable age, size, condition and amenities as the property you are interested in buying. Use this information to determine the comparable market value of the potential investment property.
2. Verify the property expenses and income. Determine net operating income.
3. Calculate the property’s Capitalization Rate by dividing the net income by the estimated comparable market value.
4. Estimate the property value by multiplying the Capitalization rate by the net operating income.
By following this advice you will be well on your way to profiting with investment properties.
What is “Market Value?”
The Appraisal Foundation's Uniform Standards of Professional Appraisal Practice, defines market value as: "The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the sale price isn't affected by undue stimulus.” Your goal when buying investment properties is to accurately determine the property’s market value and then purchase with a profit.
There are two common methods for determining the value of investment properties, the Comparison Sales Method and the Income Method.
The Comparison Sales Method uses the recent sales prices of comparable properties in the same geographical area to determine the value of the investment property in question. The properties used should be comparable to the subject property in size, quality, amenities and features.
The Income Method is used to estimate the investment properties value based on the net income produced by the property. Under the Income Method a property’s value is determined using the Capitalization Rate, which is the property’s net operating income divided by it’s purchase price and The Gross Rent Multiplier which is calculated by dividing the purchase price by the property’s monthly gross income.
When determining the property’s expenses always assume that the seller has not been completely honest. You should always review the following:
1. Schedule E (Supplemental Income and Loss) of the owner's latest federal income tax return.
2. The property's latest annual tax assessment.
3. All of the rental agreements for the past year.
4. Water, sewage, solid waste, gas and electric bills for the past year.
5. Repair and capital improvement bills for the past year.
You will often find that the seller understates his expenses to potential buyers and overstates his expenses to the taxing authority!
When trying to determine the market value for investment properties you should always do the following:
1. Use the internet to find comparable sales in the subject property’s neighborhood. Remember to use properties with comparable age, size, condition and amenities as the property you are interested in buying. Use this information to determine the comparable market value of the potential investment property.
2. Verify the property expenses and income. Determine net operating income.
3. Calculate the property’s Capitalization Rate by dividing the net income by the estimated comparable market value.
4. Estimate the property value by multiplying the Capitalization rate by the net operating income.
By following this advice you will be well on your way to profiting with investment properties.
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