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Buying a home for rehab is an involved process, one that you should not go into unless you are prepared to invest time and money into. The value of a rehab is that you can usually get a home that needs repairs for a substantially lower price than a completed one. If you are able to put time and energy into it yourself, you will save money on the repairs and therefore when the value of the home goes up upon their completion, you will net the profits. By focusing on specific improvements you can greatly benefit your homes value, while some are less valuable.
You want to purchase a home that already has working plumbing, heating and electrical systems. These are all expensive improvements that will not be noticeable when selling your home. If you are purchasing a home that needs these improvements, make sure you have the costs necessary to fix them taken off the price. From here you can move on to more cosmetic improvements. Bathrooms are a great start, as new fixtures can make an older looking room very modern. As well, much of the work can be done yourself. From here, move on to floors, putting in new carpeting can drastically change the look of a room, and hard wood will certainly raise your asking price, though it does require more of an investment. If the home has a fireplace, putting in a new one will also add value.
Kitchen improvements can be more expensive, so they should only be done if the oven or refrigerator is very old. New counters are cosmetically appealing, but can be a hassle to install. A universally appealing improvement is new windows; this is for a few reasons. First, they are attractive, and second, they provide great energy saving benefits, as insulated windows will reduce energy costs. You will want to specifically advertise the new windows and if you put in new carpet, mention that. These are selling points your customers will be looking for.
Painting rooms is always an option, it will give the room more variety, and it is very inexpensive if you do it yourself. Most of these improvements can be done yourself. Carpeting or floors will set you back more, but it will be apparent you put the resources in when your buyers enter the home. This benefit will help sell the home, and that’s what all this is really about.
Posted: March 7th, 2008 at 3:36 pm
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In the current real estate market, the number of foreclosures is expected to double from the previous year. While this is creating problems in credit markets and is causing financial problems, it also opens a window to get property at a lower price than you would pay elsewhere. Purchasing foreclosed homes and short sale properties is a great way to save money on your investments, all it takes is the willingness to do a little more work. Buying after a foreclosure does have some risk attached, so it isn’t guaranteed success, but the opportunity is often worth the risk
So, how do you purchase a foreclosed home or a short sale? You should start by locating an area where you are interested in purchasing a property. From here, you have to look for foreclosing properties, so let local real estate agents know you are looking for foreclosures, they will do a lot of the foot work for you. You should also contact lending institutions to see if they have any properties going into foreclosure.
Once you start getting the information on foreclosures, you can investigate the properties. This can help you determine the market value, so you know how much you have to put into it to sell for a profit. You’ll also want to investigate who owns the property and whether there are any liens on it. From here you can start negotiating with the lender about purchasing the property and how you will finance it. You may even be able to assume the previous loan. This process can be complicated, so be prepared to do a lot of footwork before you actually purchase the home.
Short selling is a similar process, but it actually occurs before a property enters foreclosure. Short sales allow a property to be sold at a lower price than the remaining mortgage, but they are difficult to arrange. The seller must already be in default on their loan for the bank to consider this option. This means their property is likely worth less than the remaining balance on the loan. Unfortunately this poses a problem, because the bank is going to expect the market value of the home out of the purchase. You want to research the home’s value, potential problems, and especially determine if there are 2 mortgages. A second mortgage usually means a short sale is impossible because it would result in the second lender being wiped out.
A short sale involves negotiating with 2 parties, a home owner and a bank, and because of this it will take a longer time to close than a regular sale. That being said, it is also a home that has not yet been moved out of, so you are better off than when purchasing a foreclosure. In the end you only want to make a purchase that is a good deal, so don’t get into a sale that isn’t worth it.
Posted: March 7th, 2008 at 2:31 pm
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With recent economic problems developing in the housing market, many investors are finding themselves wondering what the best approach to the market is as it adjusts. In real estate there are many different ways to invest, but two of the most common are flipping homes and renting them out. While the up-front cost of both is similar, you may be wondering what will pan out the best in the long run. Under the current circumstances it is necessary to think about both the longevity of an investment, as well as potential gains granted by a purchase. It is worth the time to examine both options, and don’t presume what is true within the context of the national market is equally true in your locality.
The first option, flipping, has been common in the booming housing markets recently. You purchase a home, put work into it, making it livable and then resell it for a profit. This technique works best within markets that are growing rapidly, allowing for a fast turnover after repairs are completed. When prices drop this option begins to look less and less attractive, as you cannot be sure how long you must wait to earn enough out of a property purchase to justify the costs. Under current circumstances, this is a more risky option, but it is not altogether impossible to make money flipping homes. It is a matter of patience.
On the other hand, renting out a home comes with its own set of issues. It requires a similar financial output to flipping a home, although admittedly you can likely begin renting a home before you are completely finished all renovations, unlike a property you are selling, which will only reimburse you upon its sale. Renting a home is a great long term strategy, playing a market that reliably goes up in value. While owning a rental home is a commitment, it is much more flexible, and can be very lucrative as a long term investment.
The circumstances of the market will obviously dictate your investment decision, but in the current situation it is less likely that flipping a property will be the most financially sound investment. The market is undergoing an adjustment, and as such it will take a longer time to turn a profit simply on an investment. Renting allows you to receive income while you are waiting to sell your property, a safer investment in a buyer’s market.
Posted: February 4th, 2008 at 12:50 pm
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Becoming a first time landlord can be a very lucrative proposition if you know what you’re doing. Unfortunately, most first-time landlords don’t know what they’re doing, so it’s very important to get information from people in the know.
First, learn the rules. Every state’s laws are different. Knowing Maryland property codes, especially with regard to required safety and security items, as well as any affordable housing laws, is of the utmost priority. For details, you should speak with your realtor. Also be aware that regular homeowner’s insurance does not cover tenants; you have to switch to landlord insurance.
Second, if your property is part of a home-owners association, check the bylaws to verify that they allow rentals, and, if so, what special rules apply to rentals.
If you’re still looking for the perfect property, your best gain will be to find a property that allows you to grow the net operating income. In plain english, this means to find a property that already has a renter, but where that rent is below average. These kinds of properties can be bought at value, and then the rent can be raised to market value. In such a situation, do not listen if the seller tells you that because it can rent for more, it is worth more; interpret these words as the seller saying: Do my job and assume my risk, but pay me as though I had done it myself. Only buy a property at the price that its current income justifies, even if you plan on raising that rent later on.
Once you’ve got a place in mind, you need to make sure you have access to a good contract. Be wary of generic pre-printed contracts available in office supply stores; these are often missing important language for your local laws, and these contracts often are thrown out as invalid if you ever go to court. Your realtor will be able to help you with this. If you buy from a previous landlord, you will already have a contract ready to go. Nevertheless, make sure you treat the relationship as though you were starting from scratch. Even if you use the same lease that the tenants had before, go over the contract with them. Explain the terms and legalese, because they may not have had this opportunity with the previous landlord. Besides, it never hurts to start off with a good impression.
After you’ve started your new career as a landlord, there are a number of things you should keep in mind. First, take care of the property; if you want tenants to treat your property with respect, then you must do so also. If something is broken, fix it. If something is dirty, clean it up. Deferred maintenance is always more expensive than aggressive maintenance. Taking care of your property will bring dividends in the long run, not just because fixing problems early on is less expensive, but also because tenants will pay more for a well-maintained property. (And it helps to remember that tenants will be more likely to default on badly-maintained properties.)
Also, you must keep in mind, no matter how friendly your tenants are, that accepting late payments is simply unacceptable. Once you accept one late payment, the next thing you know, every payment will be late.
Improving the property is also a good idea. By making the property better off, you can increase the net operating income, and your investment will quickly rise in value. Exterior lighting, CO2 detectors, and high-speed internet access are just a few ideas of how you can make your property more desirable. If this seems a bit excessive, then just look at the possibilities:
Value is your net operating income divided by capitalization rate. If the cap rate in your area is 10% (i.e. 10 times net operating income), and you buy a property, then by using the ideas in this short article, increase the rent by $800 each month, then look at what you’ve accomplished: $800 per month is $9.6k each year. That $9.6k, if the cap rate is still at 10%, means the value of your property has just increased in value by $9.6k / 10% = $96,000!
Of course, it takes time and money to create that kind of return. But what’s important to realize here is that this is not like gambling on flips; instead of relying on outside forces to determine your return on investment, you are creating this wealth yourself. After all, why gamble on how market forces beyond your control will turn when you make that return on investment all on your own?
So what are you waiting for? It’s time to get started! Because the most important thing to know about becoming a first time landlord is to just buckle up, find the right property, and get started! After all, without that step, none of the others even apply.
Posted: November 14th, 2007 at 11:06 am
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