All Forum Posts by: Rick Howell

Hello All.

We are transitioning from property mgmt to building in house mgmt. Does anyone recommend an all in one software? We were told Rentigo as well as rentmanager.com. Any feedback would be greatly appreciated!

Would you like to be in the know about insurance and inspections when buying a home?

All of the information out there about searching for homes to buy, working with realtors, and getting a mortgage loan can be overwhelming. There are even plenty of tips out there to make the moving process easier. However, two of the areas which can cause just as much confusion, and can either make or break the homeownership experience, are home inspections and homeowners insurance. These factors can heavily influence repeat buyers and real estate investors, too. So what do you need to know?

Home Inspections

Many people often try to justify not getting a home inspection. Don’t fall into this trap. Always, always get an inspection. Period.

While the risks of major issues may be lower in certain scenarios, and those buying with enough cushion to tear down and build from scratch without breaking a financial sweat may not be worried. However, not getting a property inspected can be extremely bad news. Honestly, you never really know what is lurking within a home unless you have an inspection. Most people underestimate the costs that can arise if they don’t know what they are getting, and there are more liabilities than you may think.

Always get an inspection, even on new homes, or those that pass the eye test. Think about how much you are investing. A couple hundred dollars on an inspection is a great deal on ‘insurance’ when you are putting tens of thousands on the line. This applies whether you are putting in real capital, or borrowed money.

Many will find it prudent to go above and beyond the basic home inspection and ask for mold tests, termite inspections, and anything else that could be a problem down the road. For those afraid of needlessly spending more money than they have to; consider getting a basic inspection, and then ask the inspector whether they feel there is any value in deeper inspections or not.

Choose a reputable, unbiased inspector. They shouldn’t try to offer to do any repairs for you. A good inspector will be detailed, and will at least find minor issues that can be improved on. If they find nothing, they may be getting paid off by other parties in the deal to ensure you don’t get scared off. However, it is also key that buyers recognize the difference between minor improvements they can make later, and critical repairs than need to be made immediately. If the AC is going to cost $6k to replace, or the house needs new wiring and plumbing, you will want to know up front.

Homeowner’s Insurance

Buyers should always get insurance. If you are taking out a mortgage loan, it will be mandatory to obtain all the insurances your lender deems necessary. This list keeps on getting longer and longer. Buyers that fail to educate themselves on this upfront will soon be made aware of how important it is to have insurance when the time comes that they need it. As you may have heard, it is better to have insurance and not need it than to need it and not have it.

It is common to be required to have general homeowners insurance, flood insurance, separate interior insurance for condos, special disaster insurance and any number of other insurance options.

The costs of insurance is determined by the value of the property, cost to rebuild the property, value of what you own, and risk of damage. Insurance premiums may also be lowered by deductible amounts, having security systems in place, and having disaster protections in place. It is also important to note that some insurance agents are bound to certain higher levels of coverage than others. Those with existing coverage for other assets may even find dual discounts.

Every day hundreds of new investors hit the real estate market. In fact, it’s one of the reasons I love real estate: Anyone can do it. You don’t need a degree or a special license to get started. As long as you have the motivation and drive to succeed, there are opportunities to be had. However, deciding which opportunities are best for you is often a point of great confusion and frustration. Most of the answers lie within your local market and the amount of funds you have available. Additional options may be considered based on your long term goals and your real estate skill set. If you are looking to close your first deal, here is some advice on how and where to get started:

Types of Financing

FHA: All purchases start with financing. It is best to know what kind of loan you are approved for before even beginning to look at the market. Inside the real estate business you have multiple financing options. You may consider a partnership with someone who has funds they are looking to invest, a private lender if you will. You may also tap into the many hard money outlets that are now available. If you are looking to finance the property, you either need your own capital or a lender's funds. A great way to get started is by taking advantage of an FHA loan program. FHA (Federal Housing Administration) offers programs for owner occupied properties with as little as 3.5% down. They allow as much as 3% of the closing costs and prepaid taxes to be paid by the seller. Combining both options can get you into a new 1-2 unit property with minimal down payment.

203K: A 203K is another loan product offered by the FHA. This program takes on many characteristics of the program above, with one stark difference. With a 203K, the borrower is allowed to use up to $35,000 for repairs on the property. This amount is simply added to the loan after the completion of the work. This works well for investors who lack the skill set or the funds to do the repairs themselves. Because of all of the moving parts and work associated, these loans may take a bit longer to be put into place but can be a great way to enter the business.

Types of Properties

Distressed Properties: Some of the best deals you will find are with properties that nobody else wants. When you are just starting out, you need to find value wherever it presents itself. Often times, this means making offers on properties that at first glance may seem horrifying. These are the properties you look at where there is debris ankle high or a smell you can pick up as soon as you walk in. While you may not want to live there, these properties often have great potential. Cosmetic fixes are simplistic but yield big results. If you are handy and can do these repairs yourself, the higher the upside will be. Between short sales, foreclosures and auctions, there are a handful of distressed properties in every market.

Duplex: A duplex is another way of saying multifamily property. A great way to enter the business is by combining an FHA loan product to purchase a two family property. You can live in one side while renting out the other unit. Having a tenant should cover most, if not all, of your monthly mortgage payment. You will also gain valuable experience as a landlord and property manager. Having your tenant in the same building will give you a front row ticket of this side of the business and give you an idea of whether or not it is for you. It will also provide you with cash flow and accelerate paying down your mortgage.

Mobile homes: For the real estate investor, mobile homes, or modular homes are something of a commodity; at least in the right market. Typically part of an association, these are much smaller units, fixed to the ground, and not mobile at all. They are very much like condominiums in the way they are structured. The biggest difference is that they are often much smaller than the average condo. These can be an attractive starting point, given their reduced price point for entry. You probably won’t retire after your first mobile home deal, but there may be profits to be made. At a minimum, you can learn some valuable experience as to how the process works and what it entails.

Most investors slowly work themselves into the business until they are comfortable with the market and the process. There are many different ways to find your first deal. It is important to remember that getting started on a bad deal is far worse than not doing anything at all. When you are comfortable, look for a deal that is the best fit for you and go from there. Your first deal sets the tone for your business. Make it one that you can be proud of.

How can aspiring entrepreneurs streamline the way they achieve their biggest real estate goals?

Most people set resolutions and goals at the beginning of a new year. Whether they were personal or business oriented, there is probably a large population that has already given up, and we aren’t even two months into the new year. However, I can assure you it’s not too late to get back on track. If you are determined to accomplish your goals, try these tips to keep your head in the game:

1. Take Action: Everyone has ideas, but achievers act on them. They act intentionally, and with purpose. It is never the perfect time, you may never know absolutely everything, it will never all be easy, and longer term plans or features may change. Regardless of all this, achievers are decisive and take action. Do yourself a favor and take action. Nothing will come to fruition if you don’t take that first step.

2. Know Exactly What You Want to Accomplish: It’s hard to achieve your goals if you aren’t clear in establishing them in the first place. Exactly what is it you want to accomplish? If your goal is monetary, how much? If it is helping someone, who is it? If it is a certain number of real estate deals, what is your number? If it is simply being the best, what measurements and metrics will you achieve to demonstrate that?

3. Plan: It sounds basic, yet so few real estate professionals have a real, meaningful plan. Going through the motions of creating a lifeless business plan just because you have to doesn’t really count. Layout the really big vision you want to achieve. Make it engaging and inspiring. Look at any major architectural feats, the creation of ancient empires, historic works of art, and even the rise of Facebook and Uber; they were carefully and intentionally planned. The framework was drafted out in advance. Get a real plan.

4. Identify: Bringing the final product to life also requires you to put the right pieces in place. Uber literally needed vehicles and an app to unleash its empire. Facebook needed code and servers. Michelangelo certainly needed paint and ladders to craft his masterpiece on the ceiling of the Sistine Chapel. The Empire State Building required many materials, and logistics to be worked out. What will you need to learn about real estate? What software tools, building materials, and other resources will you need to make your masterpiece?

5. Create a Model: Facebook started off at a single school. Before you build and sell a massive new real estate development, you’d probably commission a model built to scale. Before you try to buy a portfolio of 100 homes, you’d probably want to work out the quirks and get familiar with the process. However you plan to get into real estate, find a way to begin with a model you can scale efficiently. I can’t stress this enough. It is much better to fail at a smaller level than at a larger one.

6. Break Down Your Action Items and Timeline: Entrepreneurs typically overestimate what they can achieve in a year and underestimate what they can achieve in ten. Achieving your biggest lifetime goals doesn’t have to be a sprint, it’s a marathon. You do need to get going, but giving yourself some time can take off a lot of the pressure and ensure better decision making. Break down your own timeline, break up your actions into realistic steps, and roll with it.

7. Where the Magic Happens: It’s time to seek out collaborators, and to gain leverage by leveraging other people and their expertise. Who can help you on your mission? How can you leverage the time, knowledge, connections, and finances of others? When you start making the connections and establishing these partnerships, you will truly gain traction and make big leaps toward your goals.

Summary

Those that achieve big things take action, have plans, take inventory, build scalable models, allow time for results, and look for others to help drive them forward. So put the above into play, stay focused, make the consistent steps, maintain your passion, and look for leverage to be on your way to accomplishing your goals.

There is a lot that goes into flipping and selling a property. Not only do you have to acquire it at a price that works for you but also, you need to put the right amount of work into it. There are many investors who are disappointed in their results because they fail to see the end of the process before they start. Selling your investment is great but the goal is to maximize your return. This starts from the minute you take ownership of your property. There are a handful of things you can do from the time of acquisition to the sale that will help in this area. Here are five tips to help you with selling your investment property for a maximum return.

• Think Like A Buyer. One of the biggest adjustments new investors need to make is to change the way they think. You need to be able to put your personal feelings and ideas aside when rehabbing. As much as you may like a certain characteristics of a property, you are not going to be living in the house. As you map out what work you are going to do, keep your buyers in mind. This starts with understanding the area and local market. Take some time to research what kinds of properties have sold in the last few months. Review the listing sheets to see what features these properties have. Also, a good idea is to take a look at homes that have sat on the market for a considerable amount of time. After you do your due diligence you should be able to have a good idea which areas you need to improve and which you can scale back. From the minute you start any work you need to think like a prospective buyer would think.

• Luxury Vs. Affordability. When rehabbing there is a delicate balance between luxury and affordability. All buyers want to live in the nicest house possible. They want granite countertops, updated bathrooms and stainless steel appliances. However, many are not willing to pay a premium for them. Throwing money at a property does not guarantee that you will see a return. Over doing improvements to your property for the market may turn out to be a waste of money. When you’re selling you want to create the highest amount of demand. This often means making the property as affordable as possible. A strong level of affordability brings in the maximum amount of buyers. Not only do you increase the chances of a quick sale but you can also create maximum demand. This demand often ends up in a bidding war which pushes your final price higher. Nice things work only in markets where buyers are willing to pay for them. Never put money into a property without understanding the potential return.

• Work With The Right Buyers. Doing the right work does not guarantee maximum return. You need to sell to the right buyer. Regardless if you have one offer or multiple ones you can’t rush to judgement. Accepting an offer that doesn’t end up closing will set you back months. There are times when the highest offer may not be the best one. You need to look at everything involved. The contract, pre-qualification letter, ability of the lender and any financials must be reviewed. It is no secret that the mortgage market is still filled with delays and 11th hour issues. You want to work with a buyer that is as clean as possible and can close without any problems. By accepting a higher offer with a pre-qualification that looks shaky you can end up wasting 45 days before you find out there is an issue. At this point most of the buyers that were interested most likely moved on to other properties. You will be forced to start the process over again and wait at least another month, possibly longer. Price is always important but working with the right buyer can help you get the best deal.

• Don’t Wait To Start Marketing. There is some debate in investing circles as to when is the best time to market your rehab. While it may make sense to wait until all the work is done to show it to the public you can always market to your network. There is no need to wait to generate interest with local attorneys, mortgage brokers, contractors and anyone else associated with the business. You can take advantage of social media and make posts regarding your property. The sooner you get the word out the more likely you can find a buyer.

• Price Right. While this is listed last it may be the most important step in selling for a maximum return. Most buyer interest is based on the list price. If you list too high you will lose a large segment of buyers that may have had interest. By listing too low you can end up leaving money on the table. Trying to squeeze 5% more out of the property has a negative impact. A home that sits on the market quickly loses appeal. Real estate agents will direct their buyers to more affordably priced homes in the area. After a few weeks of inactivity you will be forced with a decision to reduce the price. Once this happens buyers look at your property as damaged goods and any offers that come in will be discounted. You are always far better off listing at the right price and hoping to generate demand than trying to get a price that you know isn’t very realistic.

Generating maximum return begins at the start of the process and goes all the way until closing. Just a few percent more on five rehabs a year can equal a large increase in your bottom line.

Rental property owners often focus on cash flow, and for good reason. After all, if the money isn’t coming in, it is hard to justify keeping the property in the portfolio. At a very high level, cash flow is what’s left when you subtract the expenses from the profit. But that’s not all you need to consider when evaluating your cash flow. Here are several tips to generate more cash from your assets, and suggestions on how to use that extra income.

First, look at your expenses. This is best handled on a per-property basis, so you have a complete picture of each asset in your portfolio. Big expenses, like property management, are pretty straightforward. But the smaller expenses can quickly add up and impact your bottom line. Utility bills, lawn care, and HOA fees all add up. Look for ways to cut down on the costs by shopping other utility providers, passing those costs to the tenants, or eliminating them altogether.

Next, look at the big picture. If you are finding, for example, that a property’s appliances are constantly needing to be repaired, consider investing in new ones instead. Or find good repair people who can maximize the appliances’ longevity.

Finally, do not overlook the importance of good tenants. Cash flow stops immediately when tenants stop paying their rent. Price your properties according to the local market and do your due diligence in screening applicants. If you utilize a property management group, they can help with this. Once you have good tenants in place, try to keep them there. Avoid the temptation to try to squeeze a little more money out of them each month, as this could drive them to seek out a better option.

Now that you have streamlined your expenses and you see more money coming in each month, look for ways to keep that money working for you. While some are tempted to pocket the extra money and move on, this is not the best strategy. Rather, keep those funds in the business. Reinvest in your long term goals. That money could go a long way toward paying down your loan faster, as an extra several hundred dollars toward the principal each month can shave off years of payments. This builds equity faster and saves you from paying that extra interest.

You can also use that extra income to pay down debt. If you are carrying credit card debt, you are risking your credit score and wasting money on paying interest each month. By putting that income to work reducing your overhead, you will strengthen your business and put yourself in a better position to acquire more properties.

Finally, consider saving the extra cash to put toward your next deal. Having extra cash on hand is always helpful in acquiring properties to lease. It can also go toward wholesale deals if those are part of your business strategy.

When it comes to cash flow, what you do with it is more important than how much you have to work with. If you can find ways to increase your cash flow and make good decisions on what to do with it, your business will be stronger for it.

A successful rental property is all about finding the right tenants. Once you find tenants that truly enjoy your rental property you can expect the lease to go as smooth as possible. To find the right tenant you need to make sure your rental stands out from the crowd. Most markets have a high demand for rentals. It is not enough to have the best location or even the lowest price. Your rental needs to offer certain amenities that other rentals in the area do not. Using these will help you avoid scrambling to fill a vacancy, and stop tenants from looking elsewhere. Here are five simple things you can do to add appeal to your rental property.

• Washer/Dryer. With any rental property it is important that you know your market. A student housing rental does not need the same amenities as a rental you would rent to a small family. Regardless of the rental there are a few amenities that make renting much more appealing. An in house washer/dryer and dishwasher can completely change the perception of the property. Nobody likes lugging laundry to and from the laundromat. This can be a time consuming expense that will push renters in another direction. If you have room in the basement you need to find a way to hook up a washer and a dryer. For around $1,000 you can install a washer and dryer that you will have in the property for years to come. Another good amenity to have in the property is a dishwasher. You don’t need a brand new stainless steel model to attract tenants. As long as you have something in the property it will make things easier on the tenant and feel more like home.

• Extra Storage. No tenant wants to feel crammed in their rental property. Adding square footage to your property may not be realistic but there are other things you can do. You can look at adding storage space in the attic and basement. It is not uncommon to ignore your attic for years. You may think a tenant has no use for the attic and it has become your personal storage bin. It is important that you take some time to clear the attic out. This may force you to get rid of some things but it can work to free up storage space for your tenants. The same goes with the basement. Regardless if the basement is finished or not you need to make it as clean and presentable as possible. There is often a room in the basement that can be used for storage if it is clean enough. Most tenants aren’t going to store dozens of boxes in these areas but room for seasonal items, a bicycle or toy set can be important.

• Garage. If you have a garage on site you need to take advantage of it. As hard as it is to believe there are many landlords who don’t utilize the garage. It may be little run down and instead of using it for parking they use it for storage. There are some tenants who will only rent properties that offer secure parking. Regardless if the garage is attached to the property or not you need to make it useful and functional. You may spend some money restoring it and cleaning it out but it can be an important part of attracting tenants. This is especially the case if the property is located anywhere that can get wintry weather. Tenants do not want to deal with defrosting their windshield and removing ice and snow every storm. If all things are equal they will choose the rental that offers a garage. There is no reason not to take full advantage of an onsite garage.

• Amenities. As a rental property owner it is important to always consider the big picture. There are plenty of occasions when paying a small expense has a much greater return. Take a look at what amenities and expenses you can pay that will allow you to justify a higher rental price. Seemingly minor items like snow & trash removal, lawn care and certain utilities can add instant appeal. Most tenants want to have their lives as simple and easy as possible. Bundling these items allows them to live worry free and not have to worry every time there is a storm or how they are going to cut the grass. As far as utilities heat and hot water are fairly standard but if you find a bundled cable deal you may be able to pass this along to your tenants.

• Furnish Unit. There is a large segment of tenants who do not have couches and other furniture to call their own. By furnishing your unit with these and other items your property becomes much more rentable. Instead of moving a desk, coffee table and other large items they can simply use what is already in the property. Furnishing typically works best for student housing rentals or in properties where moving in and out can be challenging. If there are tricky corners and tight spaces you can partially furnish the property and leave the rest vacant.

It is important to view your property as a prospective renter. Whatever items you find appealing your tenants will probably feel the same.

If you are new to property investing, you may be familiar with the term “hard money loan,” but you may not be aware of how it works. In general terms, hard money loans come from a private individual (or group of individuals) for the purpose of a real estate transaction. Hard money loans work well in certain situations. Before you decide if a hard money loan is right for you, educate yourself on the key terms associated with this type of financing.

LTV is calculated by taking the loan amount and dividing it by the property's value. For example, a loan of $200,000 on a property worth $250,000 has an LTV of 80%. Ideally, hard money lenders like to see LTV in the 65-75% range.

Because hard money loans are not coming from banks, the criteria by which the investors judge the likely success of the deal are different. Some hard money lenders will look at the ARV, which is the estimated value once the rehab work has been completed. ARV-based loans have more risk for the lender, and therefore may carry a higher interest rate than if the terms of the deal are based on LTV.

Just with traditional lending, the interest rate impacts your bottom line. The difference, however, is in how much interest the typical hard money lender charges. Where a bank may charge interest around 4.5%, with hard money you are looking at around 10-16%. That is clearly a substantial difference. However, you must factor in how much faster you can close on a hard money loan as compared to the typical bank closing time frame. Also, since the goal is to flip the property quickly, ideally you will be paying back that hard money loan quickly enough that it will not cost you a lot in interest.

Points are the fees you must pay to the lender for borrowing the money. A point is 1% of the loan amount. Typical hard money lenders charge between 2 and 6 points per loan. Often, lenders add this fee to the loan amount. On a $200,000 loan, 4 points comes out to an additional $8,000 added to that loan.

Hard money lenders want to get in and out of their deals quickly. This is why they generally only lend to property rehabbers and flippers. Terms on hard money loans are usually between 3 months and 1 year. Each day you don’t repay that loan, you are accruing interest. You must factor this into your budget. Also, realistic about how long it will take you to complete the work, list the property, and close a deal. If you fail to repay your loan on time, you may be forced to pay additional penalties.

Again, because hard money lenders are individuals and groups, rather than banks, you will find a range of loan minimums and maximums. Do your research. Some may stipulate a minimum, others a maximum. They all have their own business strategies and frameworks within which they operate. You will need to find a lender that can work within your target loan amount.

Hard money lending has become more popular in recent years, which means it is easy to find a lender. A quick Google search, or a conversation with your real estate agent contacts, should get you pointed in the right direction. Real estate investor clubs and conventional mortgage brokers can also be great resources. You can decide if this option is right for you once you understand the terms and talk to lenders.

Rules provide structure to our world. It is no different in the investment property world. Without rules, staying focused is difficult if not impossible. Working without a good framework will likely leave you feeling scattered, and lacking direction. Staying on track requires structure. Here are five “golden rules” to buying investment properties.

We all get attached to an idea, a vision, a plan. When you are looking for investment properties, there are many things that can go wrong. Keeping your emotions out of the equation can be difficult but necessary. If a deal falls through, or if you find you need to change tactics, remember there are always more properties out there.

Buy low and sell high. It’s a simple concept, but investors sometimes struggle to identify which properties have the potential for good profit. Watch for market trends, get good feedback from contractors on the scope of repair work needed, and do your due diligence to determine details like interior finishings based on your likely target buyer.

Along the same lines as staying emotionally detached, this rule requires objectivity rather than subjectivity. Numbers can be manipulated to give any number of results, so don’t rely solely on other people’s data. The key is to trust that your numbers accurately reflect the market, scope of repairs, and target resale value. Once you have faith in your data, go with it. This holds true when the numbers point toward moving forward with a deal just as much as when the numbers tell you to move on.

No one can do this alone. Use your employees, your partners, and your contractors to work efficiently. If you have a good network of people you trust, your work will be much easier than if you feel you are carrying the bulk of the workload. Tenant dispute? Let your property manager handle it. Problem with the rehab work? Your contractor or project manager should be first on the scene.

No matter how good you are at planning and executing your vision, things happen. You can prepare for the unknown by ensuring you have ample cash in reserve to deal with sudden issues. In other words, don’t work without a net. Storm damage, a bad tenant, a burst pipe, or any number of other emergencies can happen at any time. Protect your business by preparing for the unexpected.

This industry is complicated. By sticking to the rules, you can protect your business and handle bumps in the road without losing sight of your goals.

This is a great time to invest in real estate, but that doesn’t mean it will always be easy. Like any business, it will have its highs and lows. The good news is, you can choose how you react to the ups and downs. Staying positive is critical to your success. No one wants to do business with someone radiating negativity. By avoiding these three thoughts and attitudes, you can stay positive even in the lowest of times.

One of this industry’s perks is that you set your own schedule. But with no one dictating your schedule, it can be difficult to stay focused and get the job done. Do not push off tasks that could be done sooner. Take action and keep moving. Even if you fail from time to time, at least you will learn from your mistakes.

Not every offer you make will be accepted. Rehab projects will run into stumbling blocks despite your best efforts. You will likely face more failure than success when you are starting out. As soon as you accept this, you can move on. Real estate is not unlike baseball in this way. Think about the greatest players to ever swing a bat and look at their percentages. While many investors facing a defeat will throw up their hands in despair, the best ones will take the setback in stride and press on. Attitude is everything. After all, that big opportunity could be right around the corner; investors who are busy complaining will miss it.

We learn more from failures than from successes, so learn to look for the silver linings and don’t make the same mistake twice. Property investing carries with it inherent risk, which means failure is part of the package.

Stubborn attitudes about investing generally don’t find much success. This market is always changing, which means investors need to be flexible. How you invest today might not be the right strategy in six months or a year. If you have been investing for awhile, look back at where your business was a year ago. Most likely, you have made at least a few noticeable changes since then. The more flexible you are, the easier it is to adapt. Consider new opportunities. Your portfolio will thank you for it.

Setbacks make people frustrated. What matters is how you deal with your frustration. The next time you are feeling self-pity, remember your thoughts are as important as your actions. The sooner you can get yourself back on a positive track, the sooner you will find success in your business.