All Forum Posts by: Rick Howell

The first step of any real estate deal is securing financing. Any grand real estate plans you have are based on your available capital. It will directly impact the market you choose, the purchase price, repair budget and everything about your transaction. One of the most common complaints in the investing business is the inability to find financing. What savvy investors know is that with a little digging there are multiple options available in almost every market. Depending your investing style and goals some of these work better than others. Never let a lack of capital stop you from pursuing a deal. Here are five popular sources of capital for your next deal.

• Bank Financing. Depending on your investing goals bank financing can be your initial starting point in finding capital. Bank financing is best used for buying properties you plan on keeping for the long term. With bank turnaround times near 45 days coupled with low interest rates this becomes a viable option. There are a few hurdles when working with a bank. Gone are most of the programs for borrowers with any kind of damaged credit. Today's investor programs require a mix of above average credit scores coupled with low debt to income and a significant down payment. If you are weak in any one of those areas your approval will be in jeopardy. On the positive side lender financing gives you the ability to take advantage of record low interest rates with a reasonable amount of closing costs. There are certain programs, like FHA, where first time homebuyers can purchase a 2 family house with just 3.5% down payment. Under this scenario they can live in one of the units and rent the other side all the while gaining valuable landlord experience.

• Private Money. The odds are you probably know more people interested in investing in real estate than you realize. In a nutshell that is what private money is. You find a friend, family member or co-worker that has surplus capital they are willing to invest in real estate with you. This partnership can be a onetime deal or something that you continue for the long term. In the simplest terms you supply the deal and they supply the capital. You can take care of the day to day operations and they provide the financial backing. The beauty about private money partnerships is that there is no set structure that has to be achieved. You can allocate the work load and returns any way you desire. The most important thing is that you get everything on the table as before you get going. As great as working with someone close to you is it can also turn ugly once finances come into play. The more you discuss before you start the easier the relationship will be.

• Hard Money Lenders. Over the past five years a flood of hard money lenders have entered the real estate business. While they may sound intimidating hard money lenders are a great source for capital. These are individuals or groups of individuals who lend money as an alternative to big banks. They have a set of terms, fees and guidelines that are agreed upon before any funds are issued. On one hand they are similar to traditional banks but on the other they couldn’t be more different. Instead of evaluating credit score and tax returns they look at the property and the potential profit. They can use personal assets as collateral and don’t follow the same underwriting guidelines that big banks do. Working with hard money is very similar to having a personal line of credit. This access allows you to make offers with quick, cash closings and close more deals. If you reach out to your real estate agent, attorney or mortgage broker you can quickly find a hard money lender. Additionally they are at most local real estate investment club meetings. Hard money lenders may not work for every deal but they should be considered for rehabs and flips that benefit from quick closings.

• Existing Portfolio. You may be sitting on capital without even realizing it. If you are struggling with options take a look at your existing portfolio. Sift through every property you own and evaluate the available equity. Property values have increased over the past few years. You may have more options with your property than you think. Increased equity allows you to explore the possibility of refinancing or taking a second mortgage. With rates still low you can pull cash out and still maintain a comfortable monthly payment. The same is the case with a second mortgage. A home equity line of credit (HELOC) allows you to keep your first mortgage in place and use the HELOC to borrow from. You only repay on the capital you use and most second mortgages offer a low interest only payment option. Additionally the fees and expenses with a HELOC are minimal, at best. A final option you can find in your portfolio is the option of selling a property. You may have been waiting for the right time to sell and feel that trying to time the market perfectly is too much of a challenge. By selling and reinvesting those funds you may be able to avoid any tax penalty and get a property you really want.

With just a little legwork you can find available capital. Use these four options as a starting point for your next deal.

You might not be alone when you hunt for a new home.

If you have children who are at least old enough to talk, they will have a say in where you live. Even if they are destined to move out of the nest in a year or two, they will want a say.

Certainly you want to hang on to your adult prerogative to make decisions but you would be wise to at least consider what they have to say.

Kids pick up on things adults often miss. You might even give your children some age-appropriate tasks in your house hunt. For example, they might check out the backyard or report on whether the neighbors have barking dogs. Ask them to size up each house in terms of how they would use it. Where would they set up the computer, do homework, work on crafts or hang out with their friends?

Of course listen to the kids but do not let them drive your decision.

Kids can be more conservative and resistant to change than the worst adult. Then once the decision is made and they have settled in, they might turn around and say the new house they criticized so vehemently is now the greatest place in the world. They are kids and they do that.

You are the grown-up and grown-ups make all the hard decisions. As the grown-up, you will want to apply your seasoned judgment to the things that will be important to them. The quality of local schools is paramount of course. Other amenities count too. Is the yard fenced? If not and you would like to add a fence after you move in then make sure they are not prohibited by the homeowner’s association or local zoning laws.

While you’re at it, check to make sure the kids’ basketball hoop is not prohibited as well. Are there swimming pools, parks or playgrounds nearby? Can older kids walk or bicycle? Are there hazards nearby like water retention ponds or busy highways? Finally, pay attention to traffic as you drive home from your visit.

Would you and your kids have to cross an intersection every time you left the neighborhood?

Whatever you decide; one thing is for sure. Your new home will be the vessel in which so many family memories will be made. You can’t go wrong with that.

There are real estate opportunities in every corner of the country. One of the things that makes real estate investing so great is that you are not

confined to your local market. If there is opportunity right across the stateline, there is nothing stopping you from pursuing it. Across the country

there are investors who are quite successful investing in out of market properties. These properties come with their own unique set of challenges but for the right property can make a ton of sense. However, before you consider this option there are a few things you need to understand. Here are a few pros and cons with out of area investing.

PROS:

• Opportunity. If there isn’t enough opportunity in your local market you need to see what else is out there. This requires a bit of a leap of faith but with a little due diligence you can find other markets. Some of these markets mesh perfectly with your vision and how you invest. The price points are lower and the competition is not nearly as fierce. You can have everything else lined up in your business but if you do not have opportunity for deals it doesn’t make a difference. Sometimes all it takes is simply exploring other markets and seeing what else is out there. Michigan is an ideal market for investors living in Toledo, OH or surrounding areas.

• Higher ROI. The goal for any investor is to make the highest possible return on their investment. In markets with high competition there may not be a high ceiling on the deals you pursue. There is nothing wrong with making a profit and moving on but there should be an opportunity for one home run deal every year. If your market doesn't offer much upside you can entertain other markets with a higher return on your investment. There are other factors you need to consider but out of area markets can give you more bang for your buck.

• Diversity. There is an old adage in real estate about putting all your eggs in one basket. Even if your local market is soaring anyone that was in real estate last decade knows just how quickly things can change. All it takes is a few changes in demographics to turn a hot market into a declining one. A large employer can announce layoffs that impact demand which pushes prices lower. The best way to protect yourself is by diversifying your portfolio. No two real estate markets are exactly the same. By investing in a few different locations, you will be as protected as you can for any changes in the market.

CONS:

• Unknown market. There is a good chance you know almost everything about your local market. You have probably worked or lived in the market for years. You know the sales trends and which areas inside the market are better than others. When exploring out of area markets you are starting from scratch. All it takes is one bad deal in a weak market to set your business back. Fortunately, it is easier than ever to learn about a new market. Instead of driving to town hall you can find almost any information you need online. However, this doesn’t always tell the whole story. Unless you are in the market on a daily basis there is always a bit of speculation investing in a new area.

• Reliance on team. As much as you may like to it is impossible to be in two places at once. With your property some seventy miles away you need to lean on your team for help. Not only does this require a leap of faith from you it also impacts your bottom line. Finding out of market properties usually starts with your real estate agent. Even if you found the property on your own your real estate agent will put the deal together. If you are shopping blind they will recommend the best areas to look for and which you should avoid. Once you take ownership you need a quality property manager to run the daily operations. This comes at a 10% cost but more importantly, you need to be able to trust them. They will be your eyes and ears with everything in the property. If you have trust issues or don’t like giving up control an out of market property may not be for you.

• Local rules & regulations. In any market, there are specific local rules and regulations that need to be followed. Some of the rules may seem outrageous at first glance but they still need to be adhered to. When you take ownership it is too late to find out that the town won’t let you do what you anticipated with the property. You need to do your homework and know exactly what you can do prior to even making an offer. At first glance, a town that appears to be a home run can turn out to be a nightmare.

Like most things in the world of real estate you won’t really know until you do it for yourself. A few well-placed out of market properties can completely change your portfolio for the better. However, if you don’t know the market or have a team in place even the best deals can turn into ones you regret

If you’re worried that you might lose your home because you’ve fallen behind on your mortgage payments, then you need to find a way to stop foreclosure. For some people, this can be as simple as getting home loan modifications – but others may actually need to sell their home in order to stave off a foreclosure. Selling a home is a great way to stop foreclosure – if you can make the sale before the bank finalizes the process. When you’re focusing on selling a home quickly, here are a few tips that may help you get out quickly:

If you’re concerned about a looming foreclosure, the best thing you can do is talk to your lender immediately. Getting in touch with them may help you stop foreclosure in its tracks. Of course, if the process is already in motion then consider selling your home. You may be able to save your credit and avoid additional stress by making a sale.

You may have a number in mind when you think about the property value of your home, but a local appraiser may have an entirely different idea of what your home is worth. A home appraiser has the power to make a big difference in the value of your home, so learning how they do it is crucial:

• Appraisers are all different. Some appraisers may come into your home and do an assessment, while others might only measure the outside of the property. If you were to invite ten appraisers over at the same time, they would probably all come up with different values.
• Appraisers give an approximate value. The reason you won’t get the same number from different professionals is because they give you an approximate property value. The number depends on why you’re having your home appraised, as well as how the appraiser views the individual factors that determine your home’s value. In general, numbers from different professionals should be within the same range.
• Appraisers use a variety of sources. The actual visit to the property is just one part of an appraisal – it's not just about those ten short minutes spent looking around the home. Appraisers also take a look at historic property values in the area, prices of comparable homes and the current values of homes in your neighborhood. They may talk to a real estate agent, research court records and look at the MLS – all in one day!
• Appraisals don’t last forever. You should expect yours to be valid for about six months. Any longer, and your lender is going to want to see a more current estimate.
• Appraisals can affect your mortgage. Your property value does make a difference for your mortgage. If you owe significantly more than your home is worth, you may be “underwater” – which can make it harder to get future loans.

Your property value affects many facets of home ownership, from your mortgage payment to how quickly you’ll sell the house when you’re ready to move on. Getting a solid figure from a local real estate appraiser is an excellent way to ensure that your property value is accurate.

Thank you!! I’m glad you like this!!!

WHAT IS THE MLS?

Created and managed by real estate professionals, the MLS is a proprietary database that serves as a gathering point for all property listings in a certain geographic region.

Each home ‘listing’ includes extensive information – not always available to the general public – on a website like details about the home, the property and its surroundings.

HOW IS THE MLS USED?

To gain access to the MLS you must be a member of the local Board or Realtors which means the service is most available to real estate agents- because of this the MLS also covers issues like how commissions are to be split and other information regarding the relations between brokers and agents.

The MLS helps real estate agents search for homes- if they are working for a buyer. The real estate agent can then create a list of homes that meet the criteria that the home buyers are looking for. Once a list is created, the real estate agent can then show each home to his/her client and have all necessary information about the house at their disposal.

When a real estate agent's client is selling their home, the MLS is the first place other agents will look when finding homes for their buying clients. The better the photos, descriptions and details that are posted on the MLS, the better your chances are to get your house shown to a buyer and then sold.

Overall, the MLS is a tool that is necessary, and certainly helpful, in the selling and buying of homes.

Homes for sale that look great can make it very hard to use a critical eye when looking at them. Buyers often lose sight of the fact that there might be structural problems or defects that they will have to contend with later.

To avoid falling into this trap have a good idea of exactly what you should be looking for before entering the home. Determine on your own, with your family or with someone you trust which elements of the home each of you will check out during the tour and stick with the plan no matter how terrific the home looks to the naked eye.

All homes are complex no matter how big or small, old or new. There are internal heating and cooling systems, electrical components, hot water heater, plumbing fixtures and a myriad of other issues that are hard to assess for the average home buyer.

Realize that you are not going to catch every single flaw or defect on your first run through a home, although there are a few key areas that every home buyer should look at before making a decision. Once you have decided on a home you will also want a professional home inspector to conduct a more thorough review of the home.

Below are the most crucial areas of a home that you should look at, should ask questions about and review critically on your first visit to a home.

Interior

1. Windows, doors and door frames
2. Ceilings
3. Flooring
4. Fireplace
5. Basement
6. Attic
7. Cabinets and counters

Exterior

1. Color and quality
2. Porch and desk
3. Maintenance
4. Gutters and roof
5. Foundation
6. Doors and windows

Surroundings

1. Driveways and walkways
2. Views and boundaries
3. Bushes, trees and grass
4. Neighboring homes and how they are kept and maintained

Improving a credit score does not happen overnight.

Why?

Most creditors only report to the bureaus once a month. However, there are a few steps you can take right now to start cleaning up your credit blemishes and here they are:

• Always remember to pay your bills on time- late payments can have a serious impact on your score.
• Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score; it looks like you’re being turned down for credit when you’re just shopping around.
• Reduce your credit balances. If you are “maxed” out on your credit cards, this will affect your credit score negatively. Your balance should only be 20% of the entire approval amount of each credit card.
• If you do have any unpaid debt that you now have the ability to pay off, then either do so or try to set up a “payment plan” or settlement option with the debtor.
• Obtain additional credit if you have limited credit. Not having sufficient credit can negatively impact your score. Even if you don’t like charging purchases, obtain a low-limit credit card and use it every month and pay off the balance within thirty days.
• When you do get your mortgage be sure to always pay it on time. Late mortgage payments are one of the most significant blemishes that you can have on your report.

Hello all!! Great questions!!!  When using traditional financing the banks will order an appraisal to determine value. We can determine our market value By using a comparable method. The key is just using the right comps.