The Good, The Bad, and The Ugly!
Yes, the credit market is frozen and yes, the real estate market is square in the middle. You are wondering if your dream of becoming successful in real estate investing has come down to just one question, “Do you feel lucky, Punk?”
Just because there was a big crash and your path appears blocked, does not mean you cannot get past get past this apparent real estate investing hurdle? The conventional thinking of buying a home, flipping it, and making a profit just needs to be tweaked and retooled just a tad bit. The demand for rental property has risen sharply due to the lack of mortgage loans availability. This will not slow down as a place to live is something that everyone has and will Always have a demand for. This current demand for rental housing has actually been beneficial to us as real estate investors, as the rental “rack rates” on average have appeared to increase across the United States as of lately.
People still need a place to live, they still want to pay the very least that they can for the very most housing they can purchase, and there is no reason why they cannot get that from you. The current housing market has affected the lower end of the spectrum the least and that should be your aim - searching for residence foreclosures, reposition, and tax seizures that fall into the low end of the price.
These houses are not pretty, most are ugly, except on paper. Houses that qualify for a home equity loan are a safer bet for lending institutions and allow you to create an income opportunity based on solid demand. Lending institutions qualify property for home equity falling in a low appraisal or tax value, although a good credit history is still required.
Most equity lines do not provide for homeowner insurance or appraisal, but the payments are usually much lower than normal mortgage rates and with greater flexibility in terms.
The trick is finding the homes that fall into this category which do not require a large investment to restore to a complete rentable state. It is exciting to begin a new project but easy to envision the next Taj Mahal, so remember the price range that the property will command and the time that will be required for completion.
There are also a few things to keep in mind when dealing with older properties. One must be mindful of foundation or structural damage that could tie up more capital than anticipated, or any outstanding liens that may be present.
The good news is that these houses qualifying for home equity loans are generally located together in one area, and finding and securing one will often lead to the opportunity for a second or third home in the same area. This will save you money in restoration costs, will provide much-needed housing in an otherwise defunct neighborhood, and provide residual income until the market is stable enough to return to the days before the market became unstable.
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Saving Your Profit Thru Property Management
In this economy the wise are watching their pennies. It is with cost control in mind that some smaller investors are seeking to reduce their costs or retain more of their incoming revenue by doing more themselves. Getting into the property management side of real estate investing is one way in which this niche of investors is fighting back against the undercurrent of decreasing revenues.
Property management of even less than a handful of properties can be a daunting task, especially for those who are new to the field.
There are numerous functional aspects that comprise property management, but here are the three in particular of which we will discuss a little bit further for you:
- Rental price setting
- Preparing to vet a potential tenant
- Tenant Selection
Setting a rental price is not as easy as it may sound. Setting a rental price is just as involved as setting a sales price. If you are renting yourself, without the aid of a Realtor, you will have to do some research of your local rental market to aid in determining a rental price. Once you’ve researched your local comparable competitors a few additional factors to consider when setting a rental price are what your property is realistically worth in the current real estate environment, whether your rental price is sufficient to cover your carrying costs and if a rental term greater than one year is requested is there room in your price for negotiation.
It’s always a good practice to price your rental property competitively but keep in mind it’s better to test the market at a higher rental price and retain the option to lower the rental price then to rent the property for a good deal less then the market would have supported. Once you’ve established a fair market rental price, put up your signage and done some advertising you’ll need to prepare to vet any potential tenants.
Establishing your criteria for an acceptable tenant is vital. A tenant’s job history, length of time on the job, salary, credit history, rental history and background check are some of the items that should be thoroughly reviewed before a tenant is considered as viable.
Gathering all the necessary information on a tenant as well as their permission to access their personal information is almost as crucial as the actual vetting of the potential tenant. A very thorough and comprehensive application will be needed for this process. Whether you purchase a preformatted application or you develop one yourself be sure the application you choose to utilize includes language requiring the applicant to sign the application in acknowledgment of their permission to allow complete access to any and all records needed for the processing of their rental application.
You may want to consider using a service to obtain credit reports and background checks perhaps with a volume discount. Inevitability you will need to run more than one credit report and background check so it would certainly be best to require the application fee be provided when the application is submitted to avoid expending time and money on vetting less then committed applicants.
Prior to selecting a tenant be sure to familiarize yourself with your state’s property code and any other laws on residential tenancies. Generally speaking it is unlawful to discriminate based on race, color, religion, sex, disability, familial status or national origin and typically the first qualified tenant should be the one selected. Compassion in choosing a tenant is commendable but it could be costly. I would encourage you to give additional consideration during the vetting process to your potential tenant’s ability to pay their rent in the instance a job or salary affecting event occurs. Attempting to ensure the prospective tenant has sufficient resources whether in savings or by requiring a cosigner would only be prudent and may prevent a future unpleasant eviction.
By avoiding snap decisions and doing solid preparation work, keeping emotion out of your decision making and allowing your analysis to be a catalyst for action you’ll achieve your cost reduction goals and increase your knowledge base and capabilities as a real estate investor all in one fell swoop.
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