Archives for May 2012

Banco Not-So-Pop-u-lar

Don’t invest in a vacuum

Let’s face it – we live in a world-wide economy. And property investing in the United States requires being cognizant of the potential pitfalls that await us from overseas markets. It seems like every day there are new, gloomy reports of impending financial disaster coming out of Europe. The latest news comes this week from Spain, as their banking industry seems poised to collapse. Banco Popular, as well as Bankia and Bakinter, three of the largest banks in Spain, have been downgraded by the credit ratings agency Standard & Poors. S & P lowered their ratings to near-junk standards, as these banks have been hit hard by increasingly bad loans, especially mortgages.

In addition, Bankia, which is Spain’s largest mortgage maker, announced on Friday that it required an infusion of an additional 24 billion dollars to stay afloat. Spain had seized the bank earlier this month, due to the bank’s huge portfolio of delinquent mortgage loans. The greatest fear is that Spain will not have the ability to raise the funds to keep Bankia alive. If this mammoth lender were to collapse, the entire European banking community will be rocked to its core. Of course, the reverberations will be felt here in the states, much like a financial tsunami hitting our shores.

The bursting of their bubble

Spain is currently experiencing the same bubble burst in real estate that began here several years ago. However, their central government may have waited too late to try to repair the rupture to their economy. There is a double whammy on the horizon for them: the genuine threat of a run on Spain’s banks, combined with the government’s inability to raise funds to cover all the bank losses in the short term. Currently, short term debt is being offered by the government there at a whopping 7 percent in order to entice foreign investors. It’s a very ugly situation indeed.

Will Germany have to come to the rescue again, as they have several times already with Greece? It’s looking more and more like a strong possibility. But at some point, Germany itself will be simply unable to financially take the lead as the main country in helping to bail out weaker European Union countries. The writing’s on the European wall – and it’s not looking very positive in the long term.

For this reason, property investors here in the Unites States should be extremely concerned about the negative consequences that lie in wait for us. What exactly does this mean for the small investor in our country and the ability to obtain an investment property mortgage? Will the overseas crisis come to our shores? And if so, when?

The tsunami ahead

As I’ve written before, I think this financial tsunami will occur in some form, and will be making its way over the Atlantic to our shores by late this year. And the net effect for small property investors will be a further tightening of credit. It will be

much harder to get an investment property mortgage later this year and going forward well into next year as the crisis in Europe develops and intensifies.

So the end result is that you should be planning your buys of investment property accordingly. If you haven’t already this year, be sure to speed up your property purchases as soon as possible, and do not wait till the end of the year to try to go out searching for property and locking up an investment property mortgage. By the end of this year banks in the United States will be feeling the crippling effects of what is going on overseas. Banks here will try to tighten their credit in order to ensure mortgage repayments, ratcheting up their standards for lending in the process. Small investors will be hit with higher FICO scores in order to qualify for a mortgage, as well as much lower loan-to-value ratios on all new mortgages.

A new bottom line

The new bottom line is that it will be much more difficult to increase leverage on your properties. More stringent qualifying standards will apply not only when you try to purchase new investment property by obtaining an investment property mortgage, but also when you refinance any of your existing properties. So your ability to leverage will plummet, and that will mean more cash out of pocket in order to help finance your new purchases. With less leverage of course, you will not be able to grow your real estate investment holdings as quickly. It will also create a scenario where your returns on investment will be substantially reduced as well.

So be aware of all that’s going on in Europe right now. Banco Popular, Bankia and Bankinter are not merely names of distant lenders – their failure would have far-reaching effects on how you purchase your investment property here in the states. To protect yourself, purchase and lock in an investment property mortgage now, well in advance of the end of this year. And plan accordingly. You should be planning your next year’s purchases based on the assumption that higher credit scores will be necessary to obtain that investment property mortgage, and your ability to leverage will be lessened. Also prepare for a reduction in mortgage loan-to-value ratios offered by lenders here. This means you’ll have to make up the difference utilizing your own cash on any new investment purchase.

photos courtesy of flickr.com, telegraph.co.uk, economicnoise.com, bloomberg.com, colourbox.com, dmciphilippines.wordpress.com, kelsocartography.com

Is Staging Your Investment Property Necessary?

What staging can do for your investment

Staging dresses up an investment property for sale. It will help show off the property‘s best features, and display it in the most advantageous way possible. I used to have a very pronounced anti-staging stance, favoring a much larger, open feeling to be experienced when walking into a fully renovated house that you are placing on the market for sale. This was especially true when the investment property I was putting up for sale was on the small side. I always felt that the renovations should come front and center, not the furniture.

However, I’ve changed my thinking over time on the matter. Now I feel that a wide open space without furniture can come off as feeling eerily ghost-like, creating negative connotations as prospective buyers walk through the front door for the first time. So my best investment property advice is to definitely use the services of a stager. Ultimately, staging can help potential buyers visualize actually living in your property. This is a key factor that will give you a major advantage over your competition of similar houses currently on the market. It will also translate into a quicker sale, for a greater price.

What a stager does

A professional stager can transform a tiny room into a very open and airy space with just a few simple tricks. The stager views a property’s appeal through the eye of a potential buyer. They will typically recommend ways to make the house more inviting to buyers. For investment properties that have just been totally renovated, there is no need to “de-clutter” or move furniture around. Rather, the stager looks to turn the house into a model home you might see in magazines, thus helping buyers visualize themselves living in the home. Staging helps to broaden an investment property’s market appeal to a wider range of potential buyers.

The benefits of staging

I think that staging can give a stark house a warm and fuzzy quality that will yield an advantage over non-staged properties on the market. As basic investment property advice, it’s simply a good way to have your newly renovated property look very lived in. In order to obtain top dollar for your investment when it comes time to sell it, you really want to make your house look exceedingly neat, warm and inviting.

I have to reiterate, I used to think that staging was a waste of time. Whenever rehabbing a house, I felt it was good to show off all the renovations and the open space the house afforded. I believed buyers could envision where there furniture would best fit while looking at an open space., as opposed to seeing a set of rooms with furniture already neatly arranged in them. However, houses can look very empty and cold even after all your wonderful renovations are done.

Part of your overall marketing strategy

So I do feel now that hiring a stager, even just for their professional input on how best to improve the overall look and feel of your particular property, should be part of the overall strategy prior to placing your investment property on the market. Staging can become quite elaborate for the more expansive property. Or it can be quite simple on small houses. A staging company will tell you their ideas for how to best show off the existing space. Obviously, in an older home, the stager may want to bring in furnishings that are more in line with antique properties. However, in a newer home, they may decide to go with more modern furniture as a way to make the house look more comfortable.

Costs to stage a property

Staging costs depend on the type of services you’re looking for. A stager will walk through your house and note specific items for improvement. The cost for the analysis and report can range from $100 to $400, depending on your locale. Then, if you decide to go to the next step, you’ll pay rental fees for furniture and accessories that will be brought in and set up, or “staged.“ On average though, figure it will cost between $3,000 to $10,000 to properly stage a vacant property, depending on the size of the house and the length of the contract.

Choosing the right stager

It’s best to look for stagers in your area who are familiar with area homes and interior styles that are right for your particular house, renovation and locale. They need to be reputable, and my best property investment advice is that it’s always a good idea to check out their prior work. Be sure to ask your local realtor for referrals of stagers. Most realtors have forged relationships with at least one or two stagers in their area, and tend to recommend them over and over again.

photos courtesy of blogs.starbulletin.com, orlando-mortgage.org, homestagingquote.org, grandrapidsrealestatetrends.com, peoples1.com, cutcaster.com, rmhomestaging.com

Investment Property: Investing Tips on Buying Investment Properties for Sale Acquired through Loan and Financing with Reasonable Mortgage Rates

Investment Property Basic Facts

Investment property is an acquired asset, usually a piece of land with a building, which is not currently used or occupied by the owner. The main purpose of its acquisition is to earn significant amount of profits in the future by selling it at a higher price, while at the same time earning through rentals or lease while waiting for the value of the property to appreciate. Investment properties are, therefore, usually considered long-term investments geared toward profit generation through capital appreciation.

To achieve success in a property investment venture, you should possess the necessary competence to decide when to buy the right investment properties, as well as when to sell them. The best investors are devoid of emotions because they are not carried away by fears. Fear, due to the falling local and international economy and real estate market, can provoke many owners of investment properties into panic selling in order to get back their money or equity. This is the ideal time to buy because everybody is selling, further reducing the values of properties. On the other hand, the best time to sell investment properties are during times when no one else or only a few are selling.

There are still many other external and internal factors to consider if you want to achieve significant gains from this business. This can be made possible by acquiring some skills on property investing. Skills can be obtained by attending seminars and courses on how to invest in properties. You can also read guide books for added insights, and to learn more strategies. Another option is to join forums that allow you to interact with other forum members and let them give you some useful advice and guides on real estate investing.

When attending a course or seminar, make sure that important topics are covered such as properties and mortgages management, sales trends and analysis, computing for tax deduction using the investment calculator, various deductions involved, creating a checklist, software to use, refinancing requirements, refinance options, proper methods of managing properties and assets, second (2nd) investment mortgage properties, insurance requirements and insurance premium calculators, types of investment loans, different financing schemes like the 100% mortgage finance, target earning setting, how to build your own network of prospect buyers, long-term and short term goal setting, analyzing different quotes, how to obtain the current market values of properties, finance management, and some property investment basics for beginners.

On top of getting the necessary education, it is also best to get professional help from expert property investors and managers of well-respected investment companies like the Valley I Investment Properties, Noble Investment, LNR Property LLC, and the Harsch Investment Properties. Advice from such reputable companies and competent managers are priceless. You can learn valuable strategies like how to earn when everybody else is losing in the real estate business, property modification required to increase the value of the property, and so much more.

Property Investment: Ideal Types of Investment Properties to Buy

To attain ultimate success in property investing, it is imperative to choose only the best properties with strategic locations. Selecting the right place to invest is crucial. You must have a keen sense of detecting areas with a very promising future; as well as projecting up trends in values of properties in developing places. Property investors are required to research first, prior to investing on any property to avoid possible losses.

The most ideal properties to invest are those situated near commercial and business establishments. Properties within the central business areas are sure to appreciate in value after just a few years compared to residential properties in the suburbs and out of town areas.

Aside from that, properties near prominent universities and schools are excellent for investments because of the potential business opportunities. You can set-up dormitories, condos for rent to the students, apartment rental, and home rentals that allow you to earn residual income.

Likewise, real estate properties within the financial districts of the city are excellent for property investment. Employees of different financial institutions will surely rent nearby condos, apartments, and home rentals to avoid traffic and minimize the transportation expenses. This provides an excellent opportunity to earn income from rentals. Other ideal properties to invest are those situated near the malls and shopping centers, night clubs, bars and restaurants, company offices, and in the downtown areas.

Property Investing Options: Other Choices for Buying Investment Properties

When searching for the ideal investment properties, it is best to keep in mind that your options are abundant. Don’t limit your choices by selecting local properties only. You can go big time by expanding your property investing options abroad or overseas where there are abundant choices of properties to invest in. The global financial crisis in the previous years until 2010 has resulted in a downtrend in the prices of real estate properties around the world. This creates opportunities to achieve tremendous gains in shorter time.

Some of the oversea places that experienced decreases in the values of properties that made them ideal for investment are Spain, Mexico, London, some parts of the Caribbean, and the West Midlands of UK. In the US, several states and counties also suffered the same fate like Las Vegas, Memphis, Orlando, San Diego, Jacksonville, New York, Huntsville, Eugene of Oregon, Denver, Cleveland, Chicago, Atlanta, and Arizona, among many others.

Investment Property Loans and Financing: Ideal Type of Loan and Mortgage Rates

The cost of acquiring properties can be enormous. The high amount of the required investment funds have compelled many big-time investors to group together and pool their resources in order to come up with the required capital. Although, if you want to do it on your own as your personal business, you can still venture into property investing even if you have limited initial funds. Thanks to available loans and financing plans of lenders and several financial institutions like banks and the Federal Housing Association (FHA).

When opting for this method of acquiring properties, finding the ideal investment property loan is crucial. There are various types of loans to choose from. You can either opt for a secured loan with collateral, or choose the financing plan of several financing institutions and lender.

Loans are also classified based on the type of mortgage rate used. These types of loans are fixed-rate loan, flexible-rate loan, split-loan, and interest only home loan. As to which of these types of loan to choose from, that depends on you. Fixed-rate loan is the ideal option if your main concern is certainty of your cash flow. This is also good if the interest rates are projected to go up in the next couple of years. But, if the rate of interest plunges, you will end up paying a higher interest rate when all other loans are enjoying low interest rates.

In a flexible-rate loan, on the other hand, the interest rate is changing. The rate may increase or decrease, depending on the economic condition. A split-loan is a combination of both fixed-rate loan and flexible-rate loan. Interest only loans are extended to those who want to regularly pay the interest only, while the payment of loan capital is scheduled. This is done with the thought in mind that the loan interest is tax deductible.

Nevertheless, the ideal type of loan to choose is largely affected by the desired payment options, preferred type of mortgage rate, and the amount of equity.

Buying an investment property is one of the best investment options today because of the promising and lucrative earnings that you can get from this venture. Significant profits can only be obtained if you have the right skills, competence, and positive attitude on property investment.

Fighting Your New Assessment

Beware the overzealous town assessor

In the current climate of depressed property valuations, and for the past several years since the beginning of the housing crisis, property assessments have plummeted as house values have declined across the country. The net result: a severe decrease in property taxes in communities throughout the nation. Obviously, the strain on local municipalities has been terribly damaging, as belt-tightening is performed by town councils in every region of the country. And when you’re investing in property, you need to know that you could be a target.

The latest trend

As part and parcel of the current real estate slump, town assessors now usually look to find ways to offset these decreases, using any legal means possible. The latest trend has been for many assessors in numerous states to take sales data from recent foreclosure sales to property investors, and throw the sales prices out the window. They then attempt to jack up property assessments on these investment properties many times the actual sales price. This, of course, yields much greater tax revenues from these houses. So as you continue investing in property, the tax consequences could be devastating the longer you hold onto them.

The main rationale of these assessors has been that foreclosures and short sales sold to real estate investors were sold by banks while under “distress.” And, following this logic, distress yields market values far below what a “normal” operating marketplace of real estate transactions would yield.

Baloney.

What that logic fails to account for, is that the entire real estate market has been in distress for the past several years. Property owners, both homeowners and those investing in property alike, have seen the values in their properties plummet by about one-third. In much harder hit areas, values have declined by well over fifty percent.

Pretzel logic

The employment of pretzel logic by these overzealous and opportunistic assessors also assumes banks have an incentive to unload their portfolio of foreclosures quickly, thus creating further distress. Their argument is that ultimately, these sales are not “arms length transactions.” An arms length transaction is simply one where the seller and buyer do not have a relationship with one another.

The illogicality of their argument is that when banks place their portfolios of foreclosed properties on the market, they are traditionally listed using real estate agents. Thus, these houses are available to all potential buyers. And the free market system will act to adjust the selling price accordingly. You know full well that when you are investing in property, there’s always investor competition for the most desirable houses.

Market analyses help set prices

Further, banks set their asking price for each property in their portfolio based on information from broker opinions of value or listing agent comparative market analyses. And once an initial asking price is set, banks set limits on how much they will lower that price the longer a property remains on the market. So the notion that the banks are selling in some sort of distressed mode can’t be further from the truth.

Rather, they are making informed, analytical decisions based on professional recommendations as to the current market value for each property. Just because a foreclosure is purchased by an individual investing in property for a fraction of what the property was once worth is irrelevant. The new selling price IS the market price

What if you get a reassessment letter?

So what should you do if your local assessor’s office sends you a letter informing you of an increase in your assessment (and eventual increase in taxes as a result)? The first rule of thumb in deciding whether to fight the new assessment is to see if the new assessment is greater than ten percent more than what you believe the market value of your investment property should be. If it is, then it’s worth fighting (also known as grieving). Every municipality is different in when you can grieve your assessment. In that reassessment increase letter, they will notify you of the date when you can grieve your valuation in your specific town.

Use a grievance attorney?

You next have to decide if you will grieve the assessment on your own, or if you should use the aid of a specialized grievance attorney. These attorneys traditionally will charge you a percentage of your first year tax savings as compensation for their services. If they are unable to obtain tax savings for you, you would not owe them anything. But you’ll find they won’t take your case unless they feel there is a certainty of winning some savings.

If you decide to fight the assessment increase yourself, you’ll quite simply need to show evidence of your current market value. And that value needs to be closer to your idea of market value rather than the assessor’s valuation. Recent sales price data is traditionally used to support market valuation. If you’ve made improvements to a house as you are investing in property, bring your receipts for the work done to show the exact amount of “added value” you put into the property since you purchased it.

As an investment property, you can also impute market value based on the net income approach to valuation. As an example, if rental property in your area usually sells for eight times net income, and your specific property’s net income times this multiplier shows a market value well below the assessor’s valuation, you should by all means use that data in your grievance as well.

Always know your current market value

So be aware that with the current state of our economy, local assessors will be trying to squeeze out every penny from investment property owners through constant re-assessments. Just be sure to always have a handle on the current market value of each of your investment properties at any given time. And if you do get that assessment increase letter in your mailbox, decide if the increase is worth the fight. If it is, decide on whether to hire a specialized grievance tax attorney, or do the grievance yourself. Either way, do not let assessors get away with outrageous over-assessing as you continue investing in property each year.

photos courtesy of michiganafp.com, news-gazette.com, unioncountyre.wordpress.com, money.cnn.com, miamirealestateattorneyblog.com, nj.com, free-press-release.com, nj.com, mnfamilylawblog.com

Investment Property Advice: Beware The Angry Tenant

The stereotypical view

The “angry tenant” is such a classic stereotype in our culture, but the image exists, and dealing with a difficult tenant is always dreaded by property investors. Certainly the best investment property advice simply states that you must be wary of installing any potentially disastrous tenant in one of your units. An angry tenant can quite literally rob you through non-payment of rent, and take any positive cash flow investment down into an abyss of red ink in very short order.

“One Bourbon, One Scotch, One Beer”

In our culture, for me, the quintessential angry tenant is represented in George Thorogood’s 1977 recorded version of a classic blues song written by Rudy Toombs and covered by John Lee Hooker, “One Bourbon, One Scotch, One Beer.” In it, Thorogood created a mash-up of the original song by combining it with another Hooker recording, “House Rent Boogie,” which serves as a background storyline to explain the singer’s predicament.

“House Rent Boogie” describes the events that occur after the singer has lost his job. Unable to pay his rent, he tries to gain temporary lodging with a friend, but is unsuccessful. He then lies to his landlady that he has gotten a new job, and is then able to return to his apartment, but proceeds to remove all his possessions. He then goes to a bar and orders the three drinks to help him drown his sorrows. All the while stiffing his landlord:

“So I go back home I tell the landlady I got a job, I’m gonna pay the rent She said yeah? I said oh yeah And then she was so nice Loh’ she was lovy-dovy So I go in my room, Pack up my things and I go I slip on out the back door And down the streets I go She a-howlin’ about the front rent, She’ll be lucky to get any back rent She ain’t gonna get none of it”*

The cost factor

There can be quite a few interpretations when you mix a tenant’s anger, stereotypes of uncaring landlords, and blues music all rolled together. But let’s face it – as a property investor, you want to avoid the angry tenant at all costs. Obviously, because it will cost you plenty. Just as the song alludes…

I’ve got to wonder if George Thorogood owns any rental properties these days…you know – setting up that nest egg for himself. And if so, what does he do when encountering an angry tenant? Smash his guitar over the tenant’s head? Now that would make for a slightly ironic visual image…

Hold onto the good ones

One thing is for sure: the best way to avoid a bad tenant is to select a good one. But even more importantly, you’ll want to hold onto the good ones. Without a doubt, the cost to keep a good tenant is a fraction of the cost of dealing with the negative effects and destruction a bad tenant can cause.

We already know that for several years now, the U.S. has been evolving from a nation of homeowners to renters. As numbers rise for total renters, so does the incremental rise in real estate investors who look to buy investment properties. But only the savviest of investors will see positive cash flows on their investments.

A property investor’s misconceptions

Usually property investors who are not getting the returns they planned think they bought poorly. They think that either they didn’t buy a property in the right location, or they bought it for the wrong price. However, the more valid reason for not showing positive cash flows is that the investor did not do their homework properly. They may have underestimated their total expenses, or gross revenues from rent, or both.

But probably the single greatest greater factor in failing to buy investment property with a positive cash flow, is simply poor management of one’s properties. This includes doing a poor job of selecting good tenants.

How to find the best tenants

When you screen for tenants, don’t be afraid to research your prospects in great detail. This includes performing a credit check on them as a start. You’ll also want to speak with their current and previous landlords to get a sense of how reliable your prospective tenant may be. In addition, ask about any problem or complaints the former landlord may have had with them. Another good tip is to actually visit their current home. Look for how they maintain it, since this will be an excellent sign of how they will treat your unit. In addition, try to speak with their employer about their length of time on the job, as well as their prospects for future employment with the same firm.

Make nice with your tenants

Once you’ve chosen your new tenant, be sure to ingratiate yourself with them (thus helping to explode the stereotypical landlord image, noted above). On their first day, meet with them to go over the operation of appliances in the unit, as well as to discuss area amenities they should check out. It’s also a good idea to offer them a small housewarming gift too. Remember, this is a business. And it’s always easiest and least expensive for any business to retain clients than it is to search for new ones.

Collect in person

Finally, when it comes to collecting rent, do it in person. Time consuming? You bet! But you’ll have the chance to meet face to face with your tenants once a month, ask about any problems they’ve encountered with their unit or the area, as well as check on how well the unit is being maintained – all at the same time. And that’s what I call good preventative maintenance.

In addition, when you are acting as your own property manager, you should be acquiring properties that are no more than a half an hour away from your own home. If anything major were to go wrong in an emergency, you’ll be grateful you live close by.

Buy investment properties intelligently

With over three and a half million single-family rentals in this country right now, and growing daily because of increased rental demand and the foreclosure crisis, looking to buy investment properties is an intelligent addition to any investment portfolio. Just remember to crunch your numbers conservatively, and find only the best tenants when screening. Be sure to avoid those stereotypical “angry tenants” at all cost.

photos courtesy of hdwallpapersfix.com,

jackbrummet.blogspot.com, songkick.com, rottentomatoes.com,

allpropertymanagement.com, abreupropertylistings.com, doityourself.com,

neighbors.denverpost.com, moneycrashers.com, activerain.com

Good News: Things Are Looking Flat!

Now is the time to utilize all investment property finance options

The latest news for property investors is that according to the National Association of Realtors, pending house sales are rising. Their index of pending home sales indicates a 4.1% increase in March compared to February, and is almost 13% higher than March of last year. This information reflects contracts on houses that have been signed but have not closed yet.

The index is also now showing that pending home sales are at their highest level since April of 2010. In this first quarter alone, closings were at their highest level for a first quarter in five years. The indications from the March pending home sales index now suggest that actual second quarter sales will be very good as well.

Sales are considered “pending” when contracts have been signed but the deal has not closed, so the sale has not been finalized yet. Closings usually take 1 to 2 months after contracts are signed to finalize. The latest pending home sales index is based on a very large national sample and represents about 20% of existing sales transactions.

The bottom has been reached

As I had written back in mid-March, I firmly believe from all the economic indicators over the last couple months that the bottom of the real estate market has been reached. Now is clearly the best time to be considering all your investment property finance options. Increased sales are very gradually lowering the inventory of houses on the market, including short sales and foreclosures. So as this year goes on, stabilization of the market will see a slight increase in house values.

Other indicators showing a clear-cut flat-lining and bottoming out of the real estate market include first quarter sales results, especially in the Northeast. In this region, house inventories have remained steady, days on the market have been dropping slightly, and house prices have remained flat overall during the last few months. Compared to the precipitous price drops, inventory increases, and increased time on the market data of the last several years, a flat-lining of the market is good news indeed.

The ramifications for the property investor

So what does this all mean for the property investor? As I’ve been saying for months now, if you haven’t already decided to get into the market by either purchasing your first investment property, or adding on to your stable of properties, then this is the time to do it. You need to get in before prices start rising. All signs point to the second half of 2012 as a continued slow recovery period. However, it is expected that 2013 will start to see some serious price increases occurring in the real estate market across the country.

So clearly this is the time to get in on the investment property bandwagon, as prices remain at their relatively lowest point in years. The bottom has definitely been reached. And you should be exploring all your investment property finance options now. Whether you decide upon utilizing conventional mortgages, FHA 203K renovation loans, owner financing or hard money lenders, the window is slowly closing on making good deals on investment property while they remain priced at historically low levels.

photos courtesy of thegreenhouseproject.org, csmonitor.com, prospect.co.uk, ocregister.com, guardian.co.uk, quickenloans.com