Archives for February 2013

Lessons From The Buss Ride

Learning from the best

In the wake of Dr. Jerry Buss passing away this week, property investors should look back and see his example as the crowning achievement in how to grow real estate investments. While known mainly for his tremendous success as the owner of the Los Angeles Lakers, and his visionary ways in the sport of basketball, Dr. Buss started from very humble beginnings. While teaching chemistry at USC in the early 1960’s, he took to real estate investment as a way to simply supplement his income while teaching. Stop me if this sounds familiar – like the reason many investors first venture forth into property investment themselves.

Humble beginnings…

His very first property acquisition was a small apartment building in West Los Angeles – a then up-and-coming community. He invested $1,000 of his own money in the property. From there, he, like many first time investors, caught the “bug.” He found he was not only good at leveraging property to buy other pieces of real estate, but it soon became his passion. He later took on a business partner, Frank Mariani, and they began their own real estate investment company named Mariani-Buss Associates. Together they helped grow a real estate empire machine.

It’s important to note the power of combining resources when trying to grow real estate investment. Many times two heads are better than one. And this was certainly the case with Buss and his partner Mariani. As their empire grew, they were able to continually leverage their different pieces of real estate. Eventually they started investing in very high-end pieces of real estate. By 1979, Buss himself purchased the former Mary Pickford estate in Los Angeles…

It seems like Los Angeles in the ‘60s and ‘70s was a great place for wheeler-dealer types and real estate investment. There was plenty of money to be made back then, and many empires were formed in that area. In Dr. Buss’ case it was clear that the power of this partnership helped to greatly propel his real estate empire…much farther than he could have had he tried to do it alone.

The partnership lesson

This is a crucial lesson if you are operating in real estate investment today. You can go it alone and retain control of all your properties. But you pay for that in the long run in many ways. There’s only so much growing you can do on your own. You won’t have the advantage of two heads to use for business acumen, connections, creditworthiness, searching and negotiating skills. And you won’t have the leverage opportunities available to you if it’s only yourself. It’s also important to learn from this example that even more than two people may be a good move for some investors when creating a real estate investment partnership. If all the partner’s skills are complementary, you could really develop your empire that much faster.

One great thing about a real estate investment partnership is that it helps to even out the lows in the business cycle – and there are always low periods. Losses are more easily absorbed with a partnership than by yourself. So the partnership can more easily take on bigger projects – and riskier projects as well because of this cushion. These could be acquisitions a single individual proprietor may not be able to finance by themselves, nor want to take the risk themself.

Simplicity and passion = good property investing

So learn from Dr. Buss’ example of initial investing simplicity. Consider starting early in your real estate investing career. You don’t have to invest your entire life savings, but start small, and look for as many units as you can purchase for your first project. Use the cash flow from this to leverage your next project. See if you have the temperament – but most importantly – the passion for the business as Dr. Buss did. In addition, look for partners to help you in purchasing new projects. This will increase your leverage greatly. And it will grow your empire much faster. With all the tremendous successes Dr. Buss had in his life, and his great basketball legacy in Los Angeles and the entire NBA, we can learn from his humble beginnings in property investing. And you should try to utilize these simple principles to develop your own little real estate investment empire.

photos courtesy of flickr.com, marinij.com, cbicommercial.com, you-are-here.com, corporatedispute.com, blog.aarp.org

Ride The New Wave Of Tenant Screening

New methods for finding the best tenants

The old tried-and-true methods for screening the best tenants for rental property are quickly becoming outdated these days. And since finding quality tenants is the lifeblood of your rental business, you have to be very precise and feel very confident that the methods that you’re using to screen prospective tenants are the best ones available today.

The home visit

With this in mind, the methods of running a credit and background check and calling past references (most notably, prior landlords), are all staples by today’s standards. But you’ll want to augment this with new methods. One new method that’s gaining popularity with landlords is to go and visit a prospective tenants’ current home. That’s right – you should be checking up on them, and at least from the exterior, get an idea of the current condition of the property they’re living in.

There’s also nothing wrong with knocking on their door, and asking if you can come in to see what their existing home conditions look like. A surprise visit can tell you a great deal about them. And if they choose to not allow you in, that will tell you a lot about them as well. After all, they’re the ones asking you for the right to rent out your unit. So if there are any problems in their existing home, you’ll want to scope that out prior to signing any lease with them.

Online searches

In addition, another new approach for tenant screening nowadays is to do online searches of your prospects. This includes checking social media for information on them. Is it spying on them? Well, yes. But just like an employer checking on a prospective new hire, you do have the right to do a little checking up yourself when economics are involved. It’s perfectly legal. But more importantly, it can ultimately save you a tremendous amount of money in fix-up repairs to your rental property in case you choose a tenant unwisely. So check their Facebook page, see what photos they’re posting, and if there are any photos of their existing homes, and what condition they’re in. See if they’re party people – you’ll get a good idea of that by looking at their posted photos. More parties equals more wear and tear on your unit, which will end up costing you more in repairs and maintenance.

Beware disinformation

Don’t forget that the internet can be a place with much false information too. Prospective tenants can post false information designed to deceive unwary landlords. So credit and background checks may not be so foolproof as they used to be anymore, because false information (disinformation) can be widely disseminated very easily nowadays.

In addition, prior landlords can be “set up” by the prospective tenant to await your call, and give that tenant a glowing review. In fact, these people may not be prior landlords, but in fact could be friends or family.

A few pointed questions about the landlord business and their current holdings will help you uncover their veracity, and give you a good idea just how real the reference is turning out to be. Then you’ll have a much better idea of whether to trust the prospective tenant.

Give foreclosure applicants a second look

So always be wary when choosing your tenants. But don’t cut off prospects for bad credit alone. Many new tenants have just gone through foreclosures of their own homes and need the help to get proper housing these days. With vacancies so tight overall in the U.S., as average rental property rents continue to tick upwards nationally, anyone with a bad credit history due to a foreclosure is going to have a tough time with any new landlord.

So it is important not to just write them off as being poor credit risks by the virtue of their having gone through a foreclosure process. Dig deeper. Go the extra mile. Find out what kind of people they are. Check with their current employers. See how long they’ve been at the same employment. If you do all this homework, you’ll certainly find that a large number of people with poor credit these days were placed into bad economic positions by the overall state of the economy – and not necessarily due to their own negligence or actions. Looks can be deceiving, so always scratch more than the surface when investigating your prospective tenants.

Going the extra mile

You’ll find that a little extra research may garner you a really fine, long-standing tenant for your rental property. This will provide you with steady rental cash flow and little repair costs for your unit in the long run. After all, it’s your goal to keep all your units occupied with the best tenants – at all times. This will help ensure your cash flow remains high, while helping to increase the overall valuation on your property.

photos courtesy of 99problems.org, brookdale-pms.co.uk, clickpropertymanagement.co.nz, ushousingconsultants.com, best-realestate.com.au, readharding.com.au, homesathomes.co.uk

The Latest Outlook For Property Investing

The new normal

As the overall real estate market continues to recover across the U.S., there is now becoming a new normal for property investors. Compared with the last several years, investors need to be aware of several important changes in the marketplace. Understanding these changes is crucial to properly allocating your real estate investment dollars in the foreseeable future.

Inventories are stabilizing

As the foreclosure crisis slowly becomes a foreclosure way of doing business, and the overall volume of foreclosed properties continues to drop, the real estate market will respond by pricing rebounds. The less inventory, the more demand. This is simple, basic economic theory. Banks have been selling off their inventories of distressed properties to investors in record numbers over the last few years. And that huge glut of foreclosures has now been worked down to a manageable amount. Investors who bought them are now reaping the rewards of either flipping or holding them for rentals. This slow lessening of housing inventory nationwide will invariably tighten the overall marketplace.

Investment loans are getting costlier

Interest rates have remained at record lows for quite some time – almost three full years. That’s about to end. The Federal Reserve has indicated they may tick rates up slightly later this year, based on the continued slow but steady economic growth pattern exhibited in the U.S. last year. Rates should remain relatively low through the end of the year, on average between 3.5 to 4 percent. But the lowest rates have already come and gone. In addition, expect the credit markets to remain tight for property investors, making qualifying for a mortgage much more difficult.

The Ability To Repay Rule makes borrowing more difficult

As mentioned in one of my recent articles posted here, the Consumer Financial Protection Bureau instituted a new rule to make sure lenders prove that borrowers can actually repay the mortgage they’re applying for. Obviously, this was created to help protect the entire U.S. banking system, and avoid the collapse we came through over the last few years, as no-income mortgage lending was the norm – and got so many homeowners into hot water as they could not repay their loans. So now all lenders must verify all assets, income and debts of every borrower. In order to now qualify for a loan, the new norm here is that investors are obtaining mortgages from hard money lenders, with higher interest rates and much shorter terms, in record numbers.

As inventories level off, expect a construction boom

Records indicate that building permits for single family homes nationally are up about 25% from the past year alone. With the near-record low interest rates currently available, builders have been gambling on pent-up demand in the housing market. And it’s a demand that has been held back since 2007. New home prices have been rising faster than existing single family homes of late, and builders also want to take advantage of this trend. However, this expected larger supply of homes could keep prices down over the next year.

Valuations continue to level off

While a majority of local real estate markets saw increases in house prices over the last year of about 9 to 10 percent, due to shrinking inventories and low interest rates, this year should produce more modest gains. Economists feel these price increases will probably be in the 2 to 3 percent range. Naturally, everything is an average, so there will still be some areas of the country, like in the Northwest, which will continue to remain hot regarding price increases. But others will lag, and some major cities will continue to show little or no growth. These include cities like Denver, Atlanta and Chicago.

Investors continue to feed on distressed properties

As mentioned above, it’s getting harder to find great foreclosure deals these days, as the sheer supply of distressed properties plummets rapidly. Most large investors have gobbled up the best foreclosure deals. Real Estate Investment Trusts (REITs) enlarged their portfolios over the last two years, buying huge numbers of distressed properties, then fixing them up and renting them out en masse. Still too, many banks decided to hold a number of their foreclosures, add value to them by making minimal repairs, and have placed them back on the market with higher prices. But overall, as the inventory has declined, house prices have rebounded.

photos courtesy of reiwa.com.au, blogs.va.gov, legalrefinance.com, builderonline.com, vamortgageveterans.com, guardian.co_.uk, biz.thestar.com.my