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Local Real Estate Values
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Real Estate - Untold Secrets to Making Money
The term real estate can be attached to any home, dwelling, land, or other property. The area of real estate has many faces including those who sell it, those who buy it, lenders, agents, and investors. Real estate transactions take place in all areas of the world daily. The world of real estate can seem complicated and intimidating. There are many great courses, seminars, and books that can help ... Read real estate article
Truth About Equity And Repossession
These questions are to be asked and need thorough explanations with many legal concepts that are beyond the nature of this article. However, we can clarify some concepts and explain the basics about equity and repossession so you are well informed when searching for a suitable loan for your budget.
Understanding Equity
Equity is the difference between the home value and the ... Read real estate article
Local Real Estate Values
In some areas of the country it is getting more and more difficult to find values that make sense for investment. Further complicating returns are accelerating taxes and insurance. Laying this all over an investment scenario margins are thin or non-existent. Long term appreciation in these tapped out areas is the only way to recognize any type of return but the property may need to be fed cash every year and that is not a pretty picture. The rents lag the necessary number to make the property feasible. With some cooling markets, the rapid appreciation of values may not be there to make those properties worthy of consideration. Like many other competing investments other areas are combed for values. Warren Buffet looks high and low for investments in the U.S. as well as offshore to give shareholders the often anticipated return on their investment. For the moment let's assume an investor is somewhat less in net worth than Mr. Buffet. If there is money available, perhaps other areas could be examined for potential targets of investment dollars.
Twenty or more years ago there would have been scant ready data to pour over for potential investments in the out of town real estate markets. Today, there exist volumes of information online so the opportunity to perform due diligence in a particular area has been accelerated. Many Realtors are currently setting on their hands, due to slow market conditions, and would welcome an out of town investor to work with. Following is a discussion of a buying criterion to maximize the potential for your return on invested dollar.
Cities and States are not static. Likewise a company stock may have been beat up and bloodied in the stock market, but management toiled to improve the numbers and suddenly the stock became pretty in market's eye. Much the same has happened with cities around the U.S. One day many of the large businesses left and area and local economics took a hit and suffered years of struggling and economic adversity. However, over time, cities and states worked hard to reinvent themselves and have come back close to where it was before. Again this takes years to achieve. Many a city vows to diversify and spread their eggs out among several baskets as not to set them up to be crushed down the road by economic downturns. What any investor looks at is the trends. Just as it is with other investments. The question is always posed, "Is the investment trending up or down?" It is wise to take positions as things are moving in an up trend and have a way to run for a good play.
In many areas it was necessary to look at multifamily properties say in the 4 units or less just to have a chance to have some cash flow. For many, this is just too much property management to consider. By looking outside the area and focusing on attractive single family homes in established subdivisions with minimum three bedrooms, two baths, with a two-car garage the cookie cutter property begins to take shape. Sticking to basics and not deviating from this style will maximize the investment. When investing from afar there is little room for specialized properties so unique they become tough to manage or sell. Vanilla is what is called for here with homes in good condition and repair. Even in some of these newly uptrending areas there is still some desperation in seller's mind because it had been a dry period for so long. Normally, the public is slow to recognize that change is afoot. An investor, to be successful will need to exploit this opportunity.
Wells Fargo and the National Association of Home Builders reported in the third quarter of 2006 that the least affordable housing in metro areas were found in California and New York city and Nassau/Suffolk areas of New York state. Again, this is not a static situation, this is the way it is now. These numbers are based on average income for the areas tied to the medium priced home. Los Angeles was reported to have a 1.80% affordability index. Fresno was reported to have a 7.10% affordability index. It further gives fuel to the fact that many homeowners will drive an hour and a half just to get to work in an effort to find a more affordable suburb.
The 10 most affordable major metro areas includes Indianapolis at 85.9%, Youngstown at 85.5%, Detroit 82.9%, Buffalo at 82.9%, Grand Rapids at 81.6%, Dayton at 81.2%, Toledo 80.5%, Harrisburg 79.5%, Akron, 79.5%, Rochester at 79.0%. The common thread here is that many of these areas were considered as "rust belt" cities. Times are changing, nothing is static for long unless zero effort is invested to make positive changes. Smaller cities in the same study that were big in affordability index were noted as Springfield, Ohio, Mansfield, Ohio, Lansing and East Lansing, Michigan, Lima, Ohio, Battle Creek, Michigan and Canton-Massillon, Ohio. This is in no way a directive to immediately jump in and buy an investment home in these areas, rather, it's just a heads up to start looking in these areas. There are pluses and minuses in every state and city. This is just an identification exercise to see where there "might" be some deals.
To focus on an investment criteria of buying three bedrooms, two baths, two car garage homes may indicate that these properties may not exist in the older cities. An investor may need to look at the surrounding suburbs that will match the criteria. Locate a Certified Property Manger, which is a Realtor designation of someone who specializes in property management. In most cases the fees will be half or all the first months rent and 10% of the collected rents. Find out, what the rental levels are for a subdivision home that is a 3/2/2 in various locations. With that number an investor can start performing due diligence in starting with the projected rents and working the numbers backward to try and achieve a $200+ cash flow each month. Land values and depreciation are factored in to determine the cash flow before tax and after tax. These are unique times in the mortgage industry with a buy down rate of 5.5% on a 30-year fixed available right now. Next week, who knows? To quickly figure the deal, it would take a factor of $5.6778 per $1,000 loan amount to get a monthly principal and interest number. With this add the projected insurance and taxes for a projected payment. You will have the management fees to factor in as well a vacancy factor of a conservative 7% of projected annual rents. Since this is a single family home, the rental customer will pay for the electric, gas, garbage, water, sewer and say a negotiated repair limit of the first $50. Coupled with an extremely affordable mortgage interest rate and an uptrending area this could work for a longer-term investment. Highly leveraged properties would not work as far as cash flow goes UNLESS the seller were willing to offer terms by way of a seller held second with very low payments and interest rate. Even an investor with challenged credit can get a rate buy down on a subprime mortgage. The numbers will tell if a property will work or not OR it will tell the maximum price that can be paid based on the due diligence phase and the information inputted.
An investor will need to locate motivated sellers with some sort of economic pressure, which will be noted with a vacant home. Offers with the seller paying all the closing costs and prepaids expenses would be noted in any offer to purchase. Further contributions to an interest rate buy down would be another point to negotiate with a motivated seller. In all cases, a very thorough home inspection must be performed. There is no room for major hiccups. As the up trends continue in these areas, a sale may be contemplated down the road. Many rental customers buy the homes they live in. It's the first built in prospect to buy for the investor.
Again, if an investor has tapped out the city he resides, there might be other options by diversifying in other areas. This will point an investor in a general area to begin a search. There is no substitution for good due diligence. Other cities may be equally attractive. Check it out.
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Land Contract Is An Intelligent Way To Sell Property
There are many things that will dictate whether you should consider selling your property on a land contract. The quality and desirability of the property, the quality of the market, the number of sellers the market, consumer demand in your area and your motivation to sell the property. If you are motivated seller competing to sell your home, you may want to consider selling on a land contract. There are a few benefits as follows:
1. If you sell for sale by owner and offer a land contract, you eliminate real estate commissions and increase the number of prospects who will be interested in purchasing your property.
2. Selling on a land contract provides a way for you to receive a steady income stream over the life of the land contract. In this way, you have both the benefit of ultimate ownership until the contract is satisfied and the income stream like a rental property.
3. Many times people buy property on a land contract will invest money to improve the property such as new windows, carpeting and other improvements that increase the value of the property during the land contract.
4. The buyers will be responsible for good husbandry of the property during the period of the land contract and will pay for all maintenance including catastrophic repairs like HVAC and roof repairs. Again, increasing the value of the home during the land contract.
5. In the event that a buyer defaults on the land contract for any reason within their control or outside their control, you can take the property back, often with substantial increase in value because of improvements made during the land contract.
6. You should consult your account or lawyer, but you should be able to avoid or minimize capital gains tax because you are receiving payment streams and not a one time lump some payment.
7. You can have your attorney draft a land contract specifically tailored to the want s and needs of the buyer and yourself for the short, medium and/or long term. For example, as a seller, you may want to defer being cashed out of the property for 5 or 10 years and can structure such a deal with the buyer securing a balloon loan, say, in the 5th year.
Land contract selling is not for everyone but it is a good alternative to keep in mind to expand the possibilities of selling.
To your success!
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