Monday, May 9, 2016
Thursday, May 5, 2016
Fix-To-Rent is Creating the Perfect Rental Home
Foreclosure inventories are down, and many of those that are available are in pretty rough condition. The good news is that this situation is helping to reduce investor competition, as fix-to-rent is costlier and requires a lot more involvement on the part of the investor.
Sure, you can turn over a rundown home to a contractor with an all-inclusive bid and hope for the best result. However, this usually runs up the costs and can deliver results that don't meet your expectations. The investors who are willing to get out of the passive role and control the project and costs can still end up with some really great rental home investments.
What it is Isn't What it has to Be
Start your next fix-to-rent home search with a different plan. Don't just find one that you can repair and rehab and take to the rental market as it is. Find one that you can make into the perfect rental home for your market area. The beauty of taking this approach is that you'll have choices in homes with less competition because they're not what other investors are seeking.
Maybe you find a small 3-bedroom foreclosure home in a great neighborhood, and of course it needs some work. Small is the keyword, as the three bedrooms are all pretty small. This neighborhood is sought out by millennial renters due to its location near downtown and high tech employment. These aren't families with children, and a house with three small bedrooms and an overall small room floorplan isn't really that appealing to this group.
They like room to entertain, and they want what buyers want, a large master suite. So, why not give it to them and create it with this home? Strategically remove one or more walls to create a large master bedroom and increase the size of the bathroom as well. Reduce the home to a two-bedroom plan, and they can use the second bedroom as an office or for guests.
These are renters who have good jobs and can afford to pay the rent you'll need to create the home in which they want to live. The increased costs of doing the major renovations may be partially offset by buying this home with no competition at a better discount to its ultimate value.
Another example might be a larger home with 4 or more bedrooms in a community where renters want to be. Instead of just fixing it up, you see the opportunity to create a separate entry and a mother-in-law suite or separated rental unit. Your added costs are not that great, but the rent you can charge can take a nice jump. Potential tenants can rent out their other unit to cut their costs.
The key is to look at a property not as what it is but as what it could be. If the numbers work, why not create the perfect rental home?
from Dean Graziosi http://ift.tt/1ru31KN
Monday, May 2, 2016
Friday, April 29, 2016
Entry Level Rental Property Investing -- Even if You're Renting
You want to be a real estate investor, but you don't even own your own home. How can you make it happen? Especially when you check out your assets and cash and can't find a 20% down payment anywhere in the pile, it looks impossible.
You've toyed with the idea of buying a personal home, but you're still renting. You can manage to scrape up a low FHA down payment for your own home, but you can't get that low down for an investment rental property. Wrong! Not only can you make that happen, you can live close to rent-free and later you can move to positive cash flow.
You can get a mortgage through the FHA with a super low down payment if you live in the home. So, how do you live in it and rent it out too? No, not a roommate. You can purchase a duplex home and rent out one side while you live in the other. Because it is your principle residence, you can get FHA lending. You not only now own your home, you're an investor too! The FHA will even let you count the future rental income to help you to qualify for the loan!
I'm not blowing smoke, and I'll use a real life example duplex for sale in Houston, Texas, as well as rental rates, all as currently listed at Zillow.com. Here are the home particulars:
• Listed selling price is $255,000.
• Each side of the duplex is approximately 1996 square feet in size.
• Built in 2007.
• Rents of apartments and one side of duplexes in the local area justify a conservative rent income of $1,100 to 1,200/month.
• Zillow's mortgage estimator shows the payment will be approx. $1,497/month.
Let's become the world's worst negotiator and pay full price for this home. However, we're going to take advantage of the FHA and our credit score is good, so we're going to be able to get a 3.5% down payment. With closing costs, we'll bring about $9,350 to the closing table. Let's run the numbers:
• You'll be paying approximately $1,687/month with taxes and insurance included.
• You can reasonably expect to rent out the home for $1,150/month.
• Your gross out-of-pocket to live there is now $537/month.
So, you own a home and you only fork out around $537 per month to live there. But, I'm not through yet. You get some tax breaks that reduce your monthly net cash out-of-pocket. These are estimates, but pretty close based on the example mortgage. First, you get to depreciate the rented portion of the home (not the land value). Let's say that the lot here is worth $40,000, so the structure for depreciation is worth $215,000. You can depreciate the rented portion (one-half) right now over 27.5 years, so:
• $215,000 / 2 = $107,500 Divide that by 27.5 for $3,909/year.
• $3,909 / 12 = $326/month deduction off your income.
• In a 25% overall tax bracket, $326 X .25 = 80/month cash not going out.
• Our previous out-of-pocket of $537 - $80 = $457/month net out-of-pocket.
I'm not through yet though. You also get to deduct the mortgage interest on the half of the property that's rented (you're still getting to deduct your own mortgage interest on your personal residence side). The amortization schedule for this loan showed approximately $760 on average per month in mortgage interest the first year.
• $760 / 2 (half is rented) = $380/month X 25% (tax bracket) = $95/month
• Current $457/month out-of-pocket - $95 = $362/month new out-of-pocket.
Next we can look at our tax bracket and deducting one-half of the property taxes and insurance, but you're getting the drift. You'll not get this down to zero or positive cash flow, but are you living in a nice home for around $300/month now?
Consult an accountant, as this is an on-the-fly example, but it's all realistic and on a real home in a real market. Then think about enjoying this for two years and then renting something else for you and renting out the other side of this property and moving to a positive cash flow position. The two-year requirement is how the FHA makes sure that you're building on a solid rental history that will allow you to use all of the income to qualify for another loan.
Also, if you have the discipline, taking the difference in what you were paying for rent that is now staying in your pocket and investing it somewhere is the way to go. If you were paying $1,100/month, you should see a cash infusion of the $800 +/- difference now. Use it to build a savings account balance to fund your next property purchase down payment.
NOW you'll see some positive cash flow and you're a rental property owner/investor ready to grow your business!
from Dean Graziosi http://ift.tt/1QFWq4K
Wednesday, April 20, 2016
Buying Real Estate Notes for the Small Investor
There is a lot of information out there about buying notes as a real estate investment niche strategy. It can be very profitable, particularly if you approach it with more than one strategic goal. There are investors doing this now, and some are helping homeowners to keep their homes while profiting in the process.
The Profit Focused Approach
The approach taken most often is to buy a note on a distressed property and to either foreclose on it or to continue to work with the homeowner within the structure of the current mortgage and payments. The investor can also flip the note, selling it to another investor for a profit.
With notes available in the open market at large discounts to value, the investor can realize a nice ROI even if the homeowner continues to be late or short on payments. The asset is worth far more than the money invested, so risk is minimized and the option to foreclose is always available.
The Borrower Focused Approach
A new breed of note-buying real estate investor is focusing on helping distressed homeowners as the top goal and the ROI as a secondary consideration. This doesn't mean that a great return isn't still part of the deal, just that it's not quite as fat. There is still plenty of profit to motivate the investor, but there is a human side to the deal that's quite satisfying as well.
Because some of these notes are purchased at a major discount to the home's market value, there's room for a humanitarian goal in the deal. This new breed of real estate investor is getting into the investment with a goal of helping the homeowner to keep their home, even when it requires concessions or refinancing so that they can afford it.
Many homeowners in this situation have some equity, but they're experiencing financial hardship and are having trouble making their mortgage payment. The real estate investor who can purchase the note at a deep discount to value can enter the deal with the goal of helping them to stay in the home. The due diligence of course requires that the investor knows what they can do and still justify the end ROI result.
Refinancing the home to reduce the debt and monthly payment and still yield an acceptable return on the investment is satisfying from both investor and humanitarian viewpoints. There can be some icing on the cake as well. There are some local and national government homeowner assistance programs that may offer some incentives to the note holder to help the borrower to remain in the home.
One of the most interesting things about real estate investment is the many ways in which you can get into the game. This is just one, and it offers the investor a way to help someone while enjoying investment profits.
from Dean Graziosi http://ift.tt/1Tjqnfk
Monday, April 18, 2016
Sunday, April 10, 2016
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