Have you got your real estate lingo down yet? Check out the commonly used real estate language to filter the deals you really want, and decipher real estate listings and ads.
A motivated seller is someone eager to sell their house in a hurry, and often at a discount. That is typically due to some form of distress. The seller could be deep in debt, and have liens and past due taxes piled up against the home. Or the property could have major flaws. It may need a new roof, septic tank, or foundation.
A small house or apartment. Probably very small. Could be a struggle getting your furniture in.
Needs a Light Cleaning
Prepare to have to bring in a professional cleaning crew. You could be up to your knees in sewage, have to battle mold, or scrub away graffiti.
Get ready for some serious rehab work. There is likely to be some major repairs to be made.
If you stand on a chair, on your tip toes and strain your neck, you might be able to see a sliver of something besides the neighbors’ brick wall.
A small cheap home that probably needs some fixing up.
A really special, quirky property which probably doesn’t fit in with the neighborhood. May have weird angles, be oddly colored, and have abstract landscaping.
Rustic or Vintage
An old out of date home. May need significant work to bring up to date.
Could have missing windows or doors. Maybe there are even holes in the floor or roof, or an entire wall could be missing.
There may not be much to this home except for the bones. There may be some frame, but expect to have to replace everything else.
Up and Coming Area
This could be a rundown dangerous, in need of intervention and revitalization – move there if you dare. It may be trendy, and the prices may be better, but it could have a way to go before it really catches on.
A prospective tenant with bad credit.
No Closing Cost Loan
Loans on which the mortgage lender may not charge their own closing costs. They may roll points, processing, and underwriting fees into a slightly higher interest rate. Note that there still will likely be third party closing costs including title insurance, closing fees, recording fees, taxes, and prorated property taxes and insurance.
Get to know your real estate language to rapidly sift through the opportunities out there, and craft good listings and ads for your own properties you may be selling or renting.
Property management can be a major time drain if you do not find ways to manage your time. Doing so is a crucial part of the bigger picture, of building a highly profitable real estate portfolio. The more efficient you can be in this part of your investing, the better overall returns you can achieve while preserving time to actually enjoy the rewards of real estate investment.
Check out these ten simple ways to streamline your managing your properties.....
Accept Online Rental Payments
One of the ways to most dramatically streamline property management is to start accepting online rental payments. It will help cut down on time spent taking payments in-house or following up with bank statements and deposit slips. This can also make it easier for tenants to stay on track with their own rent payments.
Get a Bookkeeper
Unless accounting was your major, and you love it, leave it to someone else. Having at least a part-time bookkeeper can really pay off in maximizing annual tax breaks, and countless hours in pulling together receipts and documents at tax filing time.
Proactive Inspections & Maintenance
Slash the time involved in fielding complaints and repair requests, dealing with juggling vendors and additional bookkeeping by staying on top of regular property inspections, and tackling maintenance in advance. Small fixes done early can save many weeks and thousands of dollars.
Freedom to make Repairs
Whether you are a rental property owner with a property management company, or you are doing the DIY thing and are directly dealing with tenants, consider giving them more leeway to make repairs. Do you really need to personally handle every time a tenant locks themselves out, a toilet gets clogged, or a fuse blows? If it is going to cost less than $150 or $250, why not just give them the discretion to fix it?
Renew Leases Early
Ideally, you’ll know whether tenants are staying or leaving at least 60 days before their lease expires. This way you can work with tenants who are on the fence, which can save an enormous amount of time in turnover work. Or at least you know, and can minimize any vacancy periods.
Release Deposits on Time
Not handling potentially explosive legal issues fast can quickly create a lot of work and expense. That inevitably snowballs and impacts your finances in many ways over time. Deposits are a great example. If you delay mailing deposits back to exiting renters, that can lead to all types of problems, versus just handing them a check on the day of your move out inspection.
Deliver Default Notices on Time
The same as above applies to late notices. Train your tenants that if they are late you will start the eviction process. If they can come up with the money, that’s great. It’s also less likely they’ll let it go that far, and create a new turnover situation.
Pay Vendors Fast
When you drag your feet paying vendors, they drag their feet. It’s going to cost a whole lot more dealing with late penalties, digging up old invoices, and in time on the phone. You may even wind up being limited to only being able to work with the worst local vendors who can’t get employed by anyone else.
Streamline Tenant Selection Process
In your tenant screening process, go beyond the credit score or background check and choose who you think will maintain your property the best. The tenant selection criteria and screening process have to be process oriented and very cut and dry with no gray areas. By treating all applicants the same and completing the same process for each person it will help avoid fair housing and/or discriminatory issues.
Passive Income Investments
One alternative to cut out the need for virtually all the above is simply choosing passive income options, like turnkey rental properties, or investment models like Holdfolio which come with full-service property management.
When looking at the time expenditure for managing properties, it is wise to take into consideration all of the factors that eat up the most time for you. Where can you cut, who can you outsource, and how can you ensure that you aren’t a slave to your properties?
Who are the essential professionals you need in your camp before you start investing in real estate?
It is important to keep up your momentum when getting started in real estate investing. Yet, you also want to make sure you are investing wisely and can enjoy a smooth process which delivers the best possible real estate success.
Here are the first five professionals you need to connect with before you invest:
Your actual investment returns will depend a lot on taxes. There can easily be a double digit difference in what you get to keep, depending on how you set yourself up, and how you file taxes. A good tax professional can help you strategize and get it right before you wind up with a big income tax bill.
Sooner or later you will want or need an attorney. It is just smart to have one already pre-screened and on call for when that time comes. You may want a specialist real estate attorney who can help negotiate contracts, and aid you in defending against lawsuits. It might also be helpful to have a family law or asset protection lawyer who can help you personally set up the right structures to grow and pass on your legacy.
Part of real estate success is the reduction of risk. Even if you don’t need direct property insurance to cover individual real estate assets, you will probably need an umbrella policy, life insurance, and other types of insurance to cover your assets in various areas.
Even if you don’t plan on needing credit or extra cash to invest, it can be wise to have relationships with these sources in advance. It will help you avoid any cash crunches or missing out on any great opportunities. This may be private lenders, mortgage brokers, or angel investors. You will also want to build relationships with bankers to make your transactions go more smoothly.
Having someone you can pick up the phone and call or shoot an email to for urgent help or an experienced second opinion can make all the difference in your business decision making. Find someone who is experienced in what you are doing and who shares your values.
If you plan to be an active real estate investor, make this a full-time thing, or to start a real estate business, you will also want these five people in your camp before you get going.
Having a trusted contractor on call can be invaluable for fast property inspections, repair estimates, timely turnovers and getting work done quickly.
Real Estate Agent
Whether or not you actually use a Realtor to help buy, sell, and rent real estate, investors can find them very useful for making sense of the market, and keeping on top of evolving trends.
You simply can’t do it all as an investor. Even if you have a strong marketing background, the most profitable use of your time is probably inking new deals. Still, with 90% of your success relying on your marketing to secure deals, fill them with renters, and resell them, make sure you have an expert on your team.
An assistant can be used to protect and free up your time so that you are getting the best ROI on every hour of the day. A good assistant can handle a wide variety of time-consuming tasks, including finding the other people on this list.
As you grow your real estate business, taking on a big multifamily property, or are building new homes to rent out, a project manager can save you time, and help things go smoothly. This could be a true project manager for a specific mission, a property manager, or a general manager for your organization.
Putting some thought into what and who you need to have in your camp to be savvy and efficient will help direct you towards the path of success!
How can you find real estate comps in your area to determine the potential appraised value of a property?
Knowing your property value is essential to making smart and profitable investment choices. Investors can get a better handle on this by knowing their ‘comps’. Those are comparable property sales. So, where do you find them?
3rd Party Online estimators
Zillow is one of the most commonly used online home value tools. It is fast and easy to use. It is also one of the most flawed. In fact, Zillow has finally been hit with a major class action lawsuit over its faulty Zestimate tool. Online home value estimators can help to give a fast, rough estimate of value, but are frequently wrong. Zillow or other sourcing websites can be a good first step in qualifying a potential property, but should not be relied on when actually putting your money on the line.
Real estate agents can be a great source of comparable information. They can save investors a lot of time, by pulling quality comps. Some brokers will provide ‘BPOs’ (Broker Price Opinion) for a few hundred dollars, or less. Agents will typically help by providing free CMAs (Comparative Market Analysis). Just note that they do this often in hopes of winning your business, and aren’t going to work for free forever. Their findings can also be biased.
Another option is to go right to the Realtors’ MLS (Multiple Listing Service) yourself. This can provide a lot of data on listed, sold, expired, and pending real estate comps. If you don’t have a real estate license and MLS membership, you can also use consumer-facing versions like Realtor.com.
One of the most important things to remember in finding comps is that asking prices are almost irrelevant. Sellers and agents aggressively overprice properties for sale every day. What you want are actual sold comps. County public records can provide this data, and often online. Title companies will also have details on comps that have actually sold, and what concessions or special terms may be artificially influencing prices. They also know what transactions are in the pipeline to close soon.
Professional real estate appraisers are go-to if you really want a solid figure you can bank on. You won’t typically want to splurge on the cost of a full appraisal for a property unless you are 100% sure you are buying it. However, appraisers and other data providers can also provide drive-by appraisals or an Automated Valuation Model (AVM). AVM’s usually include tax assessor's, sales history of a property and how other properties in the area are stacking up.
Whenever you can, you want to drive through the neighborhood for yourself. See what properties are for sale, and especially FSBOs (For Sale By Owner) which may not be on the MLS. This will also help in assessing rent comps as you can see how many properties are up for rent, and call on signs.
Remember it is best not to rely on just one source for figuring comparables. Pooling many of these sources together can assist you in coming up with the best comps for your properties.
There are a variety real estate investment niches to choose from. Which is the right one for you?
One of the key questions to ask yourself when it comes to investing in real estate is, which type of property is best for your individual portfolio growth? There are many to choose from. Some investors diversify themselves across multiple niches. Others are adamant fans of just one type of property and strategy.
Here are some of the pros and cons of each, so you can decide for yourself…
Single Family Housing
Single family housing is one of the most popular ways to invest in real estate today. It is easier to acquire and sometimes it is easier to purchase without the need for financing. It used to be primarily the domain of small individual investors, but has grown to be a top choice for some of the largest funds too.
Largest amount of inventory
Largest number of resale buyers
Easiest for individual investors to tackle by themselves
Most understood type of property
Large amounts of competition
Vacancy can hit hard if you only own a couple units
High cost of improvements per unit
Multifamily housing includes quads, and any type of property that includes more than one unit. There can by a wide divide in size and cost. It can range from a small 15 unit single apartment building to a 1000 unit apartment complex and everything in between.
Large demand for rental housing
Efficiency in property management
Lower cost per unit
Higher ROI on improvements made
Competition from capital-rich investors
Requires daily property management
May require more money or financing to buy and manage
Smaller resale market than single family homes
Commercial Real Estate
Commercial real estate encompasses a variety of sub-sectors and niches including; office, retail, medical, hospitality, industrial, and mixed-use.
Control over asset value through repositioning
Ability to obtain non-recourse financing
Prestige and pride of ownership
Benefits for personal use for your own business
Limited resale market
High level of professional management required
Least understood by most investors
Most likely to be impacted by economic changes and industry disruption
When you stack up and compare real estate investment niches like this, each has its pros and cons. Each also has a variety of deeper niches possible. In single family, you can focus on individual homes or condos, and in specific areas. Multi Family properties can range from local rentals to specialized lofts or apartments for vacation rentals or hi-tech professionals. Commercial property could include warehouses, local strip malls, or boutique hotels.
What is important is that investors understand the differences. By selecting the optimal type based on your current circumstances and goals, you have a greater opportunity for success. Later you can add in other niches and diversify. Finally, recognize that there are various strategies for engaging in each of these niches too. You could go it alone, find a partner, be a private lender, flip them, or hold them for long term cash flow and capital gains.
What will you invest in?
The sizzling hot summer rental market is kicking in. How can rental property owners be ready for it?
Summer is traditionally the busiest time of the year in the real estate industry. The rental market can be flooded with renters who are motivated to secure new places before school starts again. This makes it a busy time for landlords, with a lot of additional competition. How can rental property owners get prepared and make the most of it?
The first step is to do some fresh market research. Do your homework on the market. What is your competition offering? What deals are being offered to potential renters out there? What are market trends? Is it a landlord or tenants’ market?
You can’t expect to capture your share of renter leads unless they can see you. Be ramping up advertising, and reaching out to your connections and referral network to be sure they know you have units available.
Provide the Right Info
In your ads and rental listings make sure you provide enough detail for prospective tenants to make the decision to take action. This can include photos, video, property information, leasing details, and more. At this time of the year, many are specifically concerned with school districts, and the ability to move in fast.
Offer Attractive Deals
Know what your competition is offering, so you can make sure you are offering competitive deals. Make sure the value is there. Know what is going to connect with tenants in terms of deposit, monthly rent, application process, and move-in money requirements.
By this point, you should already have scaled up your infrastructure to handle the surge in business and communications. You’ve got to be able to respond to inquiries instantly and deliver consistently good service. Be sure to have a good team and systems in place to make this happen.
Don’t Neglect Current Tenants
All of the above is in addition to keeping your current tenants happy. With all the moving activity and the potential for attractive incentives being offered by other landlords and apartment owners, you want to take stock of your own inventory. Approach tenants early and find out if they plan to renew. Get those leases signed. Find out what you can do to keep good tenants. Or at least be aware of upcoming vacancies so that you can get marketing units early.
What exactly does passive income investing mean? How involved do you need to be to make passive real estate investing work?
The Need & Desire for Passive Income Investments
The need and desire for passive income is growing among investors. Individual investors, advisors, and economists have realized just how important it is to incorporate the cost of time and effort in an investment. Ongoing income or cash flow is a way to make the money you do have do the work. Some people win the lottery and then go broke by the very next year. What if they invested that money in working for them? There would be a different outcome.
Passive income is vital for retirement. The truth is that we never know when we are going to have to retire. Some want to retire early. Others will be forced to quit work decades ahead of their expectations. Some are relying on social security or a pension to get them through their golden years and need more income than a low yield retirement account can offer. Many want to enjoy more financial surplus now. A surplus which can only be created by investing and generating passive income which is not based on how much work they can personally do.
The Promise of ‘Passive Income’ in Real Estate
While there are several options for generating passive income from real estate, buying and holding rental properties is easily the most common.
Real estate is one of the most obvious choices of passive income investment because of the opportunity for cash flow. A good real estate investment from a reputable source can offer security, cash flow, and equity growth potential. For many real estate crowdfunding opportunities it is a low capital amount and ease of entry which really sets it apart, and makes it more accessible to the everyday investor.
The Myth of Passive Income Real Estate Investing
Sadly, despite all the hype and promises, most real estate isn’t really passive at all. Being a solo business owner, realtor or house flipper is not passive. Even the way most investors handle buy and hold rental properties is not really passive.
For those who go out and find rentals, find tenants, and then hand the property off to a property manager they are still hands-on and in an overseeing role that takes time and effort. It is a lot of work and due diligence to find deals, negotiate and close them, manage property managers, and figure out the best times to exit. Multiply this by a whole portfolio of properties. It can be a full-time job. A good job, and often a well-paid one, but still a job, trading your hours and life for dollars.
As Good as it Gets
Fortunately, there are other alternatives to invest. One which can provide truly passive income. Turnkey real estate investing provides investors with end-to-end service from vetting and securing properties, leasing and daily management, bookkeeping, and identifying smart times to exit or restructure. Crowdfunding opportunities can take this even further by providing allowing you to invest smaller amounts of capital in multiple deals.
Do your due diligence and factor in the time needed to manage your portfolio of real estate. You may find that your time is worth the effort to look into a more passive way to invest in real estate so you can sit back and enjoy the cash flow!
Acquiring great income properties can require great patience.
Sometimes the best property deals can take months to close. Transactions don’t always go smoothly. Yet, staying in the game, and seeing it through can deliver those much needed and valuable leaps in income, wealth, and financial freedom. So, how do you stay patient during the acquisition process, and navigate the process successfully?
Understand the Process This is especially important for new real estate investors. It can get frustrating, stressful, and discouraging fast, if you don’t know how the acquisition process works. Make sure you speak with any professionals involved in the deal i.e. real estate agents and attorneys. Or consult other real estate investors with experience in this type of deal and property type. Get clarity on the work flow and steps.
Create a Timeline for Follow Up
Once you know the steps in the process you can create a timeline for the transaction. You should have dates set out for the actions you eed to take, and for when you should receive updates from the various vendors involved. You don’t want to spend all day, every day, stressing out your team and actually dragging them down, when they could be pushing your deal forward. You do also need to hold them accountable and be sure they know you are expecting them to give your deal the attention it deserves. Depending on how far out your closing is set, that may be weekly, biweekly, or monthly updates from lenders, title companies, etc.
Create an Automated Follow Up Process
If you will be providing updates to various parties in the trnsaction, try to automate that as much as possible. That could be a simple checklist which you shoot out via email or update in the cloud using Google Drive. The less time you have to be on the phone or trying to arrange meetings the more time you can spend looking for new deals and enjoying the rewards of your investments.
There are going to be challenges. Most deals run into some type of challenge. The successful know to expect them, stay objective, and learn how to overcome them quickly. Common issues arise in appraisals, inspections, and title work. Having a great team is key. They should know what to look for to be proactive, and how to handle potential issues for you. Deeds and title insurance are a great example of this. Your title agent should know if there are quirks or ‘clouds’ on title which need to be addressed in order to get financing or insurance. They should be working on those right away, not telling you the day before closing, and causing a potential delay. If they aren’t doing this, find someone better.
Create a Layered Acquisition Process
One way to beat consistent delays and the wasted time and money that come with too many deals falling apart is to create a layered process. You don’t want too many deals that aren’t going to fly draggig down your pipeline. So, maybe you create a system where you do more due diligence upfront, use letters of intent before making hard offers and writing contracts, and then get your second round of due diligence done within hours of going to contract. Filter out the deals which just won’t work early, then be patient and stay the course with those you really want, and can make happen.
Multi-family housing can be seen as acquiring a bunch of single-family homes. Imagine each unit being a “home” and do your budget checklist accordingly. The vast task of obtaining a multi-family also has hurdles that you wouldn’t necessarily see when taking on a single-family home. Our company recently expanded into multi-family housing and this is how it went:
Multi-family homes are a great way to expand and grow your portfolio. One criteria our company looks for is that the multi-family has 40 units or above. The logic behind this is the amount of work it takes to manage one large apartment building with multiple units is less than managing a number of duplexes and triplexes spread across different areas.
Acquisitions of multi-families are very similar to single-family homes… in the first stages. Our company noticed a block that was rundown, but the surrounding area was a prime location. We kept our eye on two potential apartment buildings, one that had been vacant for awhile, and the other was a ‘ mom and pop’ managed building that wasn’t in the best shape. Similar to the strategy you apply to off market deal single-family homes, we established relationships with brokers and contacted sellers to find off-market deals. After noticing recent renovations in the vacated building, we found the ‘mom and pop’ owners on LoopNet, but then it was taken off. This motivated us. Our company contacted the seller directly. He was in a transitional period and this signified that he was a motivated seller.
When looking into taking this jump to multi-family, we wanted all the information we could get our hands on. We received the rent roll and the T-12. The T-12 would give us an idea of the income and expenses of the building over the last year.
This is where things can get tricky. Unlike single-family homes, a much larger amount of cash up front is needed to gain a multi family property is needed when gaining a multi-family, unless you have a couple buckets full of cash. The negotiations started after we came to the conclusion on our final price. Our company started out with the offer of just $600K. The seller countered with a much higher price. After another set of eyes viewed the offer and we consoled, it was concluded that our underwriting was a bit too conservative. Our offer then went to $900K and after sitting on it awhile the seller finally accepted. This allowed us to go under contract.
During our inspection, we had the inspector walk all of the units. This wasn’t necessary as seen in the redundancies in his report, but it is necessary for investors to walk every unit. The balconies needed to be configured in a way to be self-sustaining and guide water properly, but other than that and cosmetics, there was nothing that jumped off of the page as a red flag.
Nobody wants to labeled as a “re-trader”, but in our scenario, once we ran the numbers, we were negative cash flow. The first couple of months at the current interest rate to seller, and our term of 1 year was too short. An interest only negotiation rate was discussed with the seller. He declined and we ended up settling on 3% the first year, 5% the second, 7% third year with a 3-year balloon payment on a 25-year amortization.
We wanted to give the place and entirely different look and feel. We started off with changing the signage and name after acquiring the property. The exterior of property we plan to address first along with upgrading and renovating other aspects of the property. Everything else we quoted in the scope of work. Our in-house GC helped with that.
We decided to outsource our laundry to Coinmach with a 90% us 10% them, split, after they get first $14 per machine. The laundry brings in approx. $400 per month in income. We’re not looking to make too much money on this. It’s essentially something nice we want to provide for our tenants. We’re still considering some type of cable provider as well.
In conclusion, despite starting the deal in October and not closing until April, it was a great experience. It’s always exciting to dig up great deals—and it’s even better when they close. We learned a lot, including how to save on inspections, the best ways to structure seller financing deals.
International investors have the opportunity to diversify their investment portfolios by investing in Real Estate in the United States. There are a few things to keep in mind when preparing to invest with Holdfolio.
International investors from anywhere can invest in Holdfolio offerings but there are a few requirements necessary prior to investing.
Working with International Investors
International investors from anywhere can invest in Holdfolio offerings but there are a few requirements necessary prior to investing.
Holdfolio requires our International Investors to fill out a W-8ECI which is the IRS Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States.
The form can be found here : https://www.irs.gov/pub/irs-pdf/fw8eci.pdf
International Investors must also obtain a valid ITIN.
What is an ITIN?
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and is issued to those that are not eligible for a social security number.
ITINs are issued regardless of immigration status because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code.
What is an ITIN used for?
ITINs are for federal tax reporting only, and are not intended to serve any other purpose. IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs).
Other examples of individuals who need ITINs include:
• A nonresident alien required to file a U.S. tax return
• A U.S. resident alien (based on days present in the United States) filing a U.S. tax return
• A dependent or spouse of a U.S. citizen/resident alien
• A dependent or spouse of a nonresident alien visa holder
The international investor files a Non-resident US tax return.
This way taxes are not withheld from the investor’s income upfront.
Withholding requirement is on the LLC. 1099 issued from Property Management Company to the LLC, LLC provides W9 to Property Management company.
LLC provides K1 to the international investor
Investor needs to obtain an ITIN (does not need W-8)
LLC required withholding federal income tax unless Investor’s tax liability from the LLC income is estimated to be less than $1,000 AND the investor provides the LLC with a properly completed form 8804-C. If investor tax liability is more than $1,000 then withholding is required.
Any income of less than $13,500 will result in a tax liability of $1,000 or LESS and therefore no withholding is required.
Investor is required to file 1040NR to report the K1 income (1040NR = Non Resident tax return)
Exempt up to $4,000.
$4,000 to $9,300 is 10% tax rate
$9,300 is where 15% kicks in & max is 39.6%
We always encourage investors to seek the help of an informed CPA to help determine the structure & implications of their investment with us.
Recommended CPA -- $495 one time fee for tax compliance
Christopher J. Picciurro, CPA, MBA, PFS, ARA
Executive Officer & Co-Founder, Integrated Financial Group
1-888-IFG (434) 7791 Extension 106
Although it can sound complicated, working with a competent CPA and doing a bit of work ahead of time can make the investment process with Holdfolio, straightforward, easy and a passive way to invest in Real Estate in the US Midwest market.
Because we are a Real Estate Company comprised of specialists in our field and we are not tax professionals, we always encourage investors to seek the help of an informed CPA. This will help the international investor to determine the structure and implications of their investment with us.