Apr 11, 2017

The Art Of Patience For Acquiring Income Properties

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. Anticipate Challenges 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.

Apr 10, 2017

The Top 4 Things To Look For In An Area To Buy In

Making a smart real estate purchase is all about “location, location, location.” So, what should buyers be looking for in an area? Growth Potential Whether you are buying a home or a rental property, you want to buy somewhere that your property value isn’t going to go down. No matter what you are buying, and why, it is an investment. When you invest you don’t want to lose money. So, it is important to look for an area which offers good growth potential. Some of the factors that may indicate good growth potential include:       Strong local economy       Diverse economy       Increasing population       Revitalization efforts Crime Rates Crime can directly impact real estate. It can impact income property performance, demand, and values. Crime ridden neighborhoods may represent areas which see rents and property prices decreasing, as well as more difficult property management challenges. However, it is important for investors to look at the direction of crime rate trends, the type of crime, the causes of statistical changes, and to apply common sense to the data. For example; direct property crime can be a big concern for property owners. Other types of crime may not be such a threat for owners. Crime can be cyclical too. Areas can be driven down by crime, and then rebound as serious crackdowns happen. Statistics can also be subjective due to various reporting and enforcement strategies. Remodeling and Building Activity Local renovation and new building activity is a great sign. It means others are investing heavily in an area. They are bringing in new cash and equity. In most cases this activity will also force up rental rates and property prices. It can also make an area more attractive to new residents and visitors. It is wise to not always be afraid of boarded up homes or homes that are in renovation process….this can mean that investors are working in this area and it is on the upswing. Local building permit activities can give clues to future activity like this as well. City Plans Being aware of city plans will allow you to best position yourself in areas that are experiencing revitalization. It will allow for you to get properties cheaper and get the upside. Buying in revitalizing neighborhoods also gives you the opportunity to help your community. By rehabbing one house on the block it starts a trend and in no time, the block has more appeal. This gives the community a sense of hope that revitalization is coming. It also urges owner occupants to take a sense of pride in their individual homes. It encourages owners to upgrade their property in order to keep up with what’s going on in the neighborhood.

Apr 5, 2017

Property Assessment

How do you determine the value of a property? Determining the value of a property is a crucial part of buying, selling, and investing in property, so how is the best way to do this? How do you do it? There are actually many factors to look at when estimating the value of a property. It is both an art and a science. Some, websites have tried boil this down to instant, automated valuation tools. Most of these don’t work very well, or accurately. Zillow is the most notorious example; with the company’s CEO selling his own home for 40% less than the Zestimate, or about $750,000 under the value his own platform provided. If you really want to know what a property is worth you have to dig deeper into the facts about the property, ensure you have the most up to date information, and even factor in why the property is being bought or sold. The 3 Types of Valuation There are three main ways of appraising real estate:     The cost approach     The income approach     The comparable sales approach The cost approach calculates how much it would cost to rebuild a given property today. The income approach is typically used for investment property, and determines value based on the income the real estate can produce. The comparable sales approach is most commonly used for single family residential property, and determining a market value based on the sales of comparable properties. Factors Considered in Determining Property Value When it comes to assessing property value, the deeper and more detailed you are, the more accurate your estimates. First and foremost is location then there are other important considerations to factor in·       Square footage Number of bedrooms Number of bathrooms View Property condition Lot position Community amenities Garages Age of the property Special features like swimming pools Proximity to recently sold properties Terms of a sale (i.e. financing used, seller contributions, repair credits, or Realtor rebates) Where to Find the Data There are a number of places to find the above data:       MLS       Appraisers       Real estate brokers       Tax records       Building permits       Driving neighborhoods       Title companies       Home inspections Clearly there is a lot that goes into determining the value of a property. Still, with as much as there is on the line when buying, selling, and investing in real estate, it is worth being detailed and achieving  due diligence and clearly researching when assessing value of a property.

Apr 3, 2017

How We Bought Our First Multi-Family

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.

Mar 30, 2017

Spring Preparation Part II: The Team

  After the winter hibernation, the housing market is back in action. Most one-year leases are up, tax checks are in, and people are going to be looking for places to live. Now that you have prepared your property for spring, it’s time to get your team prepared. While you should have been preparing in late winter, it’s never to late to start to make sure your spring starts off right! Be Available As the weather starts to warm up, especially in the Midwest, activity will increase. During the winter months, showings later in the day were pretty much obsolete because of the extreme temperatures. Being available will keep current tenants happy and will keep a steady stream of potential tenants coming in. Have Incentives Incentives like $200 off first month’s rent, or discounts for signing a 2-year lease, are great ways to attract a crowd. Think about it, there are a ton of rental properties out there, so you have to figure out a way to stand out. What better way to do that than by offering something for a free or discounted price? Available Homes The last thing you want to do is watch homes rent while your sitting idle. If you have a home that recently became vacant, make sure you have a quick, but effective turnover. The opportunity for buying homes is also on the rise, so your acquisition team should be doing their do diligence to keep a pool of potential homes to buy. Signs & Automatic Mailings There are many ways your acquisitions team can prepare for the spring. Being more diligent about placing signs at your rental properties will increase your company’s visibility. Mailers are also a great way to get an owners attention. Stating that you’ll buy the home in cash and as is, is a great way to make deals happen quick. Maintenance Spring is the time to make sure your rental properties have the best curb appeal possible. Having a scheduled mowing list will make sure you don’t end up with a grass jungle in the front yard. It’s a time to check your basement for dampness that could lead to mold. Having a clear list for your maintenance team will all but ensure that your house are move in ready. Now that you have your rental properties in great shape and your team clicking on all cylinders, you are ready to take on the spring and summer!

Mar 20, 2017

Why Your PMC Is Key to Your Rental Property Rental Success?

So you just invested or bought your first properties, or maybe you’re a seasoned veteran when it comes to real estate. If you’re new, maybe you don’t want to take on all the tasks that go along with managing a property. If you’re a veteran, maybe you don’t want be as involved anymore. In either case, a property management company (PMC) is a good solution. Picking a company to take care of your rental properties can be an exhausting task, but there are traits to look for in a property management company to make the process go as smoothly as possible. Percentage they collect each month Every PMC you go to is going to have a fee they collect every month for managing your properties. Duties like collecting rent, evicting troublesome tenants, etc. 8-12% is the typical fee. Any more then that and they will be taking a substantial chunk out of your bottom line. Cost savviness Rental properties can accrue a number of expenses that can really add up over time. If you allow your PMC to take care of it then you want them to be as cost savvy as possible. If the towel rod breaks off in the bathroom, they should not look for the $75 rod if it’s a $30 bathroom. Market Value Rent Deciding what to charge for rent is one of the leading factors that affects your bottom line. Make sure your PMC chooses a market value rent. If the rental property is in an established neighborhood make sure the rent reflects that. The same can be said for a property in an up and coming neighborhood. Tenant Turnover Without tenants, your rental property can drain your pockets. The PMC you choose has to work diligently to place new tenants in your property so your property doesn’t sit idle. Your PMC has to work fast, but not at the expense of quality. Placing quality tenants means the difference in having to replace carpet or simply having them cleaned. Ease of communication with tenants How your PMC communicates to your tenants can save or cost you a bunch of money. If the rent payment process isn’t easy, this can cause late rent payments. The ease of putting in a maintenance request can mean the difference between stopping a leak and having to replace a rotten floorboard. Your PMC should be available to you and your tenants at all times. Reliability and Expertise All of the traits mentioned above come with a proven track record. If you choose an established PMC, they will know more tricks of the trade. Every house, owner, and tenant is different, so when considering a property management company take a look at all aspects and make the best decision for your rental property.

Mar 16, 2017

Spring Preparation Part I: Property Maintenance

  Spring is a time of new beginnings. Flowers are blooming, lawns are returning back to their lush green color, and the overall hustle and bustle of spring is upon us. Spring is a great time to give your rental property a check-up.  After a winter of extreme temperatures, especially if you live in the midwest, it is important to find out how the interior and exterior of your property weathered. Interior - While the interior of your property didn’t take the damage that the exterior did, there are still some important aspects to check out. First, make sure you check your smoke detectors. Replacing the batteries in all of your smoke detectors now reassures you that they are functioning properly if an incident was to occur. Replace your furnace filter to prevent any extra wear and tear on your furnace. A dirty filter can make it harder to heat and cool your home. The furnace compensates by running longer and harder, which can lead to higher bills. A $15-$30 filter can end up saving you hundreds of dollars in utility bills. Plus, it can increase the life expectancy of your furnace. This goes straight to your bottom line as an investor because you won’t have to replace the furnace as often. Spring is a great time to have your heating, ventilation, and air conditioning (HVAC) system checked by a technician. The humidity that the spring brings will attract dust and other debris to your system.  A technician will check aspects that the average person can't. Making sure your registers open and close in each room and changing your furnace filter are simple checks that don't require a technician. Exterior - The winter snow and ice can cause a number of problems on the exterior of your property that you have to deal with in the spring. Clearing your gutters can save you a lot of potential headaches. Built up debris in the gutters can cause them to overflow and possibly leak into the foundation of your house, or into the basement. The cold air in winter can cause the caulk around your windows to contract and crack. Replacing the caulking around your windows eliminates those pesky drafts and can also keep the bugs out of your property. Let’s not forget about lawn maintenance when spring time rolls around. Make sure to trim any bushes that may be around your a/c unit or pushing up against any screens. Bushes and trees that are in contact with the house act as a highway for bugs. Spraying for weeds will keep them at bay so they aren’t a constant chore during the season. Taking care of these aspects inside and out can lead to your rental home being in optimal condition for the rest of the year.

Jan 18, 2017

Investing in Real Estate: Grading and Foundation Issues

Foundation issues can be one of the scariest property flaws for many of those investing in real estate. What issues should be looked for when evaluating a property? Can these problems be fixed? When should you walk away? Real Estate Investment and the Foundation Challenge Foundation problems can be very serious. These are structural defects which can prevent financing. They can also get very expensive to tackle. They are often the result of grading problems, but not exclusively. In some parts of America foundation issues are quite commonplace, like in Texas. They may be rare in other states like Florida. Most investors and companies such as ours avoid at any sign of these types of problems. There can be unforeseen costs and financing challenges associated with these properties. At the same time this makes these properties a great opportunity for those ready to take it on. There can be less competition from other buyers, and that means potential for big discounts. Grading & Foundation Issues to Look for in a Property Some properties have obvious grading and structural issues. Some are easily spotted by uneven building lines. Walls, floors, ceilings, or the entire structure may be at odd angles. Previous inspection reports or appraisals may reveal the presence of these problems, even if they are not immediately visible in photos. Other signs of potential problems may include wear and erosion around the exterior walls of the home, standing water, trees in close proximity to the dwelling, and interior leaks. Uncorrected these issues can erode the foundation. Other foundation issues are a result of excessive pressure on the foundation and pressure load which causes stress on the foundational walls. You’ve got to be alert to these issues before making an offer, or price in the worst case scenario. How to Handle Foundation and Grading Issues The first thing to do is to get multiple inspections and quotes on fixing the issues. You want to know exactly what the problem is, how long it will take to remedy, and how much that will cost. If current damage isn’t that bad foundations and grading can be fixed or supported. This may range from costing $500 to well over $30,0000. In some cases you may want to tear-down and rebuild. More affordable and minor remedies and preventative measures may include; improved grading, better gutters and drainage, tree and root removal, or installing new foundation piers and beams. Summary Foundation and grading issues can be very common in some real estate markets. This is something to be alert to, but which can also present great value opportunities. Know what to look for, who to ask for guidance, and when it makes sense to move forward or pass it up.

Jan 18, 2017

How to Minimize Winter Weather Damage to Rental Properties

How can landlords best protect their rental properties during the winter? Extreme weather, as we experience in the lovely Midwest can definitely test and threaten rental homes. What smart moves can landlords make to winterize properties and protect their investments? Getting Prepared Going into winter it is a great time for owners of rental properties to inspect their holdings, take stock of condition and needs, and to ensure they are prepared. Prevention is far better and less costly than trying to fix things after the fact. That applies to all types of severe weather and natural disasters, including harsh seasonal weather. Make it a habit, and system to routinely schedule property inspections before heading into the worst weather each year. A part of this is having clear rental lease agreements which define whose responsibility certain items are (landlord or tenant). Then of course making sure you as the landlord have your end covered. That means supplies, contractors, and systems for dealing with maintenance, and responding to emergencies. Be Proactive A part of routine maintenance and inspection at this time of year is certainly checking the gutters and keeping them clear. Be sure drainage is set up right to keep melting ice and snow flowing away from the property and foundation. Check roofs for leaks and condition. Check doors and windows for drafts and water tightness. You don’t want unnecessary damage. If you are responsible for utilities this can be an area which creates or depletes cash flow as well. Check heating. Will the furnace last through the winter? Has the filter been recently changed?  Whether it is your responsibility in the lease or not, you certainly don’t want a grandmother or young family freezing in your property. Cracks in sidewalks or porches or driveways are best fixed before a freeze and thaw which can make these problems and liabilities far worse, and more expensive. Be Covered One of the real challenges for real estate investors at this time of year is that they are not local. Either they have been investing from a distance, or they are off to spend the season in sunny/ warmer weather. That’s great, but someone needs to be on hand to keep an eye on the property and respond to calls. Get a property manager and have a plan for how to respond to various issues like the heat going out, slip and falls, and tenants being snowed in. This is also an ideal time to check your insurance coverage. If your property has gone up in value you may want to raise your coverage. Make sure premiums are up to date. What are you doing to protect your investments this winter?