Some people who invest in investment real estate do so as a full-time endeavor.  This is because being a real estate investor can take a great deal of time and work.  First, one must find a reasonably-priced investment property that can be improved upon for sale.  Then, one must purchase the property, while taking into account any bureaucratic, financial, or legal entanglements attached to the property.  Afterwards, the person must plan and carry out repairs, all while trying not to go over-budget.  Finally, one must market the property for buyers.

However, there are people with other professional jobs who enter the business as a side project or one-time deal.  If you are in the latter group, you may be in a situation in which your own time is a luxury you simply cannot afford to spend on renovating and advertising a property.  Perhaps you already have a demanding full-time job, as well as family or community concerns that eat up the rest of your day.

If you are in this position, carrying out all the complex processes yourself is doubly daunting.   Therefore, you may want to make your investment in a turnkey property.  This is a piece of real estate that is completely ready for sale, or even for moving in—some turnkey properties can come with furnishings for the user.  Of course, such a property is likely to be much more expensive than one that still needs a lot of work done.  However, if you have a demanding, high-paying primary job, a ready-made  piece of real estate might be your best bet.  To borrow a term from the economists, you should also consider the opportunity costs.  You may save money by taking more time on a cheap property, but you will lose the opportunity to generate more profits from your regular job and side projects.

When investing in a turnkey property, do make sure to look over the house or apartment carefully.  There is a possibility that it is not as sale-ready as the agent or seller has told you.  You may also want to get a lawyer, para-legal, or alternative realtor to look over any agreements you have to sign, to make sure you are not being stuck with the previous owner’s legal problems.

In this day and age, time is money.  To save one, you may have to spend more of the other, but to the investor who is also a busy professional, such an exchange could be well worthwhile.

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http://www.indianainvestmentpropertygroup.com
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Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

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Over the course of the past few years, one of the benefits of our otherwise-ravaged economy has been new initiatives from the federal government to provide incentives for consumers of various types. It’s like a psychological stimulus plan. The government is doing everything it can to hold consumers by the hand and say, “It’s OK, everything’s going to be fine and back to normal in no time. Here’s some money to spend, and we’ll go ahead and get rid of these taxes. Just go out and spend some cash!”. Obviously, it’s not been quite that simple, but some of the government’s new initiatives do in fact seem to be overt attempts to stimulate consumption.

Many investors (both seasoned and amateur) as well as start-up homeowners seek to make the most of their money by purchasing property under the market value. Unless you strike gold and happen to find the one seller on earth who doesn’t care about money, getting a home for less-than-market-value is most likely going to require making sacrifices in terms of quality, and this inevitably means sinking additional funds into repairs, replacements, and improvements. Due to this additional, post-contractual expense associated with rehab properties, many buyers fail to properly plan for this process, and end up with a defaulted mortgage and a failed investment attempt. For that reason, it is essential to research thoroughly what will be required to bring a property to market value, and factor that into both your profit margin and your mortgage considerations.

The federal government’s new way to keep us pumping what little money we have into the economy (especially banks and other lenders) is called the 203k Rehab Loan. This is a loan program through which home buyers can apply for funding from the federal government to purchase and repair the property. The catch? The property must be your primary residence. It’s not all bad though, you merely have to reside there for any 2 years (not necessarily consecutive) during a period of 5 years. This means you can’t simply use the government’s money to buy up and repair investment properties and become the next American billionaire. However, there is room to navigate within the rules, and many investors use the 203k Rehab Loan as a means of doing just that—meeting minimum residence requirements in order to maximize profit opportunities.

The 203k is largely ignorant of credit history. It is designed to give low-income families opportunities during difficult economic times to raise a family in a home and neighborhood whose quality exceeds that which they could have otherwise afforded. It is a reliable and safe source of funding, and with the number of available rehab properties below market value reaching record levels, there has never been a better time to take advantage of federal incentive programs to buy a rehab home! Who knows, in ten years, it could make you $1 million!

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Rental properties are a great way to earn extra income each month and have a minimal role. Some people consider this ‘true investing,’ since the properties are held for the long term and do not require active, day to day labor. Other tactics, like wholesaling or flipping properties, can still generate income, but they are more labor-intensive. Holding rental properties fits many people’s lifestyles, but not all rental properties are equal, so it is important to evaluate them before you sign the deal.

The bottom line when it comes to rental properties is the Net Operating Income. The NOI is the total amount you will make each month as a landlord minus the expenses and excluding your debt service. It can be determined by adding up all the rents, but the important factor is to accurately assess your occupancy rate and the percentage of tenants that will pay that rent on time. If the NOI covers all expenses plus the ability to pay your debt service, then the property is profitable.

Another common number when evaluating rental properties is the Gross Scheduled Income, or GSI. This number is calculated by multiplying the total monthly rents by the number of units by twelve months (total rent x # of units x 12 months). It tells you the scheduled yearly income, with the operation term being scheduled. Don’t confuse this for reality! It is only the income that is planned. It does not take into account occupancy rates or quality of tenants into consideration, so do not confuse this number with the NOI. Additionally, the assumption is that for calculating the total rents, you have data on the average rents in the area so that the number is based in reality. GSI is useful as a guideline, and can tell you the maximum rent, but don’t solely base the decision off this number alone.

The number which is critically important is the economic income or economic occupancy. This is the realistic prediction for your total rent. It takes into consideration the occupancy rate and the percentage of tenants paying on time. For example, if you have a 90% occupancy rate and assume that 90% of those tenants pay on time, the economic income is going to be 80% of your GSI. You can find out these numbers by asking for the last two years of financial data on the particular property you are evaluating. If it is a new property, then you need to make sure your market research is robust: know the average vacancy rate and average rents, and make assumptions about the tenants off your other properties (if you have any). If this is your first property, then make sure to include plenty of room in your calculations, like over-estimating that 20% of the tenants will pay late instead of 10%.

Eventually, you will start to get a feel for the numbers in a certain market as you look at more data and do more deals. A mentor can give you guidance through the financials, but make sure you’re basing your purchase on math and not on gut feelings.

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Equity is the difference between the value of a property and the balance of the mortgage left to pay. As the value of your home increases, due to appreciation or improvements you’ve made (also known as forced appreciation,) and as you pay off your mortgage, the equity increases. Building equity is essentially building wealth. When investing in real estate, one of the goals is to increase equity in all the properties you own.

A simple yet effective way to increase equity is to improve the value of the property, which can be done through repairs. Cosmetic repairs, like a new coat of paint or new floors, are not too costly and can add to the aesthetic appeal of the property. Intensive repairs, like wiring or plumbing, may be necessary if there are problems with the property, but are also costly. You need to select which repairs provide the greatest returns. Traditionally this has been remodeling kitchens and bathrooms. Putting in granite countertops, a stainless steel sink, tiling for the floors, modern lighting and large mirrors are all ways to increase appeal without an unseemly cost. Think of it from the buyer’s view: when he/she enters the home, he/she will be impressed by the appearance. Modern bathrooms and kitchens give the impression that the entire house is modern and up to-date, even if it was built in the 1900s. A more modern and appealing house usually translates into a higher sale price.

Another way to build equity is to increase the payments on your mortgage, thereby paying off the remaining balance more quickly. Some banks do not allow mortgage payments to exceed a certain amount, (why would they agree to less money?) so if you are frustrated with the rules, you may want to refinance. Refinancing may allow you to lower your interest rates or reduce the term of your mortgage, reducing the balance you owe for the mortgage and increasing your equity.

The equity that you have accumulated is realized once the property is sold. With the extra wealth you have accumulated, you may want to continue to invest in real estate. There are many venues of real estate investing, and building equity allows you to explore those options. With real estate, as with any investment, wealth accumulates more wealth. So build up that equity and keep investing!

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

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Understanding the difference between land and the actual house itself may seem obvious, but many people don’t realize that it should impact their investment strategy. Land is in demand, and as our population increases, the demand for land will increase, appreciating in value. (Side note: this is not true for all land. Some land can be undesirable because of its location, but often this is not the case).The house, on the other hand, is a physical structure which will need repairs and depreciates in value. When looking to invest for the long term, you should be thinking about the value of the land more than the value of the house. The opportunity for your maximum returns comes from the appreciation of the land.

If you are distinguishing between house and land correctly, you will come to the conclusion that the best investments may be in small, ugly, run-down homes if they are in a good location. You can buy those properties for cheap and either destroy the house and sell the lot (sometimes poor structures detract from the value of the land) or you may improve or rebuild the house. The house is always changeable, but the land is not.

A great way to get a feeling for the potential value for the land is by looking at government plans for the community. Growing communities are key places that will maximize your profit. Indicators for growing communities include plans for building shopping centers, expanding roads, new hospitals and increased public transportation. You can find out this information by contacting your economic development office or your town hall. Another area is by looking at the school system. Are the schools ranked near the top? Strong schools are an attractive aspect for parents. You may also want to look in areas on the fringe of big cities or commercial centers, because those prices will increase as the value of being close to the city increases. Spend most of your time researching the land, not the actual house, and you’ll make a better long term investment.

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http://www.indianainvestmentpropertygroup.com

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Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

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In a heavy buyers’ market, it can be both frustrating and costly to try to sell or rent your investment property.  Most property owners are forced to a standstill during economic periods which favor a huge supply and relatively low demand.  However, the beauty of real estate is the eternal guarantee of change—people will always need to buy, sell, rent, and move.  So business is getting done, and shouldn’t your business interests move forward as well?  In order to continue doing business in a down economy, property owners must find creative ways to distinguish themselves and their properties from the field—a field which at the moment is vast, but which is targeting a relatively small population of customers.

There are many simple ways to make a property stand out.  The most obvious are the superficial modifications: improvements to the appearance and general “livability” of a home at the surface level.  These include updating systems, improving landscaping, repainting, etc.; and strategies like these are thoroughly explored and available from a multitude of resources.

In addition to these aesthetic improvements which will enhance your property’s curb appeal and impact upon presentation, consider offering creative transaction terms to your customers.  When a potential buyer or tenant is shopping for properties, most of their options in a broad category will appear pretty much the same—size, features, location, etc., will all probably be standardized based on the customer’s search field.  Therefore, the customer is looking for small features or details that distinguish one very similar option from another.  Many owners and managers simply offer discounts (or increase the price and then say they are offering discounts—hey, that’s business!).  Others include coupons and package deals and so forth.  These strategies are all tried and true, but common.

It is your property, which means you don’t have to follow any of the conventional rules of transactions.  Feel free to get creative—put yourself in the buyer’s shoes and consider what might appeal to you (this will probably be a function of the type of property you own, since features that are appealing will be very different between the $2 million and the $30,000 price range).  Consider what your individual business can handle.  Do you own the type of rental property where you could attract lots of business by offering dramatically reduced rental prices in return for requirements that the tenant handle repairs?  This is not a typical strategy, but it has worked in the past.  Many tenants of a certain socioeconomic class would much rather pay less now, and worry about costs in the future (and if they are contractually bound to make necessary repairs, then you hold the cards).

Obviously, this strategy will not work for many property types and many business needs.  But the point is this—get creative.  Offer something that no one else is offering, which generally means taking a bit of a loss yourself.  But it is extremely important to keep in mind that if you plan to do business in a buyers’ market, you simply will not generate the kind of income that you could under different conditions more conducive to seller profit.  That is why so many owners are stagnant in this type of economy.  But if yours is the type of business that requires perpetual motion (looking at you, landlords!), you need to maintain reasonable expectations of profits, hunker down, and offer up a sweet and unique deal for buyers/tenants.  Times are tough—but they’re not impossible.

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

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Land Trusts are one of the tools of the real estate trade that are grossly underutilized.  This living, revocable trust allows an investor to hold title to a piece of real estate.  Since each individual property is represented by its own land trust, the investor can rest assured that he is maximizing his privacy and security, and not putting all of his investments at risk on every transaction.  There seem to be countless arguments in favor of possessing a land trust—here is an abbreviated version.

The most important benefit afforded by a land trust is investor privacy.  Any trust agreement is not public record.  This means that the average Joe can’t simply hop on the internet and find out who owns a certain property through land trust.  However, simple property ownership is public record, which means anyone can access sensitive information about an investor and all of the investment properties in his portfolio.  Although this in itself is a nasty adverse effect of ownership, it says nothing about the legal ramifications of making that information available.  If an investor owns a number of buildings in the same area, then the local government could easily track the accumulation of that owner’s violations (however minor), and eventually take him to court.  With a land trust, however, it is much more difficult to find the owner of a property; and it is infinitely more difficult to compile a comprehensive list of the owner’s properties.  This also makes it much more difficult (or perhaps just less appealing) to sue an owner bearing a land trust.  Successful litigation is based on the money made through suit, so lawyers aren’t likely to file a case against someone with no assets.  You could own 1,000 properties, but if they are all owned by a land trust, then a search of your name will not reveal a single one.  It seems a lawyer would be more inclined to take a case against the owner of 1,000 properties than against someone with no assets.

The other benefits of a land trust all deal with the security of the investment.  First, liens may not be applied to trust-owned properties.  That is to say, if an investor has a land trust, then all personal judgements or liens that have been applied to him, may not then be associated with the value of the property.  This secures the investor’s opportunity to profit from the investment, regardless of what else is happening with that investor.  The trust is also not subject to title claims, which means if there is any controversy over the title and a title claim is made, then these claims are applied not to the owner, but to the trust which is attempting to sell the property.  This means, once the property is sold, the trust has no remaining assets to which the claim or lien could be applied.  Alternatively, such a claim made against an investor who had signed his own warranty deed could be financially devastating.

There are many other specific benefits of holding title in a land trust rather than in the name of the investor.  Most are applied to specific scenarios (ways to avoid losing money in a homeowners’ association, transferring contracts, etc.).  While you don’t need to know every single benefit of a land trust, it is important to know that it is an extremely useful—though underutilized—tool of real estate investment which adds a layer of increased privacy for the investor, and security for his investments.

Let us know your thoughts.

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Many investors are scared away from investing in real estate because of the sensational news stories that depict crying homeowners in front of their foreclosed homes and heated discussions about plummeting house prices, making it seem as though the real estate doomsday will never end. Although, yes, housing prices have declined, and yes, the number of foreclosures has risen, there are still opportunities in real estate to make money.

Signs indicate that the economy is stabilizing; unemployment is slowly starting to improve, and depending on what city you are in, fewer people are defaulting on loans than in 2008.  Although the economy is still slow and many people are still unemployed, growth is starting to pick up.  Slowly but steadily we are coming out of the recession, and there are ways to capitalize on this trend.

A great opportunity to sell a home in this market is through a lease- option contract.  This entails two separate contracts.  The first contract is the option contract which usually requires a non-refundable fee minimum of 3-5% of the purchase price of the property.  I usually require at least 5% of the purchase price of the home.  In my opinion, the more the resident can put down, the better. The option agreement allows the resident the exclusive right to purchase the property at a specified price within a specified time frame. The option fee is credited towards the purchase price of the home, but if the resident does not or cannot exercise their option within the specified time frame, the resident forfeits the option fee.

The second contract is a standard lease agreement for the same specified time frame as the option agreement.  The ability to exercise the option agreement is contingent upon the resident fulfilling all of the duties of the lease agreement- mainly paying rent on time and maintaining the property. Maintenance of the property is the responsibility of the resident and at their expense.

Any time during the option period, the resident has the exclusive right to purchase the home.  This approach allows the resident a specific time frame to clean up any issues preventing them from securing a bank loan, but still providing them the opportunity to secure the home they wish to purchase.

There are many nuances and variations of the lease-option approach. There are also potential pitfalls for both the resident and the investor that are beyond the scope of this post.  But if executed with specific metrics and standards in place, this strategy can provide a tremendous win-win for both parties involved.

This is a great approach for people who have tarnished credit due to job loss, bankruptcy, or a foreclosure who are now getting back on track and starting to show a positive history. This approach allows the resident to get into a home ownership position and provides the investor cash flow each month, with what I call, chunks of cash at the end.  A true win-win for both in my opinion.

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

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If you are someone who is in the business of selling or renting property, and that business requires you to give prospective customers tours of that property (whether infrequently or multiple times per day), then you need to at least be considering video tours—if not relying fully upon them.  A video tour, sometimes called a talking brochure, is a perfect way to conserve your own precious resources while reaching a broad target audience.  Here is how it works.

Make a video of yourself (or whoever gives the tours for your business) giving a perfect tour through a listed property.  The video can simply be shot from the perspective of the tour-taker, following the presenter through the home.  This tour differs from a more conventional tour in that you will obviously have no interaction with your customer.  Think back on your previous tours—there have undoubtedly always been questions that interrupt your tour, and you are expected to provide that information to your customers.  In a video tour, your customer will still have all the same questions, but no way to stop the tour to ask you.  Therefore, this particular presentation needs to be very thorough; you need to sit down and come up with all of the relevant questions that a prospective buyer or renter would want to ask, and you need to be sure to answer them clearly and concisely in your tour.  I say concisely because—as in all matters which require acquiring and maintaining peoples’ attention—you can’t put out a 45 minute video and expect people to remain focused.  Keep it under five minutes, but pack it full of all the useful information you would want to know before moving forward with a major transaction.

Once you’ve made your five minute video, you’ll need to distribute it for viewing.  The easiest, cheapest, and most practical way to do this is using the internet.  Your business should already have a website, but if you don’t, that is the first step (we won’t deal with that here).  When you add the video to your website, don’t bury it behind links tabs and URLs and whatnot.  Present it up front, make your tours clearly visible and easy to click and play.  This is your product—advertise it!  Finally, be sure you make it very easy for your customer to contact you.  We all know the frustration of using the internet to search for an email address or phone number, only to click link after link finding no way to reach a human being.  Make your business email and phone readily available both on and around the video tour in your website.

Going through this one-day process will save you countless hours of meeting customers for tours, driving time and gas money, and where you could only do so many tours in one day before, with a video on the internet you can reach an unlimited number of people in any period of time.  It’s a marketer’s dream, and it’s a tool that must not be overlooked by real estate professionals.

Let us know if this article is helpful by leaving a comment.

http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

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