You’re ready to hire a property manager to handle your investment property but what should you look for in a property management company?  This choice is an important one. After all, you will be working closely with the people assigned to your rental property.  These folks will handle your investment and ensure your budgeted profit is met.  The key is to make a choice that best fits you as an investor.

First, you should feel the company’s representatives see this endeavor as a partnership.  After all, this real estate investment is important to you but it will also be important to the property management company.  If the property is managed well, you make a profit.  You’re happy with the company and the firm continues to renew their contract with you and in turn make their management fees.  The company could potentially see the relationship grow through additional investments and contracts if that is part of your investment plan.

Any property manager worth their weight realizes the benefits in working with the owner.  An ability to talk to your property manager and know he or she hears you is very important.  But, the reverse is true as well.  Remember, the folks that do this job every day know a lot about the ins and outs of managing a property and turning a profit. Listen to their advice.  When the property does well, the investor, the individual managers and the company do well.  It’s a team effort.

Then there are the practical things to look for in a firm.  Does the property management company offer all the services you need?  If you want a manager that will handle making plumbing repairs but can also advice you on additional investment opportunities in your market, you wouldn’t want a company whose manager is really a tenant relations type only.  The firm you will be looking for is one where the manager wears many hats or perhaps there are multiple people within the company; one to handle the leasing of your investment, one who maintains the property and an investment advisor to work with you on growing your investment portfolio.

Something else to consider is the location of the firm you choose.  Do you want your management firm to be local to you or just your investment?  While telecommunications has made keeping up with things from afar tremendously easy, you may be the type that prefers face to face meetings without a trip on a jet involved.  Then again, if you work well previewing budgets and communicating via email, finding the best firm possible may be your only priority.

While most property management companies offer similar services across the board, there are those that stray from mainstream.  Decide first what your needs are in a property manager.  Investigate your options and choose the one that best fits your needs.  The partnership you choose can be one of the most important decisions to your investment property.

 Jay Redding

http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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Thinking with one’s emotions is rarely—if ever—a reliable way to earn a profit, in any industry.  In real estate specifically, trends tend to be more pronounced because any associated data relies heavily on a small number of very large transactions (as opposed to, say, the data pertaining to grocery store sales).  This means that any feature of a normal business transaction is going to be expanded and multiplied in a real estate transaction, where more money, more time, and therefore more emotions, are at stake.

When I say thinking emotionally, what I really mean is relying too heavily on whether or not you like the property, as opposed to whether or not this is the rightproperty for you.  For the first-time investor or home-buyer, perhaps the sheer excitement of going through the process for the first time will be enough to skew your opinions of the home.  Remember one thing: the first place you look at will only very rarely be the best option for you.  In order to make savvy business decisions that will result in profit rather than loss, you should expect to turn down far more offers  than you accept, which means you can pretty much expect that if you take 50 tours, the first one is not necessarily going to be the best one.

With that logic in mind, be wary of every tour, at every step of the way.  If you are excited about moving or home-ownership or the start of an investment career, remind yourself to look for reasons not to purchase the home, rather than the reasons to do so.  In any house you look at, you will find plenty of reasons to buy it.  Maybe you will imagine the color of the walls, or the arrangement of the furniture, or what it will look like with 3 kids and a dog running around.  These are dangerous sentiments, which all speak to an emotional involvement in your decision-making process.

Instead of the walls, furniture, and kids, why don’t you spend some time and energy coming up with all the features of the house that are going to inevitably result in not only a hassle for you, but also a significant cost.  Repairs, modifications, and updates are the big ones.  You almost never see a house sold in perfect, up-to-date condition, and it is of vital financial importance to know what you’re getting into before you sign the contract.  Basically, as you look at properties, try to talk yourself out of buying it.  You should be able to.  When you absolutely can’t come up with an argument against the property, and you are confident that is not the result of some arbitrary emotional attachment to the property, then you have found the right deal to pursue, and your next (or first) investment property!

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There is a class of investors out there who believe that, because they are investors and not lawyers, they don’t need to trouble themselves with the details of the real estate contract.  These investors couldn’t be more wrong.  The contract is what lays out exactly what you are buying, what you are bound to, and what is owed to you.  It is essential to know exactly what you are getting into on every deal that you make, so that you can plan accordingly and protect your profit margin.  The good news is, the real estate contract is pretty standard, simple, and easy to navigate and understand.  In simple terms, here is an explanation of a basic real estate contract.

The contract will clearly identify both (or all) parties involved, as well as the property in question.  This means an address and description of the property.  The main ingredient in the contract brew is mutual agreement, whereby both or all parties agree to the same terms of a deal, following an offer, usually a counteroffer, and finally acceptance of terms.  These must all be clearly laid out in the contract.

In addition to identifying parties and mutual agreement, here are some other elements which all real estate contracts should and in fact must possess.  It must be in writing in order to be enforceable.  An oral agreement is nice, but unfortunately if things go south, then the victimized party will be out of luck trying to cite the contract is binding.

A price for the property must be stipulated.  This does not necessarily mean a number of dollars that the buyer must pay (although it could); rather, it has to point to a value which can be reasonably ascertained at a later date, such as an appraisal value.  This, like everything else in the contract, must be as specific as possible: not just “an appraisal value”, but a specific appraisal done by an agreed-upon appraiser at an agreed-upon time.

Usually, a contract will include some consideration.  Consideration is essentially the value of the agreement itself (as opposed to the transaction), and it comes in the form of a small good-faith fee paid by the buyer to instill confidence in both parties.

Finally, signatures are required, as in all contracts.  No third parties or notaries have to be used, but both parties (or representatives thereof) must ink the contract.  Beyond that, it’s just about filling in the particular details of your transaction.  As stated above, the real estate contract is standard and simple, but you need to know what you are looking for when reviewing a contract.

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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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So you found a multi-unit property you like? Perhaps you found a single-family home that you could foresee as a multi-unit.  Either way, there are some key considerations to keep in mind before you purchase a multi-unit property.  Multi-units are a wonderful investments, but there are a few caveats unique to multi-units that can tie you up and prevent you from realizing the full profit they can offer.

1) Zoning

Multi-units are subject to zoning laws, which are determined by each community.  Communities generally want multi-units to be in certain areas and prohibit the conversion of new multi-unit buildings in other areas.  They also regulate what features a multi-unit must have. They control the location and structure of multi-units through zoning permits, which a building must have if it is a multi-unit, similar to a driver needing a driver’s license.  If a multi-unit violates the zoning law, it is subject to steep fines that can be in the thousands of dollars.   Unfortunately, the permit system is not perfect and many multi-units exist that violate zoning regulations.  If they are sold, the new owner is responsible for the fees and construction involved to comply with the standards, even though that owner did not build or initially create the multi-unit complex.  That is why it is imperative that you make sure your building is in compliance with zoning laws, even if it has existed for quite a while.

2) Costs

Maintenance in a multi-unit building is often more labor intensive than in a single-family home, because you have a larger number of appliances, more people to deal with and often a yard or a common area that no one is responsible for.  A safe way to determine maintenance costs is to set aside a minimum of 5% of the gross scheduled income per unit.  This is not your total cost, however–vacancy should also be a minimum of 5% of the gross scheduled income per unit.  If it is an older building, bump the numbers up to a minimum of 10%.   If you figure in taxes and insurance, your gross operating costs should accumulate to about 30% to 40% of the gross income. If you hire a property management group, obviously the costs are going to be a little bit higher.  If the multi-unit has a yard and you don’t feel like making the trek to manage it, it is always possible to ask a tenant to do this in exchange for lower rent, or just pay him or her. Again, this would add on to your expenses.

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Owning or managing property for rent is a relatively reliable and time-tested means of establishing lucrative cash flow.  However, no facet of real estate investment puts investors closer to the consumer than being a landlord—and that means taking risks.  Anywhere you go, there is no shortage of people looking to take advantage of those around them, and in property rentals that means tenants looking for a free ride.  The biggest headaches for the average landlord are brought on by dealing with these troublesome tenants, and that means confrontations, evictions, collections, even legal action.  This is not a reason to turn tail and run, however; prudent and thorough landlords have every opportunity and advantage to protect themselves—if they have the knowledge to do so.

It is important for landlords to hope for the best, but expect the worst.  That means going into every new tenant relationship with an open and optimistic mindset, but at the same time making preparations on the assumption that this is going to be the worst tenant you’ve ever dealt with.  It is practically a universal standard that new tenant applicants must provide a verified bank account at the time of application, but most tenants believe that is enough to protect themselves and collect their assets in the long-term.  One of the oldest tricks in the book, however, is tenants’ applying for and moving into an apartment, and then immediately switching bank accounts to avoid collections.  The best defense against this ploy is for the landlord or manager to check everycollected rent check against the account listed on the application, and investigate any differences.  This will be invaluable in the event of any legal action down the road.

If things fall apart, and a landlord finds himself having to evict a bad tenant, the strongest and most effective legal recourse is a bank levy.  After a money judgment has been issued as a result of the eviction, a bank levy is the judicial process by which funds are seized from a bank account to satisfy that judgment.  First a writ of execution must be requested from the same court where the eviction was implemented.  That writ must be served personally by the sheriff or proper process server to the bank that maintains the account in question, and is most effective when brought directly to the same branch used by the evicted tenant.

The bank is required to honor the levy, but only if they can definitively identify the holder of the account.  Usually this is not a problem, but in some cases it is not enough to have the name of your tenant; the more information you can provide on your evicted tenant, the better the chances of his being correctly identified at the bank for a levy—which is why it is so essential to keep accurate account records for all tenants, even while their checks are clearing without incident.

Owning and renting property is still a great way to maintain a steady income, even in the face of deadbeat tenants looking to take advantage of your willingness to put yourself at risk.  To ensure that your experience as a landlord is a generally pleasant one, the best thing to do is carefully screen new tenants.  Of course, sometimes a bad apple will find its way into the bunch, and so it is of vital importance to conscientiously and thoroughly keep up-to-date records and notes on all tenants, in the event that your relationship with one becomes a legal one.

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http://www.superiorprivatemoneyreturns.com

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 interested in purchasing and repairing a property for resale at a higher price (or rehabbing), then you’ll want to avoid each of these mistakes commonly made by unsuccessful rehabbers.  Most are the result of trying to save too much time or too much money.  Remember, rehabbing is neither instantaneous nor sure—it requires time, money, and effort to eventually turn a profit.  The first mistake is not understanding this fact; but if you can overcome that, then the rest will be easy to avoid.

The second killer is failing to do proper research.  The bulk of the rehabber’s work is not in fixing a home, but in searching for a home to be fixed.  To lay down that kind of capital, an investment property should meet all of your business’ needs (location, design, price, size, type, etc.).  You need to find the right size and style of home, in a proper neighborhood, and in a good location with access to shopping, culture, and transportation.  As much as 90% of your time should be spent not on your current property, but on your next one.

Another major mistake is assuming you can cut corners, and do repair work yourself in order to save money.  This is like the owner that sells a house themselves to forego the  listing fee—they often end up getting screwed.  Buckle down and spend the money to hire a certified professional to make repairs.  Not only will avoiding the shoddy repairs save you money down the road, but having that certified work on record will increase the value of your property for resale, and it will also free up the time you would otherwise have spent doing manual labor, to pursue your next investment opportunity or to line up your backend buyer.

Be mindful of your cash flow.  Too many start-up investors find a great deal and jump on it, not realizing that sometimes even a great deal is simply too big.  If you can’t afford to pay the bills while you own the place, then the possibility of selling the property for a $100,000 profit is pretty much worthless.  Make sure you go into the process with enough cash reserves to cover your costs of ownership, etc.  If you don’t have these reserves, then you must understand that, and avoid deals that will be too expensive and crippling for you to own.  Instead, do a couple of small deals until you’ve built up the proper reserves to sustain you through a bigger one.  Investing success is about moderate growth and consistent work; it is only very rarely the product of a one-time, major deal for a brand new investor.  Understand this, and the strategies to avoid, and it can be a tremendous chance to profit!

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Wholesaling investment properties entails a high degree of trust, more so than in other areas of real estate.  What accounts for this emphasis on trust?  The nature of wholesaling involves spotting a good deal before anybody else does, getting the deal under contract, and then assigning the contract to another investor.  The investor must trust in your abilities as a wholesaler to know what will sell and how much potential profit there is to be made with perhaps minor renovations.  If you pick out properties that make the investors’ profit, you will start to build a name for yourself.  However, if you take advantage of investors, word will spread and your reputation will be tarnished.  The real estate world can be very close knit and investors know to ask about wholesalers.  The most important thing you can do to promote long term wholesaling is to earn a great reputation of supplying good deals.

The investor believes in your foresight and responsible work-up of properties when he or she agrees to buy a property that you’ve found.  It is vitally important that you provide the evidence that the property you are selling to an investor will indeed make a profit.  Falsely leading an investor to the conclusion that a poor performing property is actually good is not only unethical, but will come back to bite you.  Of course, you do not have to be a magic genie: it is entirely understandable if your predictions do not come true, because after all, they are only predictions.  This is the assumed risk the investor takes in listening to your advice.  However, as a wholesaler, those predictions need to be based in evidence and not wishful thinking.

If you find yourself with a property that is not as profitable as you once believed, it is better to assume the loss yourself or back out of the contract than to pass it on to your investor.  If you sell a property to an investor that tanks, other investors are going to know what happened. Word travels on the street! Investors understand assessing future potential is risky, but they also know when a wholesaler takes advantage of a new and inexperienced investor.  Investors have access to the same data that you do, and if they come to the conclusion that your property work-up was negligent or misleading, you’re done.  They will no longer trust your judgments and no longer buy your properties, leaving you no choice but to go out of business. Before you go into wholesaling, make sure to understand the importance of reputation to owning a long-term business and don’t sell anything unethically.

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http://www.superiorprivatemoneyreturns.com

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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Flipping properties, or turning them over quickly with or without renovations, appeals to investors who want to realize their profits without delay.  The concept of flipping is simple to understand at first glance:  get a property under contract or buy a property cheaper than you sell it, including the cost of renovations. It may sound easy and straightforward, but each of these steps can be complicated and there are key things you should know before you use this real estate technique.

If the property you are interested in is an REO (real estate owned), or in other words owned by a bank, then there are certain rules that may apply.  If the property is owned by Fannie Mae, Freddie Mac or HUD, there will most likely be deed restrictions, forbidding the property to be sold for greater than 10% of it’s purchased value within 90 days of it’s purchase date or a restriction of the deed being transferred within 90 days of purchase. Some of these rules may be changing, but as of this writing, that is how it stands.   Although there are still techniques to get around these restrictions, they are way beyond the scope of this post and not for beginning investors.  For the beginner, properties like these, although sometimes quite undervalued in a market, are not ideal for wholesaling.  In wholesaling, the objective is to pass the property off of your hands as quickly as possible before there are any ongoing costs to owning or controlling the property (like the mortgage).  With the 90-day restriction, the profits you can make from wholesaling REOs are very limited without using advanced techniques.

However, REO properties do make great candidates for rehabs.  Renovations generally take anywhere from four to eight  weeks, so by the time renovations are completed, the deed restrictions are very close to the end of their limitations. The only limit to the sale price then is what the buyer will pay.  In addition, you have demonstrated increased value by the renovations completed forcing the value of the property upward. When dealing with REO’s, make sure to get a reputable home inspector to inspect the home, chances are the former owners did not maintain the upkeep of the property.  Furthermore, if the house has been vacant for some time, many items may have fallen into disrepair.

Another key consideration when dealing with quick turnover is that your profits are VERY dependent on the initial price you pay for the house.  Before negotiating with a bank or other seller, work the numbers to determine the absolute amount you would spend to purchase.  During the negotiations, do not let the seller pressure you into spending more than that number.  It will eat into your profits and may make the ordeal not worth your time.  If you cannot get the house at a price that makes sense to you, walk away.  If you’ve accurately run your numbers, then the unfortunate investor to buy that house will not get an adequate profit out of it either. Keep those things in mind and flipping an REO will be a smoother and more pleasant process.

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Closing, which is the actual transfer of the deed from the buyer to the seller, can be a stressful time in your real estate deal if you haven’t taken the necessary steps to prepare yourself.   There are horror stories of buyers purchasing a new home only to find out a few months later the seller wrongfully obtained it, causing pain and anguish for both parties.  How can you avoid scenarios like this?  The most important step to ensure a fluid closing process is to hire a reputable title company.

A good title company will research the deed, looking for proof of ownership each time the title was bought and sold, thereby ensuring that the house is the seller’s rightful property. Unfortunate examples of what can happen with mistakes in deed transfers have been in the news recently, involving cases of wrongful foreclosure procedures initiated by Fannie Mae and Freddie Mac due to a variety of reasons involving negligence and irresponsible business operations.  The problem now is that the former owners rightfully still own these foreclosed homes that were bought by innocent buyers.  This puts the buyers in an unfair situation, and can force them to return the houses back to the previous owners.  Hiring a reputable title company can help you to avoid being caught in a situation like this.  It is worth spending money on a good title company that does thorough research to feel secure that your house is legally yours after closing.

In buying a REO, the bank may dictate which title company is to be used.  You should try to negotiate this issue if you have a different title company you feel more comfortable working with. Talk to your title company and explain the situation, and they may give you a discount for taking business away from a competitor title company.  If you include using your title company as part of your offer, the bank may be agreeable to switching companies.  Just because the bank states who they want to have the closing with doesn’t mean it is locked in stone.  They still want to move the property.  You may have to pay the difference between what their title company fees are compared to what your title company charges. But if you have more confidence and peace of mind with your company, it is worth spending a little extra money to have that peace of mind.

The last thing to remember with title companies is to make sure you provide adequate time for them to complete their work. You don’t want to rush everything at the last minute, because that is when mistakes happen.  If you find yourself in a rushed situation, you may have to reschedule the closing. Although that will irritate some people, it is better than overlooking important information.  Research good title companies and give them enough time to do their job, and you should be safe and secure in closing.

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http://www.superiorprivatemoneyreturns.com

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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A tax lien is imposed by the government to secure the value of unpaid or delinquent taxes by acquiring the rights to personal property or real estate. Unlike most debts, tax liens are transferable from owner to owner, or generation to generation. This is called running with the land, and it means that a lien on a house does not simply vanish when a home is sold; rather, it becomes the responsibility of the new owner to pay the government. It is relatively simple to research whether or not a title has a lien imposed on it, and so payment of the delinquent tax is usually finalized in the terms of the purchase, and using the profits from the sale. For this reason, tax liens can be very crippling for a real estate owner, who no longer stands to profit even from selling the property.

Although it is the responsibility of the real estate owner to pay the debt incurred by taxes, it is not always—and in fact rarely is—the owner who pays the government directly. Most often it is the bank that holds a mortgage for the property. It might seem strange that such a creditor would be willing to offer more money to pay the delinquent debts of someone who has clearly demonstrated an inability to uphold the terms of such a transaction. However, if the debt associated with the tax lien is not paid, then eventually the property will be foreclosed by the government, and the value of the property (and therefore that of its mortgage) will plummet. For this reason, banks are often willing to pay to remove tax liens and the risk of foreclosure, but they then must turn around and demand payment from the owner. This is why banks run credit checks before handing out loans.

The mortgage holder pays the government using an escrow account, and although it seems like something done to help the home-owner, it is in fact an act of self-defense on the part of the bank, who is acting to prevent its mortgage investment from losing value. Understanding this, the government sends notices to both the home owner and the mortgage owner in the event of the imposition of a tax lien, and often the bank will set up an escrow account and simply pay the government with no involvement of the homeowner whatsoever.

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