There is an age-old debate as to whether it is more cost-effective to invest in single-family homes or multi-unit apartment complexes.  As with all types of investment, the more you put down, the more you stand to make on returns.  Generally speaking, multi-units provide a wider range of investment opportunities which will turn enormous profits, relative to those of single-family homes.  While investing in apartments is not neccesarily smarter or safer, the investor does stand to become much wealthier, much more quickly.

The first advantage of multi-units of single homes is simply the cash flow.  Renting a home provides one source of rent, while renting a series of apartment units provides as many separate incomes as there are units in the complex.  Although logic states that the rent is based on the expenses of the investors, so more rental payment streams should merely compensate the investors, consider the small margin of profit built into every rental rate, and then multiply that by the total number of units rented.  An owner of a multitude of units stands to make enormous income based on what may be a tiny margin of profit on each individual renter.  The owner of the home, on the other hand, builds whatever profit he can into the structure of his single rental contract and is limited to that profit thereafter.

Economies of scale favor multi-units.  That is to say, when many people share commodities, it becomes much less expensive to maintain those commodities.  Two families living separately in separate homes must each care for the home, the roof, the lawn, the repairs, etc.  However, if those two families share one building divided into two units, now they can pool their resources to maintain one home, one roof, one lawn, etc.  Because maintaining one building with a number of units is infinitely easier and more cost-effective than trying to maintain as many individual homes, for which the maintainance alone could bankrupt an investor.

Another factor favoring multi-unit investment is that observed fact that there is much less competition for multi-unit investment than for single home.  Although this cannot be explained with any degree of certainty, it seems that the house “flipping” market has been saturated by investors trying to make a quick profit rehabbing or reselling a home.  For whatever reason, the same saturation has not yet occurred when it comes to investing in apartment complexes, so it is much easier for investors to find a good deal.  At the very least, single-home investors should diversify their portfolios by adding in some multi-units.  The losses suffered by a failed single-unit purchase are too heavy not to be tapered by a different kind of investment.

Since multi-units generate more cash-flow, an owner can afford to hire management companies to mediate between owner and tenants.  This allows the investor to continue making a profit from his investment, while focusing his attention (and the profit he generated) on new investments.  Finally, when the investor finally decides to “cut and run”—to sell his property and try something new—he stands to make much more money selling a multi-unit property than a single home.  Obviously, if managed properly, the world of multi-unit investment is a potential gold mine for investors, but it has remained relatively undiscovered by the casual investing population.

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If you like the idea of investing in real estate, but don’t want the hassle of owning a property and dealing with tenants, then there are multiple options for you to explore.  One such possibility is to become a private money lender, which is lending money to a borrower who is experienced in real estate investing.  The borrower is in direct contact with the property, so if the borrower invests in rental property, the borrower is the landlord and you are the private money lender helping to finance the enterprise.  In return for your investment, the borrower will pay you above average interest, and possibly other additional bonuses to make the deal attractive.

One of the benefits of being a private money lender is that there is a real asset as collateral on your loan.  Once you have selected the type of loan you’d like to fund, the property that the borrower purchases is used as collateral to repay you if the borrower defaults on the loan.  In lending money, it is comforting to have something real that you can see and touch to insure your loan.  Of course, this has its own risks, say, if there is an earthquake and the property is damaged, but unless you’re in California, you don’t usually have to worry about that. Requiring the borrower to maintain property insurance provides naming you or your company as an additional insured provides another layer of protection.  Essentially as long as the property exists there is collateral for your loan.

The first step in deciding to be a private money lender is determining what kind of loan you would like to provide.  For example, there are borrowers specializing in residential rehab properties (fixing up homes), rental properties, commercial properties (like shopping centers), or flippers, who buy homes quickly and sell them at a profit without doing much rehab.   There are no advantages of one type of loan over another; it is simply your comfort level which will determine what you are willing to lend on.     If you’re not sure what kind of deal you feel most comfortable lending on, research the different areas of real estate.  There are many educational programs available to get you familiar with real estate investing, at a price of course.  Researching real estate online will expose you to many possibilities as well.   While researching, make special note of the processes.  You want to be sure that the borrower is a competent and proven individual.

If you have capital and you’d like to invest it in real estate, being a private money lender is a great option.  You’ll enjoy a high rate of return with the property being used as collateral for the loan provided.   You get the benefits of real estate without the hassles of dealing with phone calls at 2 am to fix the broken water heater.  If you conduct your research thoroughly, you will determine the type of loan and deal you are most comfortable in lending on.

Tell us what you think by leaving a comment. If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

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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In real estate wholesaling, finding your buyers is the most important step.  However, once you have your buyers, you need to market your property to them.  Marketing involves work: it is not simply showing a picture and talking up the location.  Marketing requires due diligence because in wholesaling, you are generally working with buyers who are experienced with real estate.  They are looking for facts and figures, and unless you can give them that information, you are wasting their time.

The presentation of your property to a potential buyer is very important.  In your presentation, you should know the general market data of the area.  This includes the average rents, average holding time of a house, the gross rent multiplier, and the actual after repair market value of the house.  If you’re dealing with a buyer who generally deals with properties out of town, this data will be more useful and help develop a level of trust. The presentation should also include data specific to the property you are selling.  If it needs rehabilitation, you should have some general bids from contractors (this is also especially useful for an out of town buyer, as they don’t know which contractors to use).  You should have the property inspected and include the highlights from their reports, such as any plumbing, electrical or infestation issues.  It’s also important to have cash flow data, which includes the management fees and any other expenses that make up the total expense of owning the property.  These facts and figures will help an experienced real estate buyer know if the property is a good deal and they can make a quick, informed decision.  They will appreciate your work and will likely agree to look at other properties you own.  Before you know it, voila! They are an active buyer who repeatedly buys from you.  Treat all your buyers with professionalism and show them the work you’ve done to research the market and the property, and you can build a reputation that allows you to wholesale properties in minutes.

The effort involved in locating buyers, properties and marketing is substantial.  Of course, if you wholesale a few properties now and then it is not as labor-intensive, but you must make sure your buyer-list is up to date.   Wholesaling can be a rewarding experience after you’ve completed a successful sale, but in order to get there, remember to line up your buyer first then market your property.

Tell us what you think by leaving a comment. If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

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’d like to invest in real estate, but are new to the field and do not want to own property, you’ve most likely come across the REIT.  REIT, or Real Estate Investment Trust, is the mutual fund for real estate.  The managers invest multiple investors’ money into real estate and they distribute a share of their income back to the investors as dividends. There are many different kinds of REITs, just as there are a dizzying number of mutual funds.  Initially, REITs may seem like a good option for the inexperienced investor, just like mutual funds appeal to those who do not feel comfortable to navigate the complicated world of stocks and bonds.  However, real estate, stocks and bonds are all different and they each have their own unique characteristics.

REITs can be a good choice for the individual that wants to be a passive investor and knows absolutely nothing about real estate investing.  However, understand that the REIT does not distribute all of their profits back to the investors.  The REIT has overhead expenses, employees, as well as other costs of doing business.  These expenses are covered by the so called management fees.  These management fees can be quite expensive and can draw down the actual performance of a fund.  Pay particular attention to these management fees. These fees may or may not be directly tied to the performance of the fund.  In other words, you may not receive much of a dividend, but the people managing the fund may not see any change in their income.  (Ouch!) It doesn’t exactly make you feel like their interests are in line with your interests does it?

An alternative to the REIT would be participating in a private placement offering or seeking out an individual that is active and successfully investing in real estate. Then become a private lender or equity partner with them.  This approach puts you much closer to the action and places you in a position where you can reap a larger share of the profits than what the REITs will provide.  You still do not need to be the person that is actually doing the work, but you are much closer to the decision maker and can have some actual input into the deal.  This aligns both your interests and the person you are working with much closer together.  The potential for greater returns and lower management fees is greatly enhanced.

Although most fund managers will tell you that this approach is extremely risky, keep in mind that the ethically experienced real estate investor inherently wants to make your money perform very well.  The reason being is because he wants to use your money again for another deal so that both of you can make more profits.  If you are happy with how your money has performed the first time, do you think you are more likely to invest with him again?  Absolutely you are!

So the answer to the question: “Are REITs a Good Investment Option?”  will depend upon your experience, your risk tolerance and the type of returns you want to achieve.  In my opinion, the fewer management fees involved the greater probability of higher returns. This is assuming of course that the quality of the deal merits your investment to begin with.

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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.

If you like the idea of investing in real estate, but don’t want the hassle of owning a property and dealing with tenants, then there are multiple options for you to explore.  One such possibility is to become a private money lender, which is lending money to a borrower who is experienced in real estate investing.  The borrower is in direct contact with the property, so if the borrower invests in rental property, the borrower is the landlord and you are the private money lender helping to finance the enterprise.  In return for your investment, the borrower will pay you above average interest, and possibly other additional bonuses to make the deal attractive.

One of the benefits of being a private money lender is that there is a real asset as collateral on your loan.  Once you have selected the type of loan you’d like to fund, the property that the borrower purchases is used as collateral to repay you if the borrower defaults on the loan.  In lending money, it is comforting to have something real that you can see and touch to insure your loan.  Of course, this has its own risks, say, if there is an earthquake and the property is damaged, but unless you’re in California, you don’t usually have to worry about that. Requiring the borrower to maintain property insurance provides naming you or your company as an additional insured provides another layer of protection.  Essentially as long as the property exists there is collateral for your loan.

The first step in deciding to be a private money lender is determining what kind of loan you would like to provide.  For example, there are borrowers specializing in residential rehab properties (fixing up homes), rental properties, commercial properties (like shopping centers), or flippers, who buy homes quickly and sell them at a profit without doing much rehab.   There are no advantages of one type of loan over another; it is simply your comfort level which will determine what you are willing to lend on.     If you’re not sure what kind of deal you feel most comfortable lending on, research the different areas of real estate.  There are many educational programs available to get you familiar with real estate investing, at a price of course.  Researching real estate online will expose you to many possibilities as well.   While researching, make special note of the processes.  You want to be sure that the borrower is a competent and proven individual.

If you have capital and you’d like to invest it in real estate, being a private money lender is a great option.  You’ll enjoy a high rate of return with the property being used as collateral for the loan provided.   You get the benefits of real estate without the hassles of dealing with phone calls at 2 am to fix the broken water heater.  If you conduct your research thoroughly, you will determine the type of loan and deal you are most comfortable in lending on.

Tell us what you think by leaving a comment.  If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

Investing in pre-foreclosures is a great place to start in the real estate industry.  Here are five major advantages that pre-foreclosures offer to any investor, but especially those beginning their careers in real estate.

1. Specificity – A common mistake made by inexperienced investors is to apply stock-market lessons to real estate investment, for example that it is wise to diversify your portfolio.  Although this is certainly true for real estate investment, actually investing in different types of properties requires an enormous effort and aptitude that most new investors simply don’t have without experience.  Pre-foreclosures provide a clearly-defined niche in which an investor can begin to learn and master one aspect of the investment process at a time.  This is a much more sensible way to approach a career in real estate.
2. Negotiating Leverage – Another advantage of pre-foreclosure is that, by definition, no one is currently making payments to the bank.  This means that when you sit down at the table to negotiate with both the seller and the bank, you become the golden ticket, the solution to their problems—and that gives you the leverage.  Everyone else at the table is losing money, and you are offering to pump some of your money into the scenario (easing the financial stress for all other parties involved).  Those parties should be inclined to bend a bit to your negotiating will, if you learn to exert it properly.
3. Motivated Sellers – It stands to reason that you can maximize your opportunities in real estate by only dealing with sellers who really need to sell, immediately and at almost any cost.  This is certainly easier said than done (because no one, especially those in dire financial straits, is looking to get fleeced on a deal).  However, working only in the pre-foreclosure market guarantees the investor that he will be working with a population of sellers for whom failing to sell means crippling financial repercussions.  These motivated sellers provide opportunities for substantial profit margins and speedy deals.
4. Discounts – Huge discounts can be relatively easily negotiated with banks and lenders, who are under enormous pressure to liquidate bad loans rather than repossessing property (since banks nationwide are already backlogged with property).  This is a great way to save (make) money.
5. Equity – Pre-foreclosures provide a unique opportunity for investors to walk into relatively large equity spreads, since the property is maxed out with loans and you can request that the lender discount what is owed on the seller’s payoff.

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Purchasing a rental property is, in many cases, an excellent investment.  It provides steady income while you’re renting, you have the opportunity to expand your business, and you can always fall back on owning or selling the property if you fail to rent it.  However, if you are looking to make property management your first foray into the world of real estate, be advised that it is difficult, time-consuming, and incredibly demanding of the property manager or owner.  Your job can basically be divided into two broad categories: the logistics and finances of your business (the nuts and bolts), and your daily interactions with tenants.  In this article, we will focus on the portion of property management which pertains to tenant relations.

Your first interaction with tenants as a property manager will come in the form of marketing.  This is how you attract and acquire new business, and it is an integral part of your success as a landlord.  Many inexperienced property owners searching for tenants wonder why their properties remain vacant for months, despite the blatant “For Rent” sign on the lawn or door.  But in a real estate world where professionals are champing at the competitive bit to make a profit, and potential tenants’ efforts are facilitated by the convenience, ease, and comprehensiveness of the internet, property managers cannot afford to be so passive in their marketing efforts.  Your job is to reach tenants any way you can and tell them about your property for rent.  That means posting on internet sites like ForRentByOwner.com and even craigslist, purchasing email lists, etc.  Get creative, and get your information out there to the tenants.  In today’s world, if a tenant has to come to you to hear about the property, it’s simply not going to get done.

Once you’ve attracted some potential tenants for tours and interviews, the best way to deal with tenant-related issues (which, between failure to pay rent and having to be evicted, can be enough to drive a property manager out of business), is to avoid them altogether.  While this is impossible to do with certainty, you can minimize your future stress by carefully and conscientiously screening your prospective tenants.  Many new owners make the mistake of letting anyone walk into their property, as long as they can come up with the first month’s rent and security deposit—and this is certainly understandable, since every day their property remains unoccupied, they lose money.  However, it is essential to take the time and pay the fee for credit and criminal reports, as well as a bank statement or income verification.  If you take on a tenant who cannot continue to afford the rental payment, the cost of discovering and dealing with this (in terms of time, money, and energy), will be far greater than the cost of the research done upfront.

The key to successful property management is establishing and maintaining a friendly, helpful, and honest relationship with tenants.  You will be amazed at how many problems can be eliminated by simply being amicable and helpful when your tenant calls on you (even if that happens all the time—it’s your job).  When you find yourself in a good relationship like this, the trick to success is to keep that tenant.  This may mean giving even more time, or even reducing the price of rent to reward their long-term occupancy, but avoiding another period of vacancy and another process of acquiring and screening new tenants will make this price reduction well worthwhile.  Your business depends on tenants, so don’t take the good ones for granted!

Let us know if you found this article helpful and what additional topics you would like to learn more about.

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The advent of myriad digital real estate resources and tools made available to buyers through the internet have removed some of the leverage from the hands of real estate professionals.  Now, buyers (and sellers alike) are much more inclined to circumvent professionals and be as involved as possible at every stage of the process in an effort to save the money otherwise spent on services.  The question arises, then, “How many costs can I safely cut as a buyer, without subjecting myself to real risk or overextension?”.  This, to be sure, will be determined by the interaction of many factors, including your level of experience, the kind of deals you are interested in, and of course your budget.  One corner that should not under any circumstances be cut is the professional home inspection, regardless of your level of experience or engagement in the process.

The cost of a professional home inspection is negligible at most when compared against the potential fortune it could save you in terms future repairs, overpaying, or simply making a bad investment.  The inspection, if carried out with integrity, will afford the buyer three major advantages: 1) negotiating leverage, 2) an opportunity to repair before purchase, and 3) the information required to walk away.

If an inspection results in any deficiencies or requirements of repair—and the buyer is well informed of these—then that buyer can cite the inspection as justification for a lower sale price.  This is one of the only negotiating tools at your disposal that comes with hard evidence in support, and it should not be let go to waste.

Further, the buyer could agree to purchase the home on the condition that the seller make all inspected repairs before the date of purchase (this is effectively presented as an alternative to reducing the sale price—you may pay more, but the seller will foot the bill and effort of getting the home up to code).  This can be done simply with an Amendment to Offer.

Finally, if the inspection reveals deficiencies or hazards great enough, the buyer is now informed enough to walk away from a bad deal.  As a conscientious real estate investor, your default mode should always be to say “No”.  It should take a great deal of convincing to get you to agree to a deal (too many investors are so eager that they buy up every bad deal that they come across).  Unless you are purchasing a rehab home (or really trying to pinch pennies), you should only go through with a deal that has a clean bill of health from the inspector.  You can choose to save money at almost every stage of the purchase process by being proactively involved, but the home inspection provides information too valuable to skimp on.  Pay the price now, and you won’t be paying the real price later.

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InvestmentPropertyMadeEasy.com

1. Cash Flow – Investing in multi-unit properties is, hands-down, the best way to generate sustained monthly cash flow as an investor.  Nearly any other type of ownership requires losing money during the period of ownership and until the date of sale, but property management will generate as much monthly income as you determine (based on the size of your investment and the extent of your efforts to keep units occupied).
2. Economies of Scale – The logistical difference between investing in 5 single-family homes for rent, and a single 5-unit building for rent, is the difference between constantly repairing and maintaining 5 properties, and constantly maintaining and repairing 1 property.  It stands to reason that if 5 different families pool together to only use one roof, one lawn, etc., then it will be much easier to manage those 5 families (for practically the same income as managing 5 separate properties).
3. Less Competition – For whatever reason, competition for investing in single-family homes is and has always been very high.  Despite its opportunities for major active and passive income, multi-unit investing does not attract the same kind of mass appeal that single homes do.  This may be due to the shear number of amateur investors out there, who think a multi-unit investment is too major for start-up.  It may simply be because property management is not always a glamorous gig.  Whatever the cause, multi-unit investors enjoy more leverage in selecting and negotiating deals, due to a relative absence of competition.
4. Hiring Management – With bigger multi-unit investments come bigger monthly cash flows, and a wider profit margin.  In many cases, this means owners hire management companies to deal with all repairs, maintenance, tenant-related issues, etc.  Now you’re really cooking!  No direct involvement, sustained monthly income, and freedom for leisure or expansion of your business!
5. Pay-Day – The final major advantage of multi-unit investments is that they appreciate more than single homes (not in terms of percentages, but dollar amounts, since they are generally more expensive than single-family homes).  This means that when it comes time to sell, you should make a hefty sum (and remember, you’ve hopefully been earning income during your entire period of ownership).  It’s a smart investment if managed carefully and worked diligently.

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SuperiorPrivateMoneyReturns.com

Purchasing a rental property is, in many cases, an excellent investment.  It provides steady income while you’re renting, you have the opportunity to expand your business, and you can always fall back on owning or selling the property if you fail to rent it.  However, if you are looking to make property management your first foray into the world of real estate, be advised that it is difficult, time-consuming, and incredibly demanding of the property manager or owner.  Your job can basically be divided into two broad categories: the logistics and finances of your business (the nuts and bolts), and your daily interactions with tenants.  In this article, we will focus on the portion of property management that pertains to your business considerations.

The first important responsibilities of your career as a property manager are going to be selecting and purchasing the right property, and marketing that property effectively enough to attract prospective tenants.  However, the former of these considerations could be—and is—the subject of entire books, and so I will not address it here; the latter is a matter of tenant relations, and so I have addressed it in this article’s compliment (“Property Management: Selecting and Interacting with Tenants”).

Beyond these two first steps, you will be responsible for the creation of a contract.  If this is your first rental contract, make sure you do thorough research to get it right.  Contract issues are one of the top reasons real estate professionals fail, because if a problem arises, they have trouble referring to a faulty document as legal support.  Be sure that you are covered in all cases, and that there is no ambiguous language (everything should be in plain black and white). Have a lawyer assist you or approve your work.

The next major consideration will be setting rental rates.  This means finding that perfect balance—the market value—between setting the price too high (remaining vacant) and setting it too low (losing money).  Determining the rates means knowing exactly what your property offers, and how it compares to similar properties in the area. Condition, square footage, bedrooms, bathrooms, systems, appliances, yard, lot—these are a few of the myriad considerations that may add or detract value from your property.  Get out in the area and research what other properties are renting for.

Next, every property manager must be aware of all housing regulations and property laws (local, state, and federal) which govern what may and may not be done with and on a property.  This becomes extremely important if a regulation is unwittingly violated, often leading to crippling lawsuits brought against landlords.  Make sure you research and are aware of all the laws which are applicable to you and your property.

Inspections are an important feature of property management which many inexperienced landlords overlook.  These need to be done regularly and thoroughly, in an effort to nip in the bud any small problems before they become major systems malfunctions.  This is the difference between paying $50 for a simple house call, and paying $15,000 for a major replacement or repair.  It can seem expensive and irritating, but keep up with your inspections.

Finally—document, document, document!  Everything done by you or your business needs to be carefully and conscientiously recorded, in the event that any type of investigation (by you or the government) should require reference to payments or business affairs.  Beyond this careful and consistent documentation, be prepared to put on a smile and deal with tenants’ problems on a daily basis!

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SuperiorPrivateMoneyReturns.com