3 Questions People Have Regarding the Rules Of Real Estate

People have many questions in regard to the real estate business. And, because there are so many, this is going to be four-part article that will address many frequently asked questions folks tend to have. This is the second article, and it covers three more questions people will ask.

There’s A Great Condominium I’d Like To Rent Out, and It Costs Next To Nothing. Do You Think There’s A Catch?

Here’s a good saying to remember: if a deal is too good to be true, chances are it is! Here are some things you need to know:

• Condominiums don’t usually make a lot of rent to cover the financing expenses and operating costs. This typically leads to homeowner’s association fees.

• You may be subjected to higher HOA real estate ownership fees, possibly even a special assessment.

• Many condominium associations limit how many units can be available for rent. They generally need at least 50 percent of the owner-occupied units to meet Federal Housing Administration financing rules. And, some places won’t even allow for rentals.

Keep in mind that if a homeowner’s association allows for renting, rules can change. Be sure you do your research before you do anything.

What’s The Deal With The 50 Percent Rule When It Comes To Real Estate Investing?

The 50 percent rule is applied when looking at potential rental properties. It’s useful in a variety of ways but needs to be just a guideline and not an alternative to real estate analysis. This rules stipulates that an average landlord needs to spend about 50 percent of the gross income on the building operating expenses, which is not finance-related. This can mean the following things:

• Insurance
• Taxes
• Management
• Vacancy
• Utilities (if landlord pays them)
• Landscaping (if landlord pays them)
• Professional services
• Advertising
• Administration

The reality is that your operating expenses could exceed this number, depending on where the property is at. If you have money left over, this is known as your operating income, which pays for the financing charges. And, anything left over from that is your cash flow or net income.

What’s The Deal With The Two Percent Rule In Real Estate Investing?

This two percent rule is an outdated rule, but stipulates that a worthwhile real estate purchase is one where the gross monthly rental income is two percent of the purchase price. It’s mainly applied in lower-end property, small rental units or where working-class areas are out Midwest, Atlanta and the like.

For instance: if you try to buy a $3 million duplex in New York City, and wanted to apply the two percent rule, you’d need to may $60,000 a month. You can’t do that! So, the better option out of both the two percent and 50 percent rules is to do an analysis of the transaction and forgo them entire.

Originally posted on Felix Sater‘s website.

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3 Questions People Have Regarding the Rules Of Real Estate

3 Questions People Have About Finding Quality Information About Real Estate

There are many frequently asked questions when it comes to the real estate business. Therefore, in order to keep things simple, and not inundate you with a lot of all at once, there is a four-part article that answers many commonly asked questions. The first article covers the first three frequently asked questions.

I’d Like To Learn More About Becoming a Landlord Such As The Process To Become One. What Kind of Information Is Available To Me?

When it comes to real estate’s business and financial aspects, there are actually three authors to turn to:

• Steve Berges
• Frank Gallinelli
• David Lindahl

While there are many authors on the topic, you need to be mindful of those authors who have written poorly or have inaccurate data. If a book recommends you going through a seminar, avoid it.

If you’re thinking about getting involved with property management over the financial aspect, consider Leigh Robinson and Michael Butler, as they seem to be two of the best authors on property management.

If your interest is to buy real estate for an investment, consider Donald Trump’s The Art of the Deal and Robert Kiyosaki’s Rich Dad, Poor Dad. And, if you’ve ever been in this sector before, you should know these two names quite well. Two drawbacks about their books is that they’re not specific enough and can be rather impractical.

I Just Learned A Real Estate Seminar Is Teaching Novice Investors How To Purchase Distressed Properties For Now Money. Should I Enroll In The Seminar?

When it comes to seminars that teach you about something like this, it’s similar to the above mentioned books and usually involves some type of crutch when it’s over. If it this were even possible, do you really think someone would teach another person how do to this without making use of the knowledge themselves?

I Would Like To Purchase My First Investment Property. Is There A Particular Property I Should Invest In?

A great way to begin any real estate adventure is to invest in property that can hold two-to-four families. And, the more units you have control over, the more your potential risk is spread out. And, the more units you have control over, the more effective you can be at maintaining your building. Bear in mind that buying property that has over five units means you’ll need commercial financing, and this can be extremely costly…even more so than financing for residential real estate.

One thing you can do is live in one unit for at least a year. If you do this, you can take advantage of the owner-occupied real estate financing, which is much better than residential or commercial financing.

Within a short time period, you can use the money you’ve earned to buy more property, increase the equity of the property and, basically, increase your real estate portfolio.

Originally posted on Felix Sater‘s website.

If you enjoyed this post, feel free to look me up on Facebook or Twitter.

3 Questions People Have About Finding Quality Information About Real Estate

3 Commonly Asked Questions Home Sellers Have About Their Property

When it comes to home selling, people often have three questions they ask. What are they?

1 – What Exactly Is Curb Appeal?

When you hear someone say curb appeal in relation to your home, it’s what a potential buyer’s first impression is of it. When you’re a first time home seller, you need to maintain a high curb appeal.

When people pull up to your home, what’s the first thing they see? What they see sets the mood for how they feel throughout the walkthrough. If a home buyer isn’t impressed with the curb appeal, they’re liable to leave without even going into the home. Make sure you clean your home, paint the outside and use a welcome mat.

2 – What Exactly Is An Open House and What’s The Goal Behind It?

Regardless of what you may think, an open house isn’t mean to sell a home. In fact, the chances that you’ll get the perfect buyer at your home is slim to none. The open house is actually for your agent to attain leads. Why should you have an open house then? It’s always possible for a buyer to show up, and the chance for those nosy neighbors of yours to learn what’s happening without knocking on the door.

3 – What Am I Doing Wrong, As My Property Hasn’t Sold Yet?

When you’re a first time home seller, there are all kinds of things that can keep your property to stay on the market too long. If you have buyers showing up but there are no offers, it generally means there’s something wrong with the property. If you’ve had no visitors, it may be the listing isn’t right. Or, you could also have unrealistic expectations.

However, the two biggest reasons a property doesn’t sell is condition and price!

Originally posted on Felix Sater‘s website.

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3 Commonly Asked Questions Home Sellers Have About Their Property

Top Three Questions From The First Time Home Seller

I continually hear the term “curb appeal” being thrown around with reckless abandon. But what is curb appeal, and what can it mean for you?

This is my favorite thing. Curb appeal, in the most general sense, is nothing more than the initial impression that a potential buyer receives of your home. As an individual selling a home for the first time, it is vitally important to maintain a high-quality curb appeal, as it is truly what people see when they pull up to a home for the first time. This serves to set the mood for the entirety of the home walkthrough.

If the potential buyer doesn’t enjoy what they see, there is a good chance that they will leave immediately. Sometimes, they will leave without even entering the house! Make sure you clean your yard, paint the outside of the home, and make sure that there is a nice welcome mat waiting for potential buyers.

I’ve had my property listed for several months and I have still not received any offers. What gives, Felix?

This is an issue that plagues a higher and higher percentage of first time home sellers every year. There is a wide variety of problems that could be happening to cause the lull in potential buyers. If these buyers are showing up but are failing to make an offer, it generally means that there is something on the property causing extreme doubts. If you have not gotten any visitors at all, there needs to be a complete redesign performed on your real estate listing.

The third and final option is that you may have unrealistic expectations. It could be that your local area has this type of situation occur regularly. Remember, regardless of all of this, price and condition of the home are the overarching reasons why properties fail to sell.

What is the purpose of having an open house?

An open house does not serve the purpose of creating an environment for which to sell a home. Let me repeat this in layman’s terms. For first time home sellers, open houses are not meant for selling the house. The odds of the perfect, ideal one-hundred-percent committed buyer showing up is extremely slim.

The open house exists for the purpose of getting leads for your real estate agent. As stated in a highly trafficked website: “So why should you allow one as a seller? There is still the possibility of a buyer showing up, and it’s an opportunity for all your nosy neighbors to find out what’s going on without knocking on your door or raiding the flyer box.”

Originally posted on Felix Sater‘s website.

If you enjoyed this post, feel free to look me up on Facebook or Twitter.

Top Three Questions From The First Time Home Seller

What you Need to Know About Real Estate Investing – Part 4

I’ve been successfully involved in the real estate business, especially in relation to investments in real estate for many years now. I have been asked for advice many times. In this four-part series, I will share some of the basic information you need to know if you are interested in throwing your hat into the ring of this business. This is Part 4 (and the final one) of this series.

Residential leasing agreement.

Every state has different real estate laws, and some states’ law strongly favor the owner, while others favor the tenant. But, you can get a residential leasing agreement quite easily. I would strongly advise you: DO NOT get a residential leasing agreement template from an office supply store. You want a sample of one that uses current laws in your state. Check with your state’s realtor association to see where you can get templates. These are prepared by attorneys who are expert in real estate law where you live. You may also be able to get one from a local apartment associations.

In most cases, you will not want to pay the fees an attorney will charge to prepare a residential lease agreement. If you do, make sure the attorney you use is an expert in real property law – you can usually find them through the local bar association. But unless you want a lot of unusual terms in your lease, the real estate attorney will probably give you a form no better than the one from the realtor association. And, it will cost significantly more. However, if you are adding items to the agreement, you may want to consult with a real estate attorney to verify those items are legal and enforceable.

If you are looking to purchase commercial real estate, then you absolutely need that high-falootin’ real property specialist attorney.

Limited liability companies (LLCs).

You will receive some protection against litigation with an LLC. But, there are a few points you should be aware of as well. When you purchase a property with an LLC, unless the LLC has significant liquid assets, your lending institution will most likely require a personal guarantee from you and any other owners of the LLC. Those guarantees put your personal assets on the hook with the lender. They provide any good attorney the possibility of getting the court to find you personally liable for any judgment decreed against the LLC. Whenever you, as an individual, sign to personally guarantee the LLCs loan, it is called a Recourse Loan.

However, as mentioned before, some states skew toward property owners, and it’s possible the lender is the only party that can attach your assets.

An LLC is still a good idea. It will help keep the investment income and expenses separate from any personal ones. But while you are considering how to protect your assets, also look into an umbrella policy to cover all your investment properties from a variety of hazards, physical and financial.

Partnering with a friend or family member.

My advice on this is simple – don’t do it! Partnerships are tricky, and when you involve money and an expectation of performance with family or friends, it can be disastrous. You should also know that for most states if you form a general partnership, then all partners can be held responsible for up to 100% of the liabilities. So, if one of you has no assets that can be easily attached, then the other may end up paying the full amount from their personal assets.

If you just know things will be a slam-dunk for you and the other person, then choose a joint venture agreement. These work best if each person has set assignments that do not overlap. So, if you are buying a property to fix it up and then flip it, one person might be the cash cow and financial overseer. The other person might be in charge of doing the renovation work and overseeing any subcontractors. If you both are supposed to be doing the same tasks, it is easy to feel like the other person is slacking. Then bad feelings enter the situation.

This is the final installment of the series for real estate investing basics. Keep your eyes open for more articles that include “Why am I getting multiple pieces of mail requesting a payment post-closing?”, “What are the steps needed for a first-time homebuyer?” and “What to look at before purchasing a house”.

Originally posted on Felix Sater‘s website.

If you enjoyed this post, feel free to look me up on Facebook or Twitter.

What you Need to Know About Real Estate Investing – Part 4

What you Need to Know About Real Estate Investing – Part 3

I’ve been successfully involved in the real estate business, especially in relation to investments in real estate for many years now. I have been asked for advice many times. In this four-part series, I will share some of the basic information you need to know if you are interested in throwing your hat into the ring of this business. This is Part 3 of the series.

What is needed to analyze a property before investing?

When you find an interesting property, don’t just ask for the pro forma numbers, which are projections and predictions from the agent or broker. Instead, ask for the actual figures. You might not get all of them, but these will give an accurate view. Projections may reflect a view skewed toward a quick sale and commissions to the brokerage. Put the accurate numbers you receive in a spreadsheet for analysis. You will get a good idea if the property is a solid investment using this approach.

Prices are going through the roof in your area.

Depending on which side of the sale you are on, that can be good or bad. But don’t use this as a reason to buy a property or keep a property that has rising or high-cost projections. Yes, you might make a lot in the process, or you might lose your shirt. It’s better to find a property you can feel safe while owning it. If you are only using capital appreciation as your measuring stick, you’re on a tightrope without a net. And in high-priced housing areas, such speculation becomes a double or triple threat to your profit margin.

Deeply depressed housing markets such as Detroit.

There are areas where you can buy an entire home for under $1,000. Does that mean it’s an amazing opportunity? Well, if you say no to any of the following questions, you should say no to the property.

  1. Is it far away from your home or workplace?
  2. Is it in an area where unemployment is rampant?
  3. Is it in an area that would be considered high risk or uninsurable?
  4. Can you afford what it will cost to make and keep it habitable?
  5. Is there a possibility you will have to go through eviction proceedings against a squatter?

Answering yes to any of those questions means you need to back away as fast as you can. If you are talking about homes for prices you could normally buy with a portion of your monthly utility bills or one mortgage payment, you are almost guaranteed to be answering yes to all five questions.

If you buy that property anyway, it will most likely cost you at every turn, and you won’t be able to sell it because nobody that lives there can afford to buy it. And, only the people who can’t afford to buy a home in that area are willing to live there.

Originally posted on Felix Sater‘s website.

If you enjoyed this post, feel free to look me up on Facebook or Twitter.

What you Need to Know About Real Estate Investing – Part 3

What you Need to Know About Real Estate Investing – Part 2

I’ve been successfully involved in the real estate business, especially in relation to investments in real estate for many years now. I have been asked for advice many times. In this four-part series, I will share some of the basic information you need to know if you are interested in throwing your hat into the ring of this business. This is Part 2 of the series.

Condos

If you are looking at buying a condo as an investment property, think very carefully. Condo Association monthly fees alone may eat up all of your hoped-for profits. Those fees can change at any time and on top of that they can hit you with a special assessment fee to pay for any major capital expenses incurred by the association. If you are looking to turn it around at a profit when you sell it, remember: (1) condos tend to not sell as quickly, and (2) if the market is down, condo pricing rebound is slower than single family homes. Over and above those issues, you need to know if renting is allowed and what percent of the condos are owner occupied. If the Condo Association does allow you to rent your condo, they can also change that option at any time.

Financing on condos through traditional and Federally backed sources can only happen if more than 50% of the units in the association are owner-occupied. Associations tend to want that percentage much higher to keep the value of the property stable.

Those pesky percent rules (50% and 2%)

Both the 50% rule and the 2% rule are general guidelines and should never be used to replace proper real estate analysis and research. The 50% rule may be useful for some properties, depending on the location and current market situation. The simple explanation of it is the landlord spends about 50% of gross (NOT net) income on operating expenses. These operating expenses comprise every expense not included in or related to financing.

So, operating expenses include in part, management, taxes, insurance, vacancy, contribution to capital costs, maintenance, professional services, advertising, and administration. They also include any of the following that are paid by the landlord — utilities, snow removal, and landscaping. But, your operating expenses could be well above or below the 50% and that’s why you must do the research on that particular property. And remember, all of these operating expenses need to be paid before you can make a profit.

The 2% rule is this – you need to make 2% of the amount financed in monthly rent. But, this rule tends to be even more sketchy than the 50% rule. Do your research and save yourself a lot of heartache and stress. Though it can work well in a few specific situations, in high-cost markets such as Malibu or Manhattan, the amount you would have to charge for rent to get your 2% would always be well in excess of what the market would bear.

Originally posted on Felix Sater‘s website.

If you enjoyed this post, feel free to look me up on Facebook or Twitter.

What you Need to Know About Real Estate Investing – Part 2