Aug
24
Danger – Negative Cash Flow Real Estate
Posted By: Ramon Rivas on August 24, 2010 at 12:52 pmThe high Foreclosure rates changed all that. Now more people are seeking good homes to rent, so the supply of available rentals becomes slim. Demand for rental homes has also been stimulated by a reduction in the number of available apartments.
But it’s not all good news for landlords.
Some eager investors bought investment homes near the top of the real estate price cycle. They paid high prices for the homes they are now offering for rent. Many are learning that the cost of mortgage payments, taxes, insurance and other normal costs are leaving them with negative cash flow. That means it is costing them more each month to own the property than they can collect in rent.
The investor’s negative cash flow can amount to as much as $500 or more. Each month the owner must take those hundreds of dollars out of his/her pocket to make up the short fall between rents collected and money paid out in loan payments and so forth. That’s called an alligator property, because it can eat you alive.
Negative cash flow can be avoided by making a larger down payment on the property. You then have a smaller mortgage loan with smaller monthly payments. If you have planned correctly your rental income should then cover all your costs and expenses of owning. The down side is that you have a large amount of cash locked into one property.
The wise investor always buys at a price that will allow him to prosper no matter what happens to real estate values.
Aug
10Considerations For A Landlord Before Proceeding To Evict A Tenant
Posted By: Ramon Rivas on August 10, 2010 at 10:04 amThere comes a time when every landlord finds himself / herself in a difficult position of having his rental property occupied by a tenant who is not paying rent, or is making a nuisance of himself and causing problems for other tenants, or is causing immense damage to the rental unit, or his / her conduct makes it impossible to continue with a landlord / tenant relationship. Though, state laws governing eviction vary significantly, the following are a few tips to help landlords finding themselves in the unpleasantly messy situation of evicting a tenant.
As the owner of a significant number of residential units, it will be to your benefit to engage a lawyer to advice you on eviction issues, as well as, for handling legal actions. An established relationship with a lawyer is useful as he will carry out various legal tasks charging a flat fee only, whereas, hiring a lawyer on a case to case basis can result in much higher legal fees.
Evicting a Tenant for Non-payment of Rent
Bear in mind, if the tenant makes a partial payment during the eviction process, in most jurisdictions the acceptance of any payment of rent, even a small amount, can result in dismissal of the eviction lawsuit for non-payment.
Lease Violation
When a tenant does not comply with the terms of the lease he / she signed, a landlord must provide a written warning, referring to the lease clause being violated, and allow him / her time to remedy the problem. This is so the tenant cannot later claim ignorance that he / she did not know, they were in violation of the lease, or they received no notice of the violation. The judge will be in favour of the landlord if it is established the tenant ignored a prior notice and the deadline.
Health and Safety Issues
Certain tenants may pose a health or safety problem for other tenants or for the property, in general. In many jurisdictions, it is permissible for the landlord to evict tenants whose conduct is hazardous to the health of other tenants or can damage the property. First of all, a landlord should serve the tenant with a fixed period of time notice (a week) to remedy or repair the problem, or else move out. If no corrective action is taken, a landlord can proceed with the eviction proceedings.
Even if a tenant resolves the issue, but you still want him / her out, serve them a notice on eviction on health or safety grounds, as well as, a notice stating their tenancy is being terminated.
Bankruptcy
In the event a tenant files for bankruptcy, an automatic stay prevents a landlord from continuing with the eviction proceedings until the bankruptcy is resolved, or the bankruptcy court permits eviction proceedings to continue by lifting the stay. This may require a motion to be brought before the bankruptcy court, asking for the stay to be lifted.
Tenant Counter-Claims
When a landlord begins eviction proceedings, some tenant may bring counter-claims against the landlord, such as, inadequate maintenance of property or violation of the lease, and may ask the court to stop eviction proceedings or else for a substantial rent decrease in arrearage owed.
This is why it is good practice to keep written records of any complaints received from tenants about the rental unit or common areas, and steps taken by the landlord to resolve them, as also with warnings of tenant misconduct. Remember a landlord’s can preclude a tenant’s claim that despite repeatedly complaining about a problem with their unit, the landlord failed to respond with positive action, as long as the landlord has kept records of all interaction with the tenant and of action taken.
Trials
Before going to court, a landlord must ensure all his documentation in relation to the case is in order and there is nothing missing. Unless a landlord is conversant with the rental laws of his state and has had enough experience in eviction cases, it is also advisable to engage a lawyer, well versed in property law of the state a landlord’s rental property resides in.
The above should provide you with enough knowledge of what is required for a successful eviction.
Are high-profit real estate deals only for the wealthy? Is it possible to buy with no money down? Do you really have to know the “right” people? Let’s answer by looking at some of the myths of real estate.
1. The good real estate deals are reserved for the wealthy. Of course money helps, but my first deal was a $3,500 lot – which I sold for a profit two weeks after I bought it. Smaller deals, using partners, low-down deals, or just putting aside $7 per day for a couple years until you have enough money for a downpayment – these are some of the ways to start with a little and invest in real estate.
2. “Zero down” isn’t possible. I sold a rental property for $1,000 down because I trusted the buyer, and I wanted the 9% interest and higher price. A cash-advance on a credit card for the $1,000 ($30 per month payments) would have made it a “zero down” deal. “Zero down” means none of YOUR money down, and yes, it happens.
3. “No money down” is the best way. When you don’t invest some of your own money, you have higher payments. You also spend more time finding suitable properties, and pay more for them (cooperative sellers naturally want more profit for their cooperation). There are zero-down deals out there – they just aren’t always worth doing.
4. You need a lot of experience. It helps, but you get it by investing. Start with common sense, be willing to learn the numbers, and you can start where you are.
5. Good investors have a “knack” for making money. Well, sort of. But more accurately, they just took the time and risk to learn the market and to continue their education.
6. You have to know the “right” people. This is another partly true myth. It does help, so why not start the process? Talk to other investors, real estate agents, landlords, etc.
7. Great negotiating skills are necessary. Negotiating skills help with real estate deals? Of course, but learn to run the numbers and make offers based on them, and you can be the worst negotiator and still do okay.
8. You have to have insider knowledge. Insider, outsider, whatever. You do need knowledge, but understand one deal, and you are on your way. Study, and study more, but the best “insider” knowledge comes from experience.
9. Fixer-uppers are the safest way to go. Poorly planned “fix and flips” have bankrupted even experienced investors. Most poorly purchased rental properties will only eat a little money every month, and grow in value over time. Fixer uppers are for making money faster, not more safely.
10. You need to make lowball offers. Low offers may help, but the numbers have to work, and you need a plan. You can offer MORE than the market price and make money investing in real estate. Just learn how to run the numbers before you do any real estate deals.
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Jul
14Property Investment Abroad — Beware of Guaranteed Rents
Posted By: Ramon Rivas on July 14, 2010 at 11:23 pmUK buy-to-let investors are being tempted by offers of guaranteed rents on property deals around the world, but how good are these deals in real terms and will there be any rental demand once the guaranteed period ends?
Worldwide opportunities
Investors are looking beyond the overcrowded UK market for untapped property hotspots in Eastern Europe, the Middle East and out to the Far East.
Deciding on the best foreign markets to invest in is a case of weighing up the potential for growth and rental income against the risks and costs.
For example prices of residential homes in Beijing rose by 20% in 2005 (according to the Beijing Municipal Construction Committee), however there are many issues regarding the transfer of funds out of China, a 5% tax on rental income and the possibility that the Chinese government could claim the land back.
Latvia on the other hand presents a lower risk to foreign investors, with membership of the EU and the ability to borrow up to 90% of the value of the property making it a more appealing choice.
However, this is not to say that an investor can simply buy any property in Latvia and expect to make easy rental returns. Like any foreign market, the risks are generally higher than buying in the home market.
Incentive to buy
To help encourage potential landlords to overseas markets, a number of investment companies are offering guaranteed rents for anything up to 5 years. Rental guarantees, it is argued, provide a reliable safety net for riskier markets, however many experts warn they are merely a marketing tool and advise investors to look very closely at the deal being offered.
Key issues
One of the biggest issues with guaranteed rentals is a lack of demand for the property once the period has finished. Guarantees are often used to market properties that otherwise would not sell and many investors are shocked by the resulting drop in income.
In addition to this, it is often the case that investors end up footing the rental bill themselves, when developers inflate the price of the property to cover the guaranteed rent. This can provide a further shock when the investor tries to sell the property and realizes that it is not worth as much as they originally paid for it.
If you do opt for a guaranteed rental deal, make sure that it is properly underwritten by a bank. Otherwise you would be at risk of losing the guarantee if the developer were to go out of business.
Poor regulation means that it is also worth checking the small print for any hidden clauses that enable the developer to avoid paying the guaranteed rent and it is always a good idea to seek expert advice.
Jun
13First Time Homebuyers: 5 Reasons to Examine Short Sales
Posted By: Ramon Rivas on June 13, 2010 at 5:23 amAre you looking to become a first-time homeowner? If so, you may turn to foreclosures to save money. Unfortunately, foreclosure auctions are often jam packed full of professional investors. Yes, you can still try to buy a home in foreclosure, but the best option is to opt for a foreclosure short sale instead.
A foreclosure short sale is when the borrower and the lender agree to quickly sell the home. It is used as an alternative to foreclosure. To avoid poor credit markings and to avoid lengthy and costly foreclosure proceedings, both parties usually agree to a short sale. To quickly sell the home, its price is greatly reduced. Some mortgage lenders do take the home’s appraised value into consideration, but others opt for an amount near or smaller than the outstanding amount due on the mortgage.
So, why should you, as a hopeful first-time homeowner, target foreclosure short sales?
1 – Wide Range of properties Available for Sale
It is most common to see single-family homes offered for sale via a short sale. With that said, you never know. Landlords are also struggling with the poor economy. Some are making poor financial choices and others are stuck with non-paying tenants. Not only can you find single-family homes for sale via short sales, but multi-family homes too. If you not only want to own a home, but profit too, live in one of the apartment and rent the other.
2 – Cheap properties
As previously stated, foreclosure short sales are an alternative to foreclosures. Mortgage lenders have accepted the fact the borrowers cannot and will not pay them. Instead of taking a total lost and spending months and thousands of dollars in foreclosure proceedings, they agree to a short sale. In doing so, they are willing to take a small loss. This results in cheap properties for you.
Yes, short sale properties are sold at a reduced rate, but be cautious of those sold through deceitful lenders or real estate agents. They try to up the price and make more money. Before agreeing to a foreclosure short sale, compare the selling price with the home’s appraised value. It should be less.
3 – Typically Well-Kept Homes
Borrowers who approach their lender for a short sale are responsible individuals. They have just fallen on hard times. They are concerned with the short-term and long-term financial impacts of foreclosure. These individuals care, unlike those who sit in a home that they cannot afford waiting for an eviction notice. What does this mean for you? It typically means a well-kept home.
Those who opt for foreclosure short sales care about themselves, their reputation, and take pride in their home. They just can’t afford it any longer. These individuals take care of the property. On the other hand, it is not uncommon for those who receive an eviction notice during foreclosure to become unruly and even damage the property. In this instance, it means costly repairs.
4 – Can Profit Later
If you are a hopeful first-time homeowner, your goal is to find an affordable home, not make a profit. With that said, don’t forget about the long-term aspect. In five or ten years, you may wish to buy a new home or relocate across the country. This involves a home sale. If you only paid $100,000 for a home valued at $200,000, you automatically make a profit. Throughout the years of owning and living in the home, upgrades are likely. These upgrades will only increase the home’s value, meaning more profit for you.
5 – Bargaining Power
If you are in good financial standing, have the ability to obtain financing, or have the needed financial resourced on hand, you are in a good position to bargain. If you know the property is being sold as a short sale, research the home’s appraised value. This should be on file with the mortgage lender, real estate agent, and should be public record. If you aren’t getting what you deem to be a good deal, bargain. If dealing directly with the mortgage lender, ask about obtaining financing through them. This result in a continuing relationship. If you have the needed financial resources on hand, state your price and offer to make payment right then and there.
