How to Buy An Investment Property

Posted in Real Estate by Michigan Real Estate Expert on February 25th, 2020

How to Buy An Investment PropertyIt is important for everyone to take steps to diversify their assets. While many people take this to mean holding multiple stocks, bonds, and mutual funds in the market, this also includes branching out into the real estate industry. The real estate industry is far more stable than the stock market and provides a fantastic opportunity to generate reliable returns. At the same time, there are lots of options to choose from when it comes to investment properties.

Here are a few tips everyone should keep in mind.

Buying And Renting

One option is to purchase a single-family home as a second building and then rent it out. On the other hand, it is also possible to purchase a multi-unit property and rent out each individual unit. One of the biggest factors to keep in mind is that the owner is going to be responsible for collecting deposits, checking the backgrounds of potential tenants, conducting repairs, and completing maintenance tasks. 

If the property is located in a desirable area, it is possible for someone to collect enough rent to cover the cost of the mortgage and more. At the same time, it is also possible that someone might end up spending a considerable amount of time managing the property. It might be a solid idea to hire a property management company; however, this will eat away at the revenue. These are a few of the key factors to think about.

Flipping Houses

Another option real estate investors can consider is flipping houses. In this process, someone buys a home (which is often in a state of disrepair and inexpensive), repairs it, and then sells the home for a profit. It is also possible that someone might end up spending a significant amount of time and money renovating the home, which might eat away at any financial gains. Be sure to know exactly what repairs and renovations the home is going to need before buying.

A Real Estate Investment Trust

Sometimes, it might be too much for someone to buy individual properties. One possible option is called a real estate investment trust (REIT). This is a company that owns numerous big properties that generate incomes. Therefore, these trusts are often compared to mutual funds in the stock market but for real estate. Different REITs specialize in different areas, so there are lots to choose from.

If you are interested in buying a new home or purchasing an investment property, be sure to consult with your trusted real estate professional.

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5 Essential Questions Real Estate Investors Should Ask Before Making An Offer

Posted in Real Estate by Michigan Real Estate Expert on February 19th, 2020

5 Essential Questions Real Estate Investors Should Ask Before Making An OfferReal estate investing is not only a great way to diversify assets but can also be used to generate both income and capital appreciation. While this is a fantastic opportunity, it is also important to choose investment projects carefully. It is critical to ask the right questions before making an offer on an investment property.

Why Is The Building On The Market?

There is a reason why the property is on the market. It is important to know the answer to this question. Sometimes, the house is on the market purely because the owner is moving for job or family purposes.

On the other hand, there might be an issue with the integrity of the structure. Be sure to figure out the true nature of the building before making an offer.

What Are The Other Offers?

It is important to know the competition when purchasing an investment property. Those who are trying to get the best deal possible need to know what they are up against. Asking about whether a cash offer will sweeten the deal is a great way to garner some additional insights.

What Is The Recent Maintenance?

One of the most common hidden costs in the world of real estate comes in the form of deferred maintenance. If nothing has been done on the property recently, these maintenance costs are going to be passed on to the buyer, hurting any potential ROI. Be sure to ask about any recent repairs or replacements. It’s not unusual for someone to spend a third of the building’s value on repairs.

What Is The Seller Interested In?

Be straightforward and ask what is important to the seller. Some sellers want a quick close. Other sellers want to rent the property back. There are even some sellers who want to leave the furniture behind as well. Ask what the seller needs to offload the investment property.

How Long Has It Been On The Market?

Always check and see how long the building as been on the market. If the building has been on the market for a while, figure out why it hasn’t sold. On the other hand, if the building just landed on the market, there might be more room to negotiate.

If you are in the market for a real estate investment property, your trusted real estate agent will be one of your very best assets. Be sure to make contact as soon as you are ready to start looking!

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Investment Property Down Payments: How Much Will You Need?

Posted in Mortgage by Michigan Real Estate Expert on February 14th, 2020

Investment Property Down Payments: How Much Will You NeedInvesting in real estate is a great way for someone to diversify his or her assets; however, there is a common hurdle that almost all real estate investors face. This comes in the form of a down payment. 

It can be a challenge for someone to come up with enough cash to fund the down payment on a home or piece of land, let alone multiple properties. At the same time, how big of a down payment does someone really need? There are a few factors that someone is going to need to consider.

The Conventional Mortgage

There are plenty of investors who like to stick with a conventional mortgage for their investment properties. This makes sense because this is a format they are familiar with. For a conventional mortgage, the down payment is going to fall between 10 and 25 percent.

When taking out a conventional mortgage for an investment property, the lender is typically going to want a larger down payment. For a single-family property, most lenders are going to expect at least 15 percent of the purchase price. This number can be as high as 25 percent of those who are investing in an apartment building, condo structure, or any multifamily unit.

Those who are looking to put down a smaller down payment will need to finance the investment property as a second home. While this might be an interesting thought, anyone looking to purchase an investment property as a second home will need to spend at least some of their time at this location. For a second home, someone might be able to get away with a 10 percent down payment.

A Smaller Down Payment For Multifamily Buildings

There is another way that someone might be able to successfully apply for a smaller down payment. FHA mortgages tend to have higher fees; however, they require smaller down payments. For example, even a multifamily property may only require a 3.5 percent down payment with an FHA loan.

In this example, someone could purchase a multifamily building for $600,000 and only have to put $21,000 down. Those who are willing to stomach higher fees might want to check out the possibility of an FHA loan.

If you are interested in purchasing an investment property, be sure to consult with your trusted real estate professional.

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How Much Do I Need To Start Investing In Real Estate?

Posted in Real Estate by Michigan Real Estate Expert on December 18th, 2019

How Much Do I Need To Start Investing In Real EstateIt is important for everyone to diversify their investments and one of the assets that people often look toward is real estate. In a healthy market, real estate should appreciate in value.

It is often less risky than investing in individual stocks and can provide a much higher return on investment than a typical bank savings account or even a money market account. On the other hand, people often think that they require a large amount of money to even think about investing in real estate. This is not always the case.

Buying Property Outright

One of the most straightforward ways to get started in the real estate investing market is to buy property outright in an area that is set to appreciate in value. Then, people can rent the property out to tenants as a way to generate a steady stream of income. This is why many people think that they need a large amount of money. Buying property is expensive and purchasing buildings in cash can be prohibitively expensive. Fortunately, there are other ways.

Joining A Real Estate Partnership

Another option is to join a real estate partnership. In a partnership structure, the various members pool their money together to buy large buildings. These buildings might even include individual apartments that can be rented out. Joining a real estate partnership is a more feasible option to get started in the real estate investing market. People might even be able to join for as little as a few thousand dollars.

Buying Shares

Finally, there are real estate crowdfunding partnerships popping up as well. Joining a real estate crowdfunding group is similar to buying shares of a company in the stock market. This offers an opportunity for people to get involved in the real estate market for an even lower cost. This is becoming a more popular option across the United States.

Invest In Real Estate

In the end, people do not necessarily require a large amount of money to invest in real estate if they know where to look and who to ask. There are plenty of ways to get started in the real estate investing market.

If you are in the market for a new property, be sure to consult with your trusted real estate professional.

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How To Find Hot Markets For Real Estate Investment

Posted in Real Estate by Michigan Real Estate Expert on November 5th, 2019

How To Find Hot Markets For Real Estate InvestmentReal estate investors who want to build up a strong investment portfolio always keep an eye out for hot markets, which gives them a chance to pick up properties that add to their portfolio value.

A word of caution about hot markets is that if you learn about them after they are already hot, you may have missed much of the run-up that made them hot. 

Clever real estate investors try to anticipate markets that will heat up before they do, so they can buy properties in advance of increasing values. Selling properties in a hot market is how they capture profits. 

The Hot Markets

Realtor.com® identified seven markets in the United States that are currently hot markets for flipping houses. The average gross profit for house flippers is $62,700. This figure does not include the cost of making the repairs. The gross profit equals about 20% to 33% of the home’s sales price after making the repairs.

An evaluation looking for hot markets for flipping homes considered the percentage of home sales that were investment properties.

The current hot markets, in the order of activity, are:

  1. St. Louis, MO – 18.8% of home sales are investment properties. The median sales price is $189,900.
  2. Birmingham, AL – 17.3% of home sales are investment properties. The median sales price is $190,000.
  3. Miami, FL – 17% of home sales are investment properties. The median sales price is $299,900.
  4. Tampa, FL – 16.2% of home sales are investment properties. The median sales price is $230,000.
  5. Memphis, TN – 16.1% of home sales are investment properties. The median sales price is $206,300.
  6. Las Vegas, NV – 15.7% of home sales are investment properties. The median sales price is $301,800.
  7. Phoenix, AZ – 15.1% of home sales are investment properties. The median sales price is $275,800.

Hot Pockets In Cooler Markets

Another way to find opportunities is to know your local market very well and look for areas that are up and coming. Look for a fixer-upper in a decent area. Also, search in areas that are adjacent to high-priced areas. 

Look for soft barriers that can be passed easily, such as a block that is improving, which is next to another block that has already improved. Hard barriers, such as a wide street, a freeway, or a river make it more challenging for an improving neighborhood trend to pass across them.

Summary

Finding a hot market or a hot pocket comes from investigating potential growth areas and watching them. Get a feel for the trends. One strategy is to buy early when the prices are still low, rent the property for a while, and then sell later, once the market heats up.

If you are in the market for a new home or want to find out about the hot neighborhoods in your area, be sure to consult with your trusted real estate professional.

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What Is Passive Real Estate Investing?

Posted in Real Estate by Michigan Real Estate Expert on October 31st, 2019

What Is Passive Real Estate InvestingWhen you are looking to purchase a home, you might be looking for a place for you and your family to live. It might surprise you to learn that not everyone who is looking for a house is necessarily in search of a place to live.

Real estate is also a great way for someone to grow wealth. Furthermore, real estate is actually one of the most common ways that people become millionaires.

Some of the active ways that people invest in real estate include flipping houses and renting out property. This can be time-consuming and isn’t right for everyone.

If you are looking for a way to make money in real estate without flipping houses or looking for tenants, passive real estate investing might be the answer.

An Overview Of Passive Real Estate Investing

While passive is the opposite of active in this scenario, passive real estate investing does not mean that you won’t have to do anything. There is still work to be done.

When you invest in a passive manner, this means that you aren’t playing an active role in the growth of the asset, which is property in this example.

One example of passive investing is the stock market. You need to make sure that you do your homework before you start throwing money at the real estate market.

There is a serious time commitment that comes with passive real estate investing. You will also need to monitor the property values to make sure your investment is generating a solid return.

Ways To Get Involved In Passive Real Estate Investing

There are a few common ways that you can start investing in real estate, in a passive manner.

First, one of the most common ways is through the stock market. There are businesses that make their money by investing in the real estate market for you. You can buy shares of these companies who then invest your money in real estate.

Alternatively, you can also set up a partnership with an active investor. You might own the properties and then pay the active investor to rent them out to someone else.

Finally, there is also real estate crowdfunding that has come on the scene. Those looking to invest smaller amounts of money might be interested in this method which pools smaller investments together to invest in much larger real estate projects.

It’s important to talk with your trusted local real estate and mortgage professionals to get the best information for your personal situation.

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Join Or Create A Real Estate Investors’ Pool For Fun And Profit

Posted in Real Estate by Michigan Real Estate Expert on August 13th, 2019

Join Or Create A Real Estate Investors' Pool For Fun And ProfitMany baby boomers are reaching retirement age. If they set up their financial planning well, while younger, they should have accumulated enough wealth to have some discretionary money available for making investments.

Others, who may be just starting out, have some investment capital but not necessarily enough to buy a piece of commercial real estate on their own. These investors might enjoy a real estate investment pool, also called an investors’ club.

Pooling Resources

One way to get some investment participation in real estate is to pool investment funds needed to have enough for the down payment on a piece of real estate.

For example, if the down payment for acquiring a single-family rental home is $40,000 and four investors chip in, this means the contribution by each one will be $10,000. Each investor will own 25% of the deal. Many can come up with $10,000 for investment but it may not be as easy to find a spare $40,000.

Real Estate Investment Clubs

An investment club is where people get together to review the summary of a real estate deal to discuss its merits as a group investment.

To find a local group there is a nice system called Meetup online, which is a good resource. If there is no real estate investment club in a particular local area, consider forming a new one through that system.

Legal Structure

For real estate purchased by an investors’ pool, the best legal structure is to acquire the property by a newly-formed limited liability company (LLC). An LLC is very easy to create online. The LLC structure limits the liability of its owners (members) to the amount they each invest in the LLC.

It is best to set up a new LLC for each closing of a real estate acquisition. In this way, the owners can be different and to separate the deal from the successes or losses in other deals. Investors in an LLC buy units of the LLC, not shares.

When an LLC starts, it is authorized to issue a certain number of units. Each investment gets a proportional percentage ownership share of the LLC. The investor gets the number of units that represents the percentage value of the investment compared to the total investment.

Work with a real estate agent to help find deals. Use competent legal counsel and a professional accounting firm to set up and manage the LLC properly.

Summary

Investment clubs can be very fun. There may be considerable discussion and disagreement about each potential deal. This is a welcome thing. It is excellent practice to learn how to conduct proper due diligence.

Investors who are just learning about what to look for in a real estate deal gain insights from more experienced investors. Experienced investors stay active and get a chance to pass on their knowledge to the less-experienced ones. Everyone enjoys socializing together and that is a nice extra reward.

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The Monopoly Technique – How To Build Value By Acquiring Adjacent Properties

Posted in Real Estate by Michigan Real Estate Expert on July 18th, 2019

The Monopoly Technique - How To Build Value By Acquiring Adjacent PropertiesHave you ever played the classic board game called Monopoly? The object of the game is to collect all the properties until one winner bankrupts all the other players. The other part of the game is that accumulating properties adjacent to each other increases the value of the individual properties. When a player acquires all the properties of the same color (two or three), then the rents go up and property development can begin.

The Monopoly Game In Real Life

The same basic principles sometimes work in real life. Owning a property and then buying the one next door creates a value-added possibility of the combined properties being worth more than the individual pieces.

To start this strategy, tell the neighbors of having an interest in buying their home in the future if they want to sell. This is a way to get the first option to buy a home before it lists on the market.

Control Of The Neighbors Adds Value

In many neighborhoods, there is one home that creates severe negative pressure on property values. These homes may be neglected and badly needing a paint job and landscaping. The home may be a source of neighborhood noise problems or heavy traffic.

When considering buying into this neighborhood, make a plan to buy the derelict house. Then, before bringing it back into a marketable condition, there may be a chance to buy the ones next door for a steep discount from the market value.

If possible, buy all the properties at once and close them around the same time. This helps avoid triggering a profit demand from those who are opportunistic and learn about the interest of a buyer in more than one property.

Cashing Out

If possible, buy three houses, one of each side of the derelict house, then renovate all three properties. Make them into rental units or to sell them as a “flipped” property after the renovation for a big profit.

If there is the possibility of controlling a full block on both sides in a rundown neighborhood, it is possible to start with one block of home improvements at a time. Entire neighborhoods may improve one block at a time.

Redevelopment

In some neighborhoods, there is a chance of re-zoning and redevelopment. For example, it may be possible to build a larger structure by combining two properties. There is profit possible in assembling the land for redevelopment purposes, even for those who do not do the construction for the redevelopment.

Summary

Playing Monopoly in real life can make investing in real estate fun. It is possible to start with a few low-cost rental homes. For rental properties, it makes it much easier to manage them if they are next to each other. Values may increase in the neighborhood by the renovation of a derelict house.

If you are intested in listing your current property or in the market for a new home, be sure to contact your trusted real estate professional!

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The Benefits Of Developing A Multi-Use Property

Posted in Real Estate by Michigan Real Estate Expert on May 31st, 2019

The Benefits Of Developing A Multi-Use PropertyRenovations that create a multi-use property or the development of a new multi-use project can be a very attractive investment especially in urban areas that are undergoing redevelopment. The concept of multi-use is to make the most of the site that is revitalized or developed.

Multi-Use Projects

Typical multi-use projects have a mixture of retail space, restaurants, offices, and/or living spaces. They may include parking areas. Large multi-use projects can also become destination locations that are core improvements, which create a momentum for the gentrification of an entire area. Waterfronts, boardwalks, and walking promenades are successful as multi-use projects in many cities.

The advantages for investors in these projects include the ability to design the use of the space to maximize the return on investment (ROI). Depending on the area for the project’s construction, there may also be tax advantages.

Tax Advantages

Under the new tax laws, Opportunity Zones all across America have been created to stimulate redevelopment in areas that are distressed. The federal tax advantages include either delaying capital gain taxes or avoiding them altogether if investors hold the investments for more than ten years.

It is also possible to sell a project in an Opportunity Zone for a profit and then reinvest the proceeds under a tax exchange transaction into another investment in an Opportunity Zone and avoid paying the capital gains. Check with a competent real estate and tax attorney to learn how to set up an Opportunity Zone Fund to maximize the tax advantages.

Additionally, the financial basis used for calculating any profits on the second transaction is raised, thereby locking in the tax savings on the profits from the first transaction. This is a very effective strategy for build-to-suit developers who organize a multi-use development project in an Opportunity Zone with the intent to sell it.

State, County, And Municipal Support

Depending on the location, there may be state, county, and/or municipal support in terms of tax abatements and contribution of the land and funds for the development of a multi-use project.

Lack Of Basic Services

Another key consideration is that many Opportunity Zones lack sufficient basic services. Some neighborhoods do not even have a grocery store. A multi-use development, in a distressed neighborhood, which offers services and stores for these basic needs, is likely to experience an immediate consumer demand for the offerings.

Loans And Investment Funds For Multi-Use Projects

Lenders are more attracted to multi-use projects because of the possibility of higher average rents per square foot that will cover the monthly mortgage payments. Multi-use projects can be successfully funded by crowd-sourcing techniques as well.

Opportunities For Real Estate Agents And Brokers

REALTORS® have commission-earnings potential in the sale/acquisition of the properties for a multi-use development, leasing out the properties when developed, and selling a project upon construction completion or after being leased out.

Conclusion

The advantages of multi-use approaches as a development project are significant. There is plenty of support available in many parts of the country for these projects. REALTORS® benefit from many opportunities for commissions on each project as the development begins, the project is leased out, and then potentially sold.

Be sure to partner with a trusted real estate professional if you are interested in purchasing and developing a multi-use property.

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Buying A Second Home And How To Pay For It

Posted in Real Estate by Michigan Real Estate Expert on May 23rd, 2019

Buying A Second Home And How To Pay For ItHow does an average homeowner become a real estate investor? Certainly, owning a home is an investment in real estate. However, this guide discusses the next step for many to become a real estate investor. This is to buy another property and use it for a commercial purpose. Owning another home is less of a burden when an investor finds a way to make the home pay for itself.

Here are some tips on how to help a property generate cash flow:

Renting Out A Home

Renting the home to others may be an effective way to pay for it. To do this well, a real estate investor looks for a home with special characteristics. The home is for sale at a low enough price and can be financed well enough so that the cash flow coming in for the rent will be equal or more to the expenses of owning and managing the property. It is terrific if the property makes a positive cash flow each month, even if only a small amount.

If a property has a $50 per month positive cash flow, then that small amount builds up over time. Adding more properties with positive cash flow increases the investment portfolio value quicker.

Home Office

Using all or part of a home as an office creates special tax deductions for the expenses that cover the portion of the property used for business. Even if a homeowner does not have enough money to buy another home, starting a small business by using a home office may help create the money for the investment needed as a down payment on the second home.

Renting A Home Out As A Vacation Rental

Many like to rent homes in nice areas for vacation purposes. The home can rent out as a full home or as individual rooms in the home. Airbnb is a useful web-based service that can bring rental customers for those interested in doing this.

Bed & Breakfast

Another way to make money by owning a property is to turn it into a commercial enterprise as a bed & breakfast. Depending on the location, and the number of tourists attracted to a particular area, a bed & breakfast business can be profitable.

Tax Implications

Even if owning a second home does not make positive cash flow, it can still be financially beneficial when it reduces the tax burden. Work with an accountant and/or investigate the tax implications of owning the property. It may be possible to take deductions such as for property expenses and non-cash deductions such as depreciation, which when combined with other income, reduces the overall tax liability.

If owning a second home reduces the taxes to be paid, this is a financial benefit that offsets any negative cash flow. Tax savings is money in the pocket, so this counts as part of the positive cash flow that comes from owning a property.

Summary

These are just a few ideas to consider that may help pay for a second home and make it easier to become a real estate investor.

When you are considering a new property, be sure to partner with a trusted real estate professional.

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