Investments

Investment Property Steps

Jumping into the real estate industry can be frightening, but if you do your homework and put an honest effort into learning, it will all be worth it in the end. Before you buy your first property, here’s what you should know. 

Prepare yourself for the downpayment and interest rates

Buying an investment property is not the same as buying an owner-occupied home. What’s different is mortgage insurance isn’t an option any longer. They do not offer mortgage insurance for properties that are intended to be rented. They will also want a down payment of no less than 20%. 

Another difference is interest rates. The investment property rate is usually a bit higher than owner-occupied home rates. 

Know if you want to rent or flip the property

Renting a home versus flipping it will require a different game plan. You’ll need to know what you want to do before so you can organize and plan your strategy accordingly. 

When you flip a home, you’ll need a lot of cash for repairs, energy to do the work, and a plan to sell it. Renting doesn’t need as much money but you will see your investment coming back in a longer period of time. Renting is more of a marathon, unlike flipping which is a sprint. 

Understand the local market

Knowing even a little bit about your local community and market can take you a long way. If you plan on renting this home, you’ll need to know if the city/town is growing, stagnant, or dying. Is the city seeing a population growth, or are people moving out because of dying industries? You’ll want a market that is attracting young entrepreneurs, and hopefully they can afford your price range in rent. 

Research the market

If you have been eyeing a property, do some research and check to see what similar buildings in the area are selling for. Look at the...

Ready to Buy Your Second Home and Rent Out Your First?

If your current home seems like it’s becoming too small, and you’re ready to get out, you don’t have to let it go in order to get yourself another one.

In everyone’s life there comes a time when a move is needed. Perhaps it is because of a job change, the coming of a new family member, a marriage or divorce, or you just simple want a new scene.

A good sized portion of millennial home owners (who represent half of all home buyers today) are ready to move on to their next home. If this is the boat you are in, there is a decision to make. Is it best to sell your first home or rent it out?

If you choose to rent it out, there will be the luxury of that extra income. But before you decide there are several factors to consider before pulling the trigger.

Financial perks and considerations

Along with the extra monthly income, owning a second home will begin your real estate investment portfolio. What’s cool about this is it allows one to leave your owner- occupied mortgage intact by converting your primary residence into a rental.

Buying a non-owner-occupied property (which is just buying a house with the intention to rent out) typically requires 20-25 percent down payment and has an interest rate of /375 to .75 percent high than you’d get for an owner-occupied house.

The end game here is that it will cost less to turn your home into a rental property now, and buy a second home as your primary residence, than it would to buy a second home as a rental property. The requirements for a second loan are much stricter when you already have one, and it’s much more difficult to obtain.

If you happen to already have a lease in place on your first home before closing on your second home, your lender is more likely to allow the second mortgage. It can also help if you have experience in property management; lenders love seeing that.

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Real Estate Investing for Entrepreneurs

The world of real estate is a means of investment opportunity for successful entrepreneurs. The risk versus reward aspect relies on knowing which properties are a smart buy, and which will turn into a train wreck. How do the best real estate geniuses know when to buy and when to sell?

Long term

Don’t invest in real estate thinking you will get rich quick, it just won’t happen. Yes, there have been booming moments in history when that did happen, but today’s market isn’t anywhere near that level of activity. In the 90’s buying a property was easy, making renovations, and flipping it for a profit could be done relatively quickly. After the bubble burst, the real estate market has been one of the slowest sectors of the economy to rebound. If you’re thinking about investing in real estate, do your homework and move slowly.

Learn about past successful local investments

Most entrepreneurs find their real estate success by purchasing a property and adding significant value to it. The question is what improvements add the most value? Which are a waste of time that won’t get dollars back for your time and effort?

Look at the local case studies in your area to understand the valuation of your city. For example, if you live in a big city like Portland, you could add value to your property by adding bike lockers and a fitness area in a mixed use building. It comes down to knowing what the culture of your area is like, and what people want to see in their homes.

Knowing when to buy and when to wait for the Unicorn

When investing in real estate it is tempting to buy the first thing you see, but you shouldn’t.  You will want to make a list of “must haves” for the property you want, and wait a while until...

Mortgage Rates are Tanking, and Why It’s Important to You

Not since late in 2012 have mortgage rates been this low. The month of April saw rates plummet to 3.31 percent. This is great news for homebuyers and refinancers, but it’s showing the reflection of the global economy.

What’s going on?

The rates are this low today due to the Fed halting its purchases of mortgage-backed securities and treasuries. Prior 2012, the Fed was buying as many as they could get to force rates lower. Today they aren’t buying any and are primarily working on trying to undo the near-zero interest rate policies that were installed after the financial crisis. This is quite a different conundrum than the aftermath of the financial crisis.

  Because the Fed isn’t driving down rates with their buying power, it’s unlikely rates can, or will fall much lower. When they were on a buying roll in 2012 they were systematically able to raise prices, and lower yields. They may start buying again, which could make this historic low only temporary.

The 10-year treasury yield, a common omen for changes in mortgage rates, has held that the theory as rates moved lower. Twice in April the 10-year has seen its lows from 2012 and both times the market shot its yields up higher. IF the 210-year sank below its 2012 numbers then the mortgage rates would likely follow.

It’s not the Fed, so why are rates dropping

The Fed has little skin in the game at this point, so they’re not tipping the scales of supply and demand, so how could rates drop even more? It would take a global event to send rates even lower than they already are.

If such a chance there is a global event the markets would most likely price in the odds that central banks would increase the easy money policies due to the slowdown. The same rates towards the direction they went in 2012.

This event...

How the Right Agent Will Save You Money In The Long Run

If you think every real estate agent is the same, you are sadly mistaken. There are good ones, mediocre ones, and bad ones. Like any tradesperson they come and go as the industry shifts. Only the truly good agents will stick around, because they have honed their craft to become experts. They know what each neighborhood offers and what it could use, and they know how to assist you in making the best decisions. Their connections in the city come in handy in a ton of ways, and most of the time it is to save you money.

Chances are you home is the biggest financial asset you have, and working with the right, or wrong, agent can affect your bank accounts in the long haul. Here are a few ways the right agent can benefit you for the long run.

Find the best home for your finances

Tackling the real estate monster requires having a sidekick, and that is always your agent. They help you through the process as your therapist and financial advisor, and sometimes lawyer. They are your partner when you are ready to buy or sell, guiding you on the best option available to you.

They will be working for you with your best interest in mind, not their commission check at the front of their brain. Finding the home that you can most reasonably afford is their objective, not finding the dream home you hope to live in in ten years.

Closing on a home means you have to pay that first month’s mortgage with the money you currently have, not the salary you hope to be making in the next decade. They shed light on what is realistic for you, and what’s simply fantasy. The last thing your agent wants to see is you becoming “house poor”, which is a state in which will cause you headaches for years.

Save some cash when you buy or sell your home

When using the best agent available to you, chances are you will save a little...

What to Consider When Getting A Reverse Mortgage

To be eligible for a reverse mortgage you need to be 62 years or older, and have more than 50% equity in your home. A reverse mortgage is also known as a Home Equity Conversion Mortgage. Those aren’t the only stipulations; you will also need to prove you are financially stable to pay property taxes, upkeep, and homeowners insurance policies while attending a mandated third-party credit counseling session. Not so easy anymore right?

For a sizeable portion of older Americans, their home equity is a good representation of their wealth. They know they have this money at their disposal if they run into a major speed bump in their later years. It’s a good feeling to have once retirement grows nearer.

Be sure to consider the following:

Reverse mortgage laws require homeowners to live in and occupy the home they are taking loans out on.  So if you plan on moving to a new residence, you will need to sell the home and pay off the balance of the loan.

Are you planning on deferring your social security benefits? If yes, you can plan on getting a higher payout by waiting to collect them. Before you make a move, make sure you compare this against the interest rate you’d be paying for the reverse mortgage first, just making sure this is in your best move financially.

You may think a reverse mortgage can improve the quality of your life, and I very well could. You are allowed to use the funds as you wish; whether it is for vacation, medical bills, home renovations, or daily expenses.

If you are thinking about a reverse mortgage you best consult your financial adviser. They will tell you how this type of loan works. Do some homework yourself and figure out the pros and cons of them. You may find a new lifestyle ahead of you. 

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Capital Gains Tax on Real Estate: The Misconeptions

Knowing the rules before you begin is important in any task you to decide to undertake. It doesn’t matter how you gained value on your property, whether the market naturally made your home value rise, you completed a few big time renovations, or whatever, it’s still exciting. The only thing that can diminish your excitement is taxes on your gain. This is called the capital gains tax.

The law passed in 1997 called the Taxpayer Relief Act helps homeowners keep much of the gains on their home sale. Before 1997 homeowners could only “pull out the once-in-a-lifetime card” that exempted them from taxes up to $125,000 on a home sale, or their home earnings were expected to roll into the purchase of their next home. Today’s rules aren’t so strict, so let’s take a look at those loopholes.

Tax Treatment: house flippers vs. homeowners

A common misconception is that all house sales are treated equally. This is not the case for house flippers. In order to receive the best tax treatment on your gains, you need to use that house as your permanent residency for at least two years. For professional house flippers, houses are considered inventory as opposed to capital assets, and the profit is taxes as income. The long-term capital gains tax is 15% for most people, and 20% for those in the top tier tax brackets. If your gains are taxes as income (professional flippers) your taxes could span from 10% to 40% depending on the rest of your income. House flippers cannot simple avoid the tax by rolling their profits into the next house.

Exemption Limits: Filing married vs. single

The Taxpayer Relief Act voided the once-in-a-lifetime tax exemption of $125,000, exemption limits haven’t completely fallen by the wayside. You are now allowed to keep up to half a million dollars of each home sale profit tax...

Ways for Homeowners to Save Again

We all know how difficult it can be to stay on track for a weight loss plan, and much of the same can be said for saving your money. Yes, you’ve made leaps and bounds towards your goal of saving up for a down payment, but motivation can dwindle after you reach a certain point. Don’t let yourself walk to the finish line, get there in a full sprint.

 Here are a few tips to reach your goal in full sprint.

1.       Try the savings challenge

This can help if you are a competitive person who is motivated by a good challenge. Here you want to turn your financial goals into a competitive game. The way this game works is by saving an allotted number of money per week. Week one is $1, week 2 is $2, week 3 is $3 etc. B the end of the 52 week calendar, you will have saved $1,378.

Another challenge is the no spending challenge, which is eliminating mindless spending. Mindless spending is like buying gum or candy at gas stations, chips at the grocery store. Whatever you can live without; don’t spend your money on it.

2. Attach saving to treating yourself

No hard work should go without reward. Neither should saving. Once you’ve drawn up the blueprints to your saving plans, figure out a percentage you can responsibly spend on yourself. Allow yourself to spend 10% of your emergency buffer of something of your choosing. So, if you have a $15,000 emergency fund, you are allowed to spend 10% of it, and it won’t make or break you.

3. Use visual cues

We all can get carried away with everyday spending when to ultimate goal is way into the future.  We all have been guilty of being stuck in the present instead of the future. The trick to this is to use pictures, or notes...

How to Get Started in Real Estate Investing

Are you thinking about getting started in real estate investing? Well if you do it correctly, your first investment property has the potential to be quite profitable. I cannot think of any reason a newbie real estate investor cannot profit from a small, purchase to start off with. Home values are rising at a rate of 3.9 percent year after year, and expectations have them rising another 2.6 percent over the next year. If you’ve been considering real estate investment, now is the time to throw down some of your savings towards some real estate.

 In order to start the right way, you’ll need to make some executive decisions. Here’s how to go about this.

 Assess your current finances

 Usually the standard percent to put down on a property is 20%. To avoid having two mortgages, let’s be responsible and save/wait until we can afford the property outright. Yes, this will require a large amount of cash, and much discipline, but to skip the lender and avoid interest rates, you might opt for a foreclosure listed below the local market median.

If you have no need for a mortgage, you should consider living in your investment property so the owner-occupant rates can be fully utilized. This is only temporary living. One year will lock in the lower interest rates for the remainder of the mortgage. If you live in your property, the rates are much more favorable than a second home, or rental property loans.

For those lucky enough to purchase multiple income properties at the same time, it’s vital to choose the right financing. In this situation, it is recommended you use cheap 30-year fixed rate mortgages and buy as many properties as possible.

 Determine the potential cash flow

 Watching popular shows that show you how to flip houses make this task look pretty easy. Usually most homeowners profit little or none at all when they sell shortly after closing. Obviously...

Diversifying Your Property Portfolio

Investing in any asset class is never guaranteed, there is always risk of losing as much as you put in. Residential property is no different. Just as there is potential for growth, there is potential for stagnation or decline in market value.

                A good way to reduce these risks is to diversify your property portfolio. There are two ways to do this. First, buy properties in different locations. Maybe you might have one in a city, the other in the suburbs, and another in a different state.

                When you have all your investments in the same location, your exposure to risk is too large. If the market changes for the worse all your investments will be hurting. It’s kind of like putting all your eggs in one basket.

                Let’s say you buy all your properties still in the same location and in ten or twelve years the area loses its popularity for whatever reason(s). The decrease in demand very well could affect the resale value of your property. If your properties could be playing host to a new express way which will create constant noise. This almost certainly will decrease the value of your asset.

When you change the locations of your investments you can minimize the risk if your total investments. If one property falls in value a bit, not everything is lost. The others in different markets will hold their own and it won’t hurt as bad.

The second strategy is to buy across different price ranges. The benefit in this is flexibility. You will be quite flexible when you have to sell your properties to free up equity, like when you retire and want to add some heavy cash to your super fund.

Let’s now say you have $1 million to spend on investments. You can either buy one...