Part Time REI » investing in real estate

Reducing Risk

Erik Hitzelberger — Fri, 12 Sep 2014 16:35:16 +0000

Perhaps the ugliest word in the investing in real estate world, RISK is what keeps REIs up at night. What is the risk of buying this property? Well if you have been flipping houses for any amount of time you know that risk goes with the territory. We’ve shown how risky taking a chance can be in the flipping market with our High Risk House. But how can an investor balance the risk vs. reward pendulum?

Educate

First and foremost, more education and information is the key to reducing your risk in any investment. So if you’re getting your information from reliable sources, you stand to reduce risk. That is why we suggest gaining all the knowledge you can before you dive into the flipping pool. Where to start? Our Flipping Houses University is filled with answers to questions and helpful tips.

Know the Local Law

No we are not talking about getting to know your local sheriff here. Know the real estate laws. It doesn’t matter if you are a novice or a savvy investor, ignorance of the rights and regulations of real estate in your farm area can put your investment at risk. You don’t have to become an expert on the matter or an attorney, but you should be brush up on the laws that govern the market.

Leverage a Team

We have talked a lot about having the right team. The most important member is yourself and no one has more to loose. So build your team to help you invest in real estate for the long-term.Your team should include a good attorney, Realtor, contractor, and property manager. Your team will be able to provide you with the advice you need from acquisition through renovations–and long-term with property management.

Last but not least, know your boundaries and limits. Don’t over extend yourself or think you can do it on your own. You will most likely fail on your own. connect with a good mentor who has been there and done that. Ask them questions and for advice. This will help you gain that killer confidence to close the deal with the result you want.

“To win you have to risk loss.” ~ Jean-Claude Killy

Here are so more great resources on how to reduce risk in REI:

http://www.streetdirectory.com/travel_guide/147385/investment/how_to_reduce_the_risk_in_real_estate_investing.html

http://www.creonline.com/blog/9-ways-to-eliminate-real-estate-investment-risks/#ixzz3D7SDkR2p

http://www.realtor.com/home-finance/homebuyer-information/lowering-risk-when-buying-an-investment-property.aspx

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Making Bank On Bank Owned Property

Erik Hitzelberger — Fri, 29 Aug 2014 16:30:13 +0000

Do some of the recent news stories about real estate investing slowing down got you, well, down? Never fear investor- opportunities still remain. Where are they you ask? Look toward your local lending location.

That was five years ago. The real estate market has improved quite a bit since then, but opportunities remain. If you’re still looking for the real estate deal of a lifetime, the first place to look is still your local bank.

That’s right, the best place to to find investing deals after all this time is still bank owned property. There is fresh data from the banking industry clearly demonstrating that values can still be found investing in foreclosures. And there are still plenty of foreclosures everywhere you look. The entire real estate market continues to improve overall as the markets hit hardest in the crisis are now bouncing back and then some.

Did you know that every quarter, U.S. banks are required to file a financial report with regulator? It is call the “call report.” This report includes a full breakdown of the bank’s income, expenses, profits, and its balance sheet. This data helps us in the industry get an over all picture.

Before the housing crisis, about 0.05% of banks’ assets were bank owned property. This number topped out in 2010 at 0.40%. That is a lot of property to move. And think about it; banks don’t want to own all those foreclosures. That is why it is good for us as investors to relieve them so to speak of the properties. They are not in the business of owning real estate; but we are! To them, owned real estate is an expense, not the earning asset that flippers can turn it into.

See banks know that the properties they own must be maintained. How many bankers do you know want to cut the grass, make improvements and pay property taxes? Not to mention that since banks have to hold reserves on these “assets” it affects their bottom line profits. This can sometimes total into the million dollar range. Bank CEOs don’t like assets that affect their bottom lines. So in reality, the faster the bank can sell off these “assets” the less it will affect their bottom lines. This is good news for investors looking for deals on foreclosure. Everyone wins!

Where to Start

It is always a great idea to check with your local community bank not only about financing but also to inquire about any of their bank owned properties. This is the easiest place to find deals in your farm area. These banks will be willing to negotiate with you on the price and help with the rate on financing the purchase. Bottom line is deals are absolutely still available — as long as you know where to look. Your local Chamber can help you with aquiring a list of local banks in your community.

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Market Watch: Rise of The Renting Market

Erik Hitzelberger — Wed, 27 Aug 2014 16:25:05 +0000

Is your investing strategy “buy and hold”? Many flippers start their cash flow out that way; purchase a house, fix it up quickly and start renting right away. Seems like a smart move since many new studies are showing that renting is the way to go for more and more American families. But why is the renting market becoming so hot? With families needing the space of a home but not being able to afford one or unwilling to commit to a mortgage, there is ample opportunity for investors to make money in the rental industry Many investors are buying up houses and converting them into rentals, and government policymakers say it makes sense to encourage this. A smart investing move is flipping affordable rental units that not only help with your cash flow, they could help working families with low incomes, while also helping to revive residential construction jobs in your area. Seems like a win-win situation, right?

The rental market is for sure taking off. And you can see the growth with rental property management companies growing too. One company added 5,830 new properties nationwide through the second quarter this year. The rapid growth has been primarily fueled by real estate investors, both large and small, who purchase single-family homes as rental investments.

Even though homes seem very affordable now by many official measures, one of the most notable features of post-crash America is the rise of the renter. People who have lost their good credit record, lost their confidence in the housing market, or lost secure jobs have been shifting from being owners to renters. Young people who in prior decades might have been buying first homes are living with parents or renting.

While this is positive news for investors, others ask if it is a troubling trend. Despite a sharp plunge in home prices and the conversion of many properties from “owned” to “rented,” the typical family looking to rent has to pay more than 30 percent of its income for a typical apartment, according to an annual survey released Monday.

For the 1 in 4 renters who have very low incomes, moreover, it’s common to spend more than half their earnings on rent. By 2010, a US Census measure of homeownership had fallen from record levels of near 70 percent of households to about 65 percent. And even many home buyers could justly be called renters for now because sunken home values have erased any buildup of equity when they make their monthly payments.

The pendulum shift is partly a reversion to the norm. But it also hints at a hard reality of housing: Affordability is still a big challenge – even at a time of low interest rates.

Renting can have many advantages over buying, the recent surge in demand, rising rents, and falling incomes have caused an increasing number of households to pay a crushing share of their income for housing. What do you think?

Flipping House Series: The “No Deal” House

Erik Hitzelberger — Mon, 18 Aug 2014 16:43:05 +0000

Missing out on good deals can be painful. The ‘lost’ income is hard to replace and the experience can be frustrating. New investors tend to miss these deals because 1) other investors hear about them first because they have better networks or 2) the new investor takes too long to analyze the deal. That being said, getting into a bad deal can be crushing. Most people can’t withstand the mental and economic toll that losing tens of thousands of dollars can take on your investing career. This apparent paradox begs the question, “how do you move quickly and avoid disaster?”
The answer is to 1) have good systems, 2) have a good team, and 3) remember that real estate is about control not ownership. The first two items should be obvious, yet many wannabe investors skip over these ‘soft’ items. Poor results ultimately lead them to give up claiming this doesn’t work where I live or some other phrase that places blame squarely on something other than themselves.
The sad fact is that the first 2 items are incredibly easy to do and can provide tremendous value. Using a Property Repair Estimate Checklist and Deal Analyzer will help you make sure the numbers are in line. Having a solid team (agent, contractor(s), inspector(s), mentor) increases the speed and quality of decision making.
The third item often requires a paradigm shift. Many people think you have to have everything worked out prior to submitting an offer. This is not true. If you get an accepted contract, you control the property. The seller cannot offer it to anyone else until you release the contract. Meanwhile, you can use inspection, financing, and other contingencies to protect your interest if you discover the property is not a deal.
Does this mean you should put every property under contract and then do your due diligence? Absolutely not. However, if it passes your initial screening, then secure the deal under your terms and proceed knowing you have a way out.
I recently had an agent call to tell me about a property. The house was in a decent area, it fit my normal buying criteria, and it was priced in a way that allowed for nearly $50K in repairs. Due to other obligations, I knew I couldn’t get to the house for a couple of days. So, I walked through the PREC with the agent. The repair cost seemed to be in line, so I made an offer.

Living Room

Front of House

Bedroom

Bathroom

Basement

A couple of days after the offer was accepted, I went to the house and instantly knew the numbers were going to be tight. As I expected, my inspector turned up significant items that I hadn’t accounted for in my initial estimation. Since the numbers no longer worked and the sellers were unwilling to renegotiate, I released the contract and my escrow money was returned.

By having good systems, a good team, and using contingency clauses correctly, I gave myself the opportunity to get a great deal and to avoid a terrible one. This time, the latter option was the correct decision. Total loss = $225. Loss Avoided = $10-$15,000. That’s a smoking good deal!

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Flipping House Series: The Gutted House Finale 2

Erik Hitzelberger — Mon, 11 Aug 2014 15:53:35 +0000

As promised we have more after shots of The Gutted House. Because this was a complete remodel, with our team totally gutting the house there were too many after shots to show you in one blog post. Let’ take a final look at how The Gutted House turned out.

Dining Room

Master Bedroom and Bath

Stairs

2nd Floor Bathroom

Bedrooms #3 and #4

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Forgetful Flippers

Erik Hitzelberger — Fri, 18 Jul 2014 16:00:32 +0000

Let’s face it. There is so much to remember when investing in real estate. We have definitely given plenty advice and tips on how to leverage other people’s time so you don’t have to be the one to do and remember everything, but there are still some small items that can escape an REI’s mind.

Have you ever overlooked any of these items when flipping a house?

1. Vanishing Vandals

Rehabbing property is not a one day job. Depending on the time of year, it can take several months to finish. An empty piece of property is vulnerable to vandalism. Vacant Home Insurance is not required in all states and will cover vandalism only during the first month that your property is unoccupied, after that you are on your own. Keep in mind these easy tips:

Cover windows with sheets or drapes
Request the police for extra patrol and also explain to them that you are rehabbing
Barricade all windows and doors that do not lock
Change the locks
See #2

2. Light it up!

If you were a buyer, would you buy a house that is full of shadows and dullness or one that is adequately lit and looks like it has some life in it? A well lit house looks less depressing and livelier.

Yellow lights are a no no. You can easily establish an upbeat mood with a bright set of lights so it’s a good idea to go for those. Another thing that you should never forget to replace is flickering lights. Some people associate flickering lights with horror films with gory murder scenes. Overall, proper lighting is a very economic way of showing potential buyers what you have done with the property.

3. Conforming and Comparing

If you are going to install new fixtures in the house at least ensure that they match. For starters, door knobs and hinges should match and so should shower heads, faucets and towel racks.

If you are going to purchase new appliances ensure they are all from the same brand or at least have the same style. Make sure your upgrades are comparable to other in the neighborhood as well.

4. For Sale Only When Finished!

Curb appeal is one way of attracting potential buyers but if a buyer sees a “for sale” sign outside a house that looks like it survived a storm, they might make a mental note never to return. Also don’t list a house with a picture before the renovating the front of the house. If the front of the house is dilapidated, that is what buyers will see on the picture. If you want to sell your house as soon as possible, this would be a less than ideal way to begin.

5. A New Mailbox

What’s the first thing you notice when you pull up to a house that you are interested in buying? Most people notice the mailbox.

Don’t mistakenly give potential buyers the wrong impression with an old rusty mailbox. This could tell them that the inside of the house is probably just as rusty. After all, if you didn’t bother to take care of it, what other thing did you also forget to take care of inside the house? Remember that mailboxes are not that expensive. You can get custom mailboxes from any of the local shops in your area for under a hundred bucks.

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The Social Proof of KanKim

Erik Hitzelberger — Wed, 16 Jul 2014 16:29:11 +0000

I think we have officially seen it all. The day is here; the day that Kanye West and Kim Kardashian think they know more about flipping houses, than well, everyone. KanKim, Kimye, whatever the media is calling the power couple now-days, have officially arrived to the investing scene.

We know we know, we all need more news about Kim Kardashian and Kanye West like we need a hole in the head. However, we have to admit it is intriguing that such a Hollywood power couple would be investing in real estate. It seems they don’t see bedrooms and bathrooms in their new mansion … they see dollar signs. Recent news stories are reporting that they’re going to sell their new mansion and officially enter the house-flipping market.

Kim and Kanye bought an $11 million mansion in Bel Air last year and did a major rehab. They had planned on living in it with their new baby North, but sources connected with the couple say they are going in another direction. Perhaps on the heels of Ellen DeGeneres’ fortune in flipping they’ve been told they could make millions if they sell it. Apparently, they really enjoyed the process of redesigning the home and naturally, the prospect of adding more zeroes to their bank account appeals to the rich and famous couple, who seem to be constantly searching for ways to become more rich and famous.

So what makes KimKan think they got what it takes to survive in this flipping world? It seems their angle is that they know the best people in various fields of home renovation — architects, landscapers, interior designers, etc. And before you roll your eyes at the thought of a Kimye-designed home, there are a few legitimate reasons why this career move makes perfect sense for the newlyweds.

First of all Kardashian and West can more than afford the risk that comes along with flipping houses. Say they renovate a house, but for some ridiculous reason, they can’t find a buyer (seriously, who wouldn’t want a Kimye-designed home?). If this happened, they can still afford the home. In the end, they are still rich and famous and happy, and they will actually do something valuable for society by not contributing to the decline of a the housing market.

As for their living situation … we’ve heard Kim and Kanye are happy living with Kris Jenner for now. Plenty of space, and a built-in babysitter.

If Kim and Kanye can do it, how hard can it be right? Be sure to check out our Flipping Houses University to get your basic knowledge first though.

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5 Smart Moves for REIs

Erik Hitzelberger — Fri, 11 Jul 2014 16:00:10 +0000

Every Friday we try to supply our readers with some smart tips or tricks to make investing in real estate a smoother ride. Today we want to review some smart moves for REI when starting out in the business. Read on to check out our top 5 smart moves.

1. Recognize that investing is a business.

Being a landlord and an REI is different from being a private homeowner — it’s a business and you need to treat it like that. Have a good business plan. This type of investment is not hands-off. It can be passive but it requires involvement. It requires your time. It requires certain knowledge and skills.

2. Start small.

Don’t get in over your head right away. Starting with a single house or smaller multiple-dwelling unit, perhaps with a partner, is a good staring move to see if the business really suits you. Starting with a single home will allow you to get a feel for the maintenance, bookkeeping and other work required.

3. Know your Farm Area

As with any business, location can be critical. And we all know real estate is all about location, location, location. A home that seems to be a steal might be priced lower because it’s in a neighborhood most people wouldn’t actually want to live in — one that has higher crime, noisy streets or poor schools. For that reason, investing in out-of-state property is a gamble. Do your research and get comps from your Realtor and only buy in neighborhoods you know well or have carefully researched.

4. Figure out the right rent and rentors

Rents differ widely around the United States. Zillow, Craigslist or a real estate agent can give you an idea what they are where you’re buying. Then you need to determine if that rent will be enough to cover your costs.

Too often, people take a look at their loan and think if they cover that, they’re doing fine. But you’ll need to pay property taxes and insurance. Don’t forget though about regular maintenance. Things break, and you will need some money in the bank to deal with unexpected expenses.

You’ll also want to know the rate of return you’re getting on your investment. There are formulas, such as the “capitalization rate,” to help with this, but you might want to turn to a professional. A good accountant can make sure the purchase makes sense.

Finding a good first tenant is also an important step. Run background checks if you can. Finding and keeping good tenants is the heart of successfully investing long-term in real estate.Happy tenants are critically important. They’re your customers and the way you keep them happy is by keeping the property in good shape and treating them with respect

5. Leave it to the professionals

If you decide to manage your property, you’ll probably need to consult a real estate lawyer to get a solid lease and learn the rights of tenants. You may want an accountant, and you’ll need a list of good plumbers, electricians and tradesmen. Building your investment team is very important; so is leveraging other people’s talents. Your goal is to have a second income, not a second job.Turning to a property management company can be a smart move. It’s usually worth it to pay 7% to 10% of our rental income to a manager.

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The Females of Flipping

Erik Hitzelberger — Wed, 09 Jul 2014 16:27:58 +0000

Anything you can do I can do better. So says the new wave of women investing in real estate. Flipping has undoubtedly become more and more popular since the early 1990s. Real estate investing is the new alternate way for an average American to gradually build wealth over time and not play the risky stock market. But like the stock market, this type of investing was slated as a man’s world. Women it seemed,were more comfortable in the less dominate roles of decorating and real estate agents.

Woman Can Too!

But as more and more women are becoming CEOs and other top ranked executives of Fortune 500 companies, this new wave of women are flooding the flipping market. Women are being drawn toward real estate investing as a viable way to ensure to take care of their family and make sure that they will have income or can retire early.

It is no longer a man’s world. Real estate investing, with its potentially high returns, can offer women an excellent way to boost their income streams for years to come. This can be especially important in retirement, since women are at a greater risk of outliving their savings due to their longer life expectancy, fewer years in the workforce, and smaller paychecks.

Like anything else you endeavor into, you want to make sure first and foremost you know what you are doing. Whether you are a man or a woman always make sure you are getting the right resources by thoroughly educating yourself in the business. If you are a woman who would like to get started in real estate investing, either in commercial properties or residential properties consider joining a local real estate investing club. Here you can network with other investors—male and female. There are also clubs designed specifically for women real estate investors across the country. One way to find these groups is through a site like Meetup.com. Today there are even online investing clubs devoted exclusively to female real estate investors. There are also many online resources that can help you get started. Be sure to check out our Flipping University for helpful tips and blogs on how to get started investing in real estate.

Just remember: it’s 2014. Women real estate investors no longer have to feel invisible or feel inferior. Don’t be afraid of getting taken advantage or getting ripped off by service providers. Be confident and have the knowledge and nothing can stop you. If men can be successful flippers, women can too!

News stories and resources

Real Estate Investing from A Woman’s Perspective (Toronto), Meetup.com

“Real Estate Investing is No Longer a Private Club,” Forbes.com, April 2, 2014

“Real Estate Investing, It Isn’t Just for the Boys Anymore,” Huffington Post, July 12, 2013

Field Guide to Women in Real Estate, National Association of Realtors®

Meetup.com

National Real Estate Investment Club

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Podcast 05: Building Your Real Estate Team

Erik Hitzelberger — Mon, 07 Jul 2014 16:47:14 +0000

Today in our next podcast, we will be discussing your real estate team and why you need it. In this episode Bryan and Erik talk about not getting overwhelmed by building your real estate team. They will discuss who is on that team and what responsibilities each team member has.

Building Your Real Estate Team

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