Real Estate tips and ideas

Real Estate tips and ideas 

•  When buying Investment properties spend your time check to see if it will be a profitable deal. Do not buy the property because you like it, buy only if it will make a good return.
• Most real estate agents are not familiar with how to analyze an income producing property. You will need to do the analysis yourself or use an account familiar with income real estate.
• When using equity from one property to buy another (equity then becomes cash invested), be sure the return on the funds used is a reasonable one, say 10% or more, I try for 20% plus. This means the net profit on the new property needs to make you a fairly save 10% plus on your cash invested.
• Seller financing is always the best in my opinion. The loans do not show up on your credit report. A seller can finance all or part of the deal and earn a higher rate from you then a CD pays. If the seller finances the deal you can set any terms you both agree to. Seller financing gives you the most flexibility to structure a deal.
• A rule of thumb for when a deal is a good one. The price you pay should be no more then 70% to 80% of the value of the property. The total cost of the property after all the repairs are done should not exceed 80% of the properties appraised value. You can fudge this a little if you are pleased with the net monthly cash flow. This means that when you look at a property you figure the properties value after it is put in first class order and offer a price that is only about 75% of that value including the cost of getting the property to a first class condition.
• Locate properties with out of town owners (landlords) and send them letters trying to buy their property, they may be more motivated to sell.
• If a home on a block is a little worn around the edges compared to the other homes it may be a rental, try to find the owner and see if a deal can be made.
• If there are any new banks in your town they may be hungry for business and offer you better rates.
• You can use component depreciation to lower your tax bill. This means you depreciate a new roof based on the life expectancy of the new roof rather then the longer terms called for in the IRS real estate depreciation tables. You can do this for any improvements made on income property. Check with your tax advisor. Hint: Gets a letter from the product supplier stating the useful life expectancy; if a new A/C system is expected to last seven years get the manufacture or distributor of the equipment to write you a letter to that effect before you buy it. The letter will be invaluable if you are audited.
• Buy when rental rates and interest rates are low and your profits will only increase as rates go up.
• No money down real estate deals are attractive only if the deal has a positive monthly cash flow after payments and expenses are considered. In other words if you are not going to make money why are you doing this?
• Have an exit plan every time you make a purchase of real estate. Are you going to rent it, fix it up and cash out, trade up to another property etc. Your exit strategy will effect how you value the property.
• Join a real estate investors club if one is available in your area. Great contacts and learning experience.
• Tie up the property you are considering with a small deposit while you check out the possibilities. You do not want to check out repair cost, values, zoning possibilities, rental rates etc, only to have some one more nimble buy the property out from under you.
• If you are buying fixer uppers to build your wealth. Do not over pay, not more then 60% to 70% of the post repair value. If you under estimate repairs you will need the margin.
• Read the real estate section of the news paper every Sunday; know what is happening in your town. I would suggest you read the business paper also.
• A good credit rating will save you tens of thousands of dollars in lower interest rate charges over a life time. Protect your credit. It is your best asset.
• Set up a reserve to cover any unforeseen expenses or vacancy. I recommend 10% to 33% of monthly net cash flow (I use 33%). This fund covers vacancies, emergency repairs, and tax bills. With out it I could well have fallen behind on my payments during tight economic times.
• If paying off your mortgage early is the goal, sending one or two extra mortgage payments each year to the lender will save you many years of payments and thousands of dollars in interest. Write a separate check and state on the check and on an accompanying note that this payment is to be applied to the principal balance only. Verify that the payment was applied to the principal. You will cut you number of payments by about one third.
• Get out there and buy a property even if all you do is break even on the first deal you will have learned a lot and broken the ice, getting started is the hard part.