Friday, August 28, 2009
1. Everyone is getting out of real estate, so you should too. That's right, in a democracy where every vote counts, the majority rules. So as realtors, loan officers, title officers, investors, and everyone else is dropping like flys, you should get out or stay out!
2. Real estate prices are down. You need to wait until prices are up a lot to make sure that you are following the upward trend. Even though property values are low and on sale, wait until prices go up quite a bit. Real estate isn't like stocks or cars or other things that you buy. Buying high is what most people do, so you should follow the majority (see reason #1.)
3. Real estate volume is down even further. Again, if no one is buying, why should you? Whait until volume goes up and it becomes more of a seller's market and then you can feel good about making offers near the asking price. Better yet, you'll be able to make lot's of low-ball offers that get rejected because people have more confidence that they'll be able to sell their house.
4. Unemployment is up. This means that everone has stopped buying houses and no one can afford to pay rent. After all, going from 3.0% unemployment to 5.7% unemployment (in Utah) means that everyone is out of work and no one has a paycheck coming in. We know that the government lies and unemployment MUST be so high that the American way of life has ceased to exist. I am not sure where people are living, but it must not be in houses or apartments. Has anyone checked on RV park occupancy rates lately?
5.5 Home foreclosures are ready for the "second wave." Home prices are going down even further. Forget about buying for cash flow long term, forget about negotiating a good deal now, forget about amortization, forget about owner financing that will allow you to own dozens of houses without qualifying at the bank. Just focus on equity and remember housing prices never bounce back.
5.5 Leave more for me & my friends! This is the best reason of all to stay out of the real estate market. We are having too much fun and I don't want competition for houses to go back up to were it was two years ago!
My suggestion is that you wait for the nightly news to tell you that it's a good time to invest in real estate. They allways seem to have their pulse on the market. Look at the great job of investigative reporting they did to warn us about the housing bubble.
There are lots of other other good reasons to not invest. Can you think of some and share them?
Monday, August 24, 2009
Someone once said, "If you don't manage properties well, then you are just a custodian for the properties until you sell them at rock-bottom prices to the next guy."
The goal of a good property management company is to maximize property profitability through maximizing revenue and keeping costs as low as possible. The company also gives property owners complete access to property and tenant information. This can be done through on-line software that is available 24/7.
Whether you pay someone to manage your property or do it yourself, if you are going to keep properties long-term, you need to understand what it takes to manage a property.
Each property is an asset that needs to be maintained and improved on over the lifetime of the property. The cost of maintaining and improving the property can vary greatly, depending on the tenants.
Screening for great tenants can take time and energy, but experienced landlords say its worth it to avoid evictions and property damage. Some owners look at tenants as employees that safeguard, maintain, and utilize the property
Revenue maximization is a function of keeping rents high and occupancy rates high. Occupancy rates are a function of keeping tenants, attracting new renters when properties become available and minimizing the amount of time between move-out and move-in.
Revenues also come from collecting late fees and enforcing lease contracts.
Costs are impacted by tenant turnover, repairs, ongoing property maintenance and tenant delinquencies and/or evictions. Turnover costs (the cost to get a house rent-ready) are significant, even when the tenants are clean and take care of the property.
Repairs paid by property owners can be kept down through good lease contracts and proper tenant screening. Ongoing property maintenance is unavoidable and strong relationships with service providers keeps costs down.
Obviously keeping delinquencies and evictions to a minimum and preventing these costs is best, controlling the costs when needed is critical.
When using a property manager, you should have access to all of the information that pertains to each property you own: property ownership documents, tenant lease information, revenue owed and collected, and costs. Reports can be scheduled to be sent automatically by e-mail. They can also be generated on an “as needed” basis.
If you are managing the properties yourself, the need is the same- you need to know if you are making or losing money on each property.
What about your properties? Any "tricks of the trade" that you can share?
Thursday, August 20, 2009
- Write offers the day a property goes on the market?
- Close quickly- 1-2 weeks, better yet in 1-2 days
- Have professional resources that can help you structure and fund a deal?
- Deal with the property AFTER you acquire it? Fix up, rent it, sell it, etc.?
Friday, August 14, 2009
Thursday, August 13, 2009
- Property seasoning of 1+ years
- Unreasonabley high standard for credit scores and W-2 income
- Bad appraisales
- Unknowledgable loan officers
- Very high interest rates
- etc, etc, etc
- Home equity line of credit
- Up to 65% LTV of appraised value for investment properties
- In-house appraiser who will talk with owner and understand the property
- NO SEASONING- apply the day after you purchase the property
- Interest rate at prime+1.5% (currently at 4.5%)
- Property must be in live-in condition (no pre-rehab junkers)
- Borrow must have W-2 income and 700+ credit score
- Borrower must be a member of the credit union (generally $25 in a savings account)
- Origination fee about 1%
Thursday, August 6, 2009
Monday, August 3, 2009
One of Clear Day Capital's client's recently borrowed funds in mid-June, rehabbed a house for a couple of weeks, and paid us back in late July using funds from a credit union. About a 5 week turn-around on our loan and a payback a couple of weeks early!! This had not happened for over a year- a quick loan turn around using funds from a traditional financial institution.
Introducing: Equity Lines Based on Appraised Value
Here is how it worked (details might be a little off, but generally this is how he was able to make it happen.) Our client used a loan from Golden West Credit Union to pull out up to 65% of his appraised value. No property ownership seasoning, the application could go in the next day. The rate was prime + a low fixed percentage, but the rate will adjust over time based on prime. There is a (5 year?) balloon payment due. It took about 3 weeks to complete the loan.
We have heard of two other banks and credit unions doing this type of a loan- Zions and Weber Credit Union. They still will not lend you money to purchase an uninhabitable house, but that's where a lender like Clear Day Capital comes into the picture. Here's the scenario:
You find a property with a great LTV.
Borrow your purchase funds from Clear Day Capital.
If needed, borrow fix up funds from Clear Day Capital.
Do the rehab.
Get a loan based on appraised value and pay off Clear Day Capital.
Turn around time to go from expensive money to cheap money: 4-8 weeks.
Once you have cheap money, you can afford to hold in on the market for a higher price offer. You can rent it with great cash flow and wait for a better offer. Sell it on contract or with a lease option with a balloon payment or option time frame that coincides with your balloon payment. Imagine the possibilities again...
What's the next project that you can use a loan program like this for? Post a comment and share it with me!