Archive for December, 2008

Making the Home Buying Decision Easier

December 27, 2008 at 12:45 pm · Filed under Buy a Property?, Buying Real Estate, buy sell home

Purchasing a home can be a very big decision. There are many things that you need to consider when purchasing a home. Nothing about this process is easy. First you have to decide where you want to be located, and what you want your house to have. A few questions you need to think about are: do we want a garage, how many bedrooms and bathrooms do you want, do you want a basement, and how big of a yard do we want? You will also need to decide which of these items you are willing to compromise on.

If you are serious about purchasing a new house you may also want to start shopping around for a bank where you can get a mortgage that you like. Once you find your house you want to purchase you will not want to waste any time getting moved in.

Many banks offer you the option of pre qualification. With this you will know how much you can spend on a house based on how much your loan can be. Banks take into consideration your income and your debt to determine how much they think you can afford for a house payment. This may be something you want to know before you start getting too excited about a house. You may have a limit to how much you can spend, and this could save you time when looking at houses.

The bank will also run a credit check to see how your credit is. Your credit score is based on how good you are at paying your bills on time. It also allows the bank to see who else you are in debt to and how much you are in debt. This may also affect your loan amount. If you have good credit the bank may be more willing to work with you on a loan amount.

You will also want to check around to see which bank can get you a better interest rate. Some banks can offer better interest rates than others. Your interest rate may also depend on your credit score. You want to find the bank that will give you the lowest interest rate, as this will also affect your payment. Your interest affects how much you actually end up paying for your house by the time it is paid off. You will also need to decide if you want a fixed interest rate or not. Some banks offer you a lower interest rate to begin with, and then increase the rate later on. You will want to check if this type of interest rate has a limit to how high it can go.

Not all banks can offer you the same types of loans. If you would like a first time homebuyer’s loan you will need to talk to the banks that offer this type of loan. They are loans that are backed by government. Loans that are not backed are called conventional loans.

You can also get loans that require no or low down payments. Closing costs are another expense you need to consider. Some banks charge more than others and some offer no closing costs.

You have many things to consider when choosing a bank for your loan. Make sure you do not limit yourself, shop around before you make your decision. Find a bank that is willing to work with you. You need to keep in mind what kind of loan you want, what kind of interest rate and payment works for you, and how much you have for down payment and closing costs.

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Facts To Know Before Becoming a Landlord

December 26, 2008 at 2:02 pm · Filed under Basics of Real Estate, buy sell home

Becoming a landlord is an extremely good way to make extra cash. However it all depends on the right research and planning by you. If you do not play your cards right, you could end up losing money.

First of all you have to ensure that rentals are allowed by your area’s homeowners association. If there is an option where you can rent out your property then you must set up a rent price. Newspaper classified ads are a good place to get an idea for the rent you should ask for. There are certain questions you might want to answer to determine the rental rate. You should see if the rent that you are going to ask for covers the cost of running and maintaining the house and after paying this, a profitable amount is left for your own disposal.

One thing has to be kept in mind; local laws may hinder rent increases and rent amounts hence you should check with the consumer affairs or housing services of your state. This should be done before you make the final decision to rent your property out.

It is a good idea to join a landlord association to help you stay abreast with latest landlord tenant issues. Becoming a member of an association will help you to interact with other landlords and understand state specific rental or lease agreements. These agreements have to uphold the state law. Features such as a rent increase or forms that deal with eviction etc vary according to policies unique to each state.

One thing you must know before becoming a landlord is that tenants have no rights to trash your property. However, as long as the tenants are paying the rent they can enjoy all the rights of ownership. But the right to sell the property is excluded from this clause.

Landlords must ensure that the property is in a condition that is habitable and that has working locks on the windows and doors, a roof that does not leak and adjustable thermostats. You must check the laws of your state regarding the maintenance and repair responsibilities of the landlord.

Another thing that you must know before becoming a landlord is that the Fair Housing Act of US Department of Housing and Urban Development prohibits any discrimination of tenants according to religion, color, race, national origin, familial status, sex, disability or handicap.

It is imperative that you do not rush through the entire process of tenant selection. You should see that you have compiled a set of standards or criteria to choose a good tenant. All applicants that you might want to consider should adhere to these standards.

These standards should include rules for the rent price, number of occupants, security deposits, pets, minimum income requirements, who pays utilities etc. Economically disadvantaged people are given vouchers or certificates by the housing authority. This guarantees that a portion of the rent will be paid by the government.

Carrying out the duties of a landlord will be easier if you understand the guidelines mentioned above.

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The Easy Way to Assess Property Value

December 7, 2008 at 2:32 pm · Filed under Basics of Real Estate, Buy a Property?, Buying Real Estate, Buying an Appartment, buy sell home

The notion that assessing a property to arrive at good decisions is difficult is globally ubiquitous in the minds of property-investor starters. It’s not that hard actually if you just know how to compare logically and if you practice prudence in your judgment particularly in giving percentages in the process of rectifying/adjusting the differences of the comparables’ features.



Though there are a lot of books that teach how to assess and select a good property to invest to, these starters usually, after reading such books, still end up investing their money on the wrong property because of rush decisions and of not thinking that there might be more properties out there with the same or more superior features offered at much lower prices. I’m not saying that they should go from one state to another state just to look for such property but what I would advise them to do is to look around first in the neighborhood for other properties with same features and try to compare their prices before buying the said property. It’s that simple.



A lot of them tend to forget immediately what they have read and make some rush wrong decisions inadvertently. Why? Because instead of trying to look around first and give themselves more time to think before buying it, they let themselves fall in the pit holes prepared by agents just to be able to convince them and make a sale. Right there and then they will decide to buy it without even canvassing by just taking a look around in that area for other offers. As a result, they will just realize later that they have become a victim of overpricing after knowing that there are more properties in the neighborhood with superior features offered at much lower prices.



Now, let’s go to the basics of comparing properties and what are they. These are the price, location, physical attributes and of course, the improvements and land developments if there are any.



Location should be based on the kind and condition of its fronting road, potential of the whole property and the activity in the vicinity.



Physical attributes are characteristics of the land such as the lot’s dimensions, size, shape, elevation and topography.



Land developments are developments introduced on the land such as landscape, perimeter fence, driveways and pathways, and swimming pool. Improvements are buildings whether residential, commercial or industrial depending on the kind of property you’re considering but just make it sure that it conforms to the property’s HBU and the neighborhood’s prevailing structures as well.



When you compare properties, you have to make sure that you’re comparing the same types of properties that are located within the same neighborhood. It’s a rule that you compare only same classification/type of properties.



In comparing you have to assign percentages to the differences of the properties’ locations and physical attributes by evaluating which is more superior. If your subject property is inferior, you have to deduct a certain percentage of the price of the comparable but if it’s more superior then you have to add. How much percentage you will add or deduct will depend on your observation of the extent of superiority or inferiority of your subject property to that of the other property or comparable.



On improvements, you should determine the areas of each property’s building(s) and cost grades, and their corresponding ages for you to be able to get their depreciated building values. It’s the same thing with land developments but then you have to determine which property has developments that are more attractive to you and the others as well.



These are the nitty-gritty of direct comparison method. Simplified for you to easily imbibe and adopt if you want to avoid the pit hole. However, it’s your prudence in judgment that matters for you to make good decisions. Bear also in mind that if you don’t use your common sense even if you know how to compare properties, you are sure to fall in that pit. So, be meticulous and be cautious . . . and you’re sure you will end up with a good property to invest to.

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Most Real Estate Investors are Doomed to Fail. Learn Why?

December 5, 2008 at 8:48 am · Filed under Buy a Property?, Buying Real Estate, Cutting Your Losses, Real Estate Investing, Real Estate Investing Comfort Zone, buy sell home

Let me start by saying that, sure, real estate can be a good investment. Real estate provides a hedge against inflation. And real estate often amounts to a forced saving plan. But most of the people who’ve jumped onto the real estate investment bandwagon over the last few years are going to fail. Here’s why:



Ignoring Returns on Investment



When you compare bank accounts, you know that 5% interest means more money in your pocket than 2% interest.



Similarly, you know that a mutual fund with a track record of 11% annual returns has made more money than a fund with a track record of 8% annual returns. Duh.



One picks investments and evaluates investment performance by looking at the return on the investment. This rule is true for stocks, bonds, and everything else—including real estate.



Which means that investors who can’t or don’t know how to calculate the return on a real estate investment—and almost all amateur real estate investors fall into this category— fly blind.



To be fair, real estate return on investment calculations get tricky fast.



First, consider how easy something like a bank CD. If you buy a bank CD for $100 and a year later receive $105 back, the return on investment calculations are pretty easy. Divide $5 by $100 and you get 5%. That’s the return on investment.



But what about a real estate investment that requires a $50,000 down payment and then negative monthly cash flows of $500 for 43 months. If you sell the property in month 44 and net $85,000 in cash, have you really made money with your real estate investment?



You can’t truly know whether this imaginary real estate investment is a good deal unless you compare its annual return to your other options.



It turns out, by the way, that the imaginary real estate investment is a slightly better deal than the imaginary CD—something you need a spreadsheet program like Microsoft Excel to determine. Programs like Microsoft Excel include rate of return calculation tools like the IRR function which you can and should use to estimate returns on investments with complicated cash flows.



Ignoring Real Estate Tax Laws



Here’s another reason that real estate investors fail. Real estate investments dramatically complicate your income taxes. For example, the passive loss limitation rules mean that you typically can’t use depreciation tax deductions except in special circumstances until you sell the property.



Schedule E (which you use to report your real estate investing to the IRS) requires you to prepare profit and loss statements by real estate investment—a bookkeeping requirement that pretty much forces you to use a full blown accounting system like QuickBooks.



Finally, rampant misunderstandings about Section 121 of the Internal Revenue Code mean that while most people shouldn’t have pay taxes on the profit from selling their home, many do pay taxes.



And don’t even get me started on dealing with the unrelated business income tax you’ll pay if you use a self-directed IRAs for real estate. Or on the pitfalls of creating a daisy-chain of like-kind exchanges. Or about depreciation recapture if you segregate property costs into real and personal property components.



Here’s the reality sandwich. For many small investors, real estate so complicates your income taxes that you’re faced with two bad choices. Bad choice number one: Winging it on your tax return or relying on some infomercial, the real estate agent, or your brother-in-law for accounting and tax planning. (This approach means you’ll make all sorts of expensive tax accounting mistakes.)



Bad choice number two: Paying an experienced tax practitioner perhaps a $1000 a year or more to make sure you don’t foul yourself up. This of course pretty much eats up the extra profits you hoped to get from real estate. Which means that while you will have the satisfaction of doing your tax accounting right, only your accountant and real estate agent make money.



My advice to you? Learn how the real estate tax laws work and how to do real estate accounting before you start investing. Then, after you truly understand this stuff and do start investing, do as much of your own accounting as you possibly can.



I really don’t think you’ve got any other good choice as a small real estate investor. Sorry.



Summing Up



As I said in the first paragraph of this little essay, real estate can be a good investment. But the investment is way trickier than most new investors realize. And in order to make a decent return, I think you must understand way more finance, tax and accounting than the typical real estate investor.

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