mortgage

Do You Have What It Takes To Be A Landlord

Do You Have What It Takes To Be A Landlord

Are You the Right Person for being a Landlord?

Becoming a landlord is a great financial move for those that can take on the added responsibility that comes along with owning rental property. There are some great advantages and then there are some disadvantages of being a landlord in today’s society. In this article we will take a look at some of these disadvantages and give you some insight from what we have learnt over the years. Before we go any farther, just remember that if you have what it takes to be in business as a landlord you can diffidently make some serious income.

Being a landlord just might be the calling for you. This type of entrepreneurship is not for everyone though. Succeeding in this business does need a person to have a certain set of people skills and you must be able to handle issues that can arise expectantly. Sometimes there are some big challenges and headaches that a landlord has to deal with. So let’s jump into this article and take a look at what I call the 5 major challenges of being a landlord

Challenge number one: Locating the right property to purchase.

Purchasing property to use as a rental can open doors to many problems, some of these issues can be a huge burden on many that we will dedicated a whole article just on this subject in an up-coming post. Some important items that you will want to consider when purchasing property is:

  1. Neighborhood
  2. School system
  3. Property taxes
  4. Neighborhood crime
  5. Un-employment rate
  6. Number of other rentals that are vacant
  7. Going rental price
  8. Insurance cost for the area
  9. Public services
  10. Utility cost

Having a real estate agent may be beneficial for completing the purchase of the home but it is not always worth the hassle when searching for an investment property. A real estate agent works on commission and they may put undue pressure on you to purchase a piece of property that does not suit your needs or desires. If you are in no hurry to purchase then you sit in the driver seat to land a bargain when it falls on the market.

Challenge number two: Financing the property.

Again this is a huge question that we will cover more in-depth in an up-coming article. One of the biggest road blocks for purchasing rental properties is funding the cash needed to purchase the property. For investment properties you will need to come up with 20 percent down payment and closing cost. If the home needs repair before you are ready to rent it out then you will also need cash to do the repairs and prep the home for new tenants. One place that you could find this needed cash is through refinancing your personal home with either a line of credit, a HELOC loan or a cash out refinance loan. Do your research before making any financial decisions and get some good financial advice before signing on any dotted line.

Challenge number three: Are you the type of person that can do things your-self?

If you are a handy type person that can do simple plumbing repairs, electrical wiring, yard work and maybe some light construction then you could be a great candidate for being a landlord. Depending on the type of property you buy usually some of the basic things that you will need to do is apply a fresh coat of paint, either clean the carpets or replace them, fix or replace window screens and maybe some lawn maintenance. Remember the more you can do the more money stays in your pocket.

Challenge number four: Finding the right people to rent too.

What you are looking for are responsible adults that will be long-term tenants that will take good care of the property. Many times this is hard to find. With today’s social media sites one can screen their tenants with hardly any cost to the landlord. When I take an application I will tell the prospective tenet that I will have an answer for them within a week. I will take the application and jump on Facebook, twitter, and Google search their name to find out what type of people they really are. Example, I had one tenant that put on a good show at the time of visiting the house and had a good-looking application. When I Google and Facebook the applicant I found that they were huge party people who had many calls on them by the police department. This information I used to not rent the property to them. Properly screening your tenants by running credit checks and background check will take a bite out of your profit but is well worth the time and money to make sure that you get the tenant that will be responsible and not a burden to you.

Challenge number five: The hassles of tenants.

You could have the perfect property, the perfect tenant but even these come with their issues. Just like any home you are going to experience items that break from time to time. Broken water pipes, a garage door that won’t close, a window the kids broke, a drain that won’t drain, these are just a few of the challenges that arise from time to time.

Having bad tenants are even a larger issue that you will need to deal with. From daily complaints to unpaid or late rent payments are just a few challenges that come with bad tenants. Damage to walls, floors, and other parts of the home can lead to costly repairs and possibly having to hire an attorney to get the people evicted.


Conclusion

Don’t believe everything you see on television about becoming a millionaire overnight in the real estate game. Real estate especially through rental properties can be very profitable and build you a very nice lucrative passive income. While many people can bring in some extra side money having a sole piece of rental property, earning a true living as a landlord will require you to have multiple properties. The work is not for everyone. Those who are willing to pay the price of hard work and pay the price of creating a successful business will be nicely rewarded.

 

 

Posted by Tom in Business, 0 comments
Reverse Mortgage For Seniors To Purchase A New Home

Reverse Mortgage For Seniors To Purchase A New Home

Using a reverse mortgage to purchase a new home has been an option since 2009. In 2009 the Federal Housing Administration introduced the Home Equity Conversion Mortgage for Purchase (HECM), which makes it easier for seniors to purchase a new home for themselves. While the overall number of these transactions and of Americans who are reaching retirement age continues to increase, the program has been underutilized. This is a great option for seniors that are looking at owning their dream home before they pass.

How Does It Work

A reverse mortgage for purchase combines a purchase with a reverse mortgage. In these cases, a homeowner has to be at least 62 years old. This streamlined process eliminates closing costs, helping make the acquisition of a new home, condo, or FHA-approved manufactured home faster for them. On the other hand, the buyer must be able to afford property taxes, homeowners’ association dues if any, insurance premiums, and other property expenses. Most of the time the buyer is use to paying these items since they have owned a home before. Many seniors use the HECM to facilitate the purchase of a new place to live without the taking on monthly mortgage payments which can be great for people on a fixed income.

While the reverse mortgage for purchase seems like an attractive alternative to conventional financing, there are a number of factors that a potential buyer should take into account before signing on the proverbial dotted line.

Down Payment

The purchaser is required to make a down payment. Often, this can be as much as 50% of the purchase price. The reason for this fees is that there is no equity in the new home purchase. It is this equity that is used in lieu of monthly payments. Additionally, these funds cannot be borrowed but can come from the sale of existing property, savings accounts, or other sources of investments or financial accounts.

Cost Factor

Using this method to purchase a new property can be complex. Homeowners will still be required to pay taxes, keep the required insurance, and maintain the parcel in order to prevent foreclosure by the lender. Because there are no monthly payments, the overall balance is higher and compound interest accrues.

Additionally, if the borrower lives long enough, the underlying equity supporting the loan could be exhausted, which may result in a demand to repay the loan early. Individuals considering this type of financial move are required to receive mandatory free counseling from a third party or agency approved by the Department of Housing and Urban Development.

Is This The Right Step To Take?

As the economic climate continues to change and evolve, options, such as the reverse mortgage for purchase, may be a viable way to find a new home. It is important to remember that this may not be right for everyone. Doing the research first and defining one’s objectives is an important step in the process to ownership. Also make sure you talk to an investment  or real estate attorney and asking their advice before signing any documents.

 

Posted by Tom in Finance
Finding Financing For Real Estate

Finding Financing For Real Estate

Getting Financing for Your Investment Property Or Your Renovations

Financing For Real Estate

There are countless ways to make money in real estate, all which require skill, foresight and preparation and some hard work. A renovation is no different. Whether your project is a purchase to flip, repairing a rental property or improving your personal residence, there are a few things to consider which we will go over in this post.

First, you must ask yourself whether injecting any money into the property will actually increase its value. To answer this, you need to understand your market. This requires becoming an expert on property values in your neighborhood through sales comparable and so good old research.

You must know:

  • What properties are selling for in your area?
  • How long properties have been on the market?
  • When a property sells did they get asking price?

For us, what we have recently been doing is looking at current comparable’s and tax  assessments to get a better picture of property values for my area. Sometimes finding direct comparable’s is tough. It is always best to find out what the selling price per square foot is going for in your market.

When working and purchasing rental properties I highly recommend doing repairs on rental units in order to keep happy tenants, but tackling a fix and flip or renovating your home for profit must be considered carefully prior to commencement.

If the numbers look good and you decide to move forward, the next step is creating a specific “game plan” for the renovation. Understanding exactly what to fix and what not to fix will give you the biggest “bang for the buck.” Typically the kitchen and main bathroom, including sinks, counter-top’s, fixtures and flooring will provide the most upside. Painting the entire house, both inside and out with a neutral color provides a “flow” to the house and paint is more affordable when you buy a large quantity of the same color.


Landscaping is another area which is relatively inexpensive, yet adds a lot of value and “curb appeal.” The property may also require larger improvements such as windows, roof or furnace replacements, however it is often difficult to justify these amounts of renovation dollars unless your calculations still allow a profit.

To gain perspective on properties in your area, it is important to check out other houses in the neighborhood and understand to what degree people are renovating. This is easily accomplished by visiting open houses or buy checking building permits that are being pulled in local neighborhoods.. Never make the mistake of renovating to a standard that is higher than that of the market.

If the “fix and flip” model is a little too daunting, a very affordable, slow and steady strategy is to renovate your principal residence for profit. Once the renovation is complete, you have presumably increased the value. The next step is to refinance the property and use the capital to purchase another property and repeat the process. This is a great way to begin building a portfolio. Remember, you can continue to purchase with as little as 5% down, move in, renovate and repeat. Make sure you are buying properties that will gain profit once you move and continue the cycle. By repeating this process, many people ultimately wind up in their dream home, often with a fair amount of equity.

You may simply want to renovate your home to make it more energy efficient or accommodate a growing family or just bring a new look to the house. Either way, strategic renovation comes into play.

As a side note, there are many government grants and rebates available for a number of these renovations that will add to your savings on your renovations.

Before you jump into buying supplies and hiring contractors, ask yourself the proverbial question… how are you going to pay for this renovation?

The first thing to do, whether you are paying with your own cash or intending to get a loan, talk to a financing specialist, A good financial adviser will be able to help you understand your options and pre-approve you for a specific amount of money needed for your renovation, fix and flip or your next purchase. Let’s look at some of the options to consider.

Cash

If you have saved adequately, use your own funds. Make sure the cash outlay won’t overly affect your ability to qualify for your next property or affect your cash flow. When choosing to cash in an investment such as a stock or mutual fund to do the renovation, measure the loss amount it could be making in interest and include any early redemption fees versus the amount of interest paid on the renovation loan.

Credit Cards

The convenience of plastic allows the renovation to begin immediately rather than waiting for a loan approval. Remember to pay them off quickly or be faced with high interest rates. Be careful not to carry a high balance relative to your limit as this can significantly affect your credit score.

Credit cards from one of the big box stores can be an option. Some of these stores have been known to offer zero interest charges for 6 months. Again, consider your ability to pay off the card quickly as well as the credit bureau “hit” when considering any credit card.

Unsecured Personal Line of Credit

An unsecured “personal line of credit”  could be just the thing to pay the renovation costs. Banks give an unsecured personal line of credit based on a favorable credit bureau, confirm-able income and an amicable history with the bank. These vehicles allow the borrower to pay off as much as desired at any time. They are available in fixed rates but are more commonly offered with variable rates.

Secured Line of Credit

A secured line of credit, commonly known as a “home equity line of credit or HELOC” is a lower interest way which lets a homeowner use the equity in their home to borrow money, where the home is used as security. This allows payments that can be as low as interest only. You can pay as much as you want above the minimum required payment.

You can access up to 80% of the appraised value (or purchase price) of the home and as you pay down the outstanding balance, the available credit increases. Most lenders will allow a conversion into a lower fixed rate mortgage.

Bank Loan

A bank loan is perhaps the simplest way of financing your renovation. Payments on the loan will be withdrawn at regular intervals from your bank account to repay the loan. Just like a mortgage, if you can pay down the principal faster, you pay less interest. Therefore arrange your payments for a bi-weekly or weekly payments.

Refinancing Your Mortgage

When you refinance a mortgage, use the existing equity in your house to increase the mortgage amount up to 80% (or more based on the lender and insurer’s approval) of the home’s appraised value. This enables the mortgage payments to be spread over a longer period of time which take advantage of lower mortgage rates, ultimately resulting in lower payments than a PLC or HELOC.

There are costs involved which may include appraisal fees, legal fees and possibly a penalty for breaking the mortgage. Crunch the numbers and determine if this makes sense against other options available.

 

Second Mortgage

Depending on the amount of equity in the property, a second mortgage for renovation can be acquired in the form of an equity based 2nd mortgage. This is typically repaid over a shorter time period than a conventional mortgage. A second mortgage can be acquired from private lenders or many “B” lenders and will be registered as a second charge behind the first mortgage.

Many second mortgages commonly have higher interest rates as well as lender, broker and lawyer fees which are often paid upfront as a deduction to the mortgage advance. Second mortgages typically have a term of one year with interest only payments, although an open 2nd mortgage is possible.

Joint Venture Partners

Joint venture partners can become money partners, mortgage qualifiers, bird dogs or fix and flip partners. Whatever level you are at, just make sure that you partner with someone who is involved full time in real estate that can help you gain knowledge, experience and profit.

In closing, make sure to crunch the numbers and carefully consider the amounts you will pay for these loans, mortgages, credit lines or partnerships as compared to the potential profit or equity value you expect to gain from the property, prior to deciding to move forward with any renovation.

Posted by Tom in Business, Finance
Ideas To Help Pay Off Your Mortgage Early

Ideas To Help Pay Off Your Mortgage Early

Mortgage and automobile debt

For many people that are trying to homestead the one problem that many people have is debt. Two of the largest debt’s that families have hanging over their heads are mortgage debt and automobile financing. Today let’s take a look at ways to help pay off your mortgage and get this number one debt off your back. In future post we will talk about ways to pay off your auto loans and work on ways to be debt free.

Tip number one

Automate an extra payment to your principle along with your regular monthly mortgage payment. What I mean by this is when making your regular monthly mortgage payment add an extra $25 a month towards your mortgage principle. The reason I pick $25 a month is this is a nice low dollar amount that I am sure most people can find just by cutting back a few bad habits. If you set this up to automatically come out of your account and go straight to your principle you more than likely will not even notice the money being gone. After you are comfortable with $25 dollars a month then step out and increase it to $50 dollars a month. You will not believe how many years you will cut off your mortgage by paying the principle down monthly with just a few added dollars.

Tip number two

Many Americans are paid on a bi-weekly paycheck principle. If you were to set-up your mortgage payment to be paid bi-weekly instead of monthly. By paying half of your monthly mortgage payment ever two weeks you will shave off many years off the term of your mortgage. The reason for this is when you pay bi-weekly you will be making an additional monthly mortgage payment which will go directly towards your principle thus reducing the loan amount of the mortgage and saving you years of mortgage payments.

Tip number three

The whole idea of paying off your mortgage early is by cutting years off of the term of your loan and the easiest way to do this is reduce the principle. What my family and I have done is to deposit large chunks of money periodically towards the principle. Some ways that we have come up with these deposits is by thinking outside the box. A couple ways that we came up with the extra money to put towards the principle was to have a garage sale twice a year. Instead of taking the profits from the sale we took the money and put it towards the principle on the mortgage. Another suggestion that we did was to take our tax return and put this towards the principle. Whatever way you can find to take extra money and apply it towards the principle, do it! You will save thousands of dollars in interest by lowering the principle of your mortgage.

Tip number four

Most people have no clue about tip number four.  I love tip number four since we use credit cards that offers points for all our purchases. Disclaimer – we pay off the credit card at the end of the month so we do not add up debt.

Many people like us use our credit cards to pay for everything in order earn points for vacations or other frilly things. But there are some cards that you can have the points convert automatically to mortgage interest payments. So every time use this type of credit card you earn points which automatically get converted over to paying down your mortgage principle. This is a great tool that takes the guess work out of paying off your mortgage early.

Tip number five

Pretty much everybody can think of a way to adjust your lifestyle in order to save money to put towards your mortgage principle but tip number five is near and dear to my heart which is starting a side income. Making money on the side either by having a hobby or offering a service for people that you can do in your spare time is very rewarding and there is no limit how much money you can earn. There are many ways to earn extra income without taking on a second job that you may hate and regret. Just keep your eye on the goal and that is to pay off your mortgage and get out of debt in order to free up your income in order to be a happy homesteader.

Here are some resources for guidance on earning extra income

 

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Posted by Tom in Budgeting, Homestead