Investors have stepped up over the past six or more years, accounting annually for more than 30 percent of all home purchases. Some of that buying has been in blocks of hundreds or thousands of homes by major investors like the Blackstone Group. One recent headline tells us that the percentage of purchases by investors rose to 42 percent in one month. As long as the foreclosures keep coming there will be investor participation, but the competition for good houses has heated up. That competition is bringing higher prices, thus the media articles about a “market recovery.”
It’s weak, even if we can call it a recovery at all. There is still a large hole which the first time buyers used to fill. Just tracking prices isn’t working like it has in past markets. This is a new situation, and old statistical models may be misleading. The multiple strategies used by investors have all worked really well over the past few years:
• Wholesaling: Investors use location and negotiation skills to locate properties at deep discounts and then quickly sell them to other investors who wouldn’t have found them on their own. The sale can also be to a retail buyer, but there’s far less of that activity in current markets.
• Fix & Flip: The investor buys a distressed property and does renovation and repairs, many times selling them within three months or so to a rental property investor or possibly a retail customer.
• Rental Investors: These people buy homes with the long-term goal of renting them out for positive monthly cash flow over expenses, and a profit from appreciation at sale in the future.
All of these strategies are still working, but they’re mostly just contributing to the movement of Americans from homeownership to tenant status. This may be the future, at least for the next five to ten years until the economy has a chance to improve and unemployment decreases. It’s been a nice ride for real estate investors, and it’s not over. However, if we consider the dream of homeownership wounded but not dead, things will turn around at some point and buyers will be back. However, they may want to buy but still be hampered by their credit, lack of down payment cash, employment uncertainty, or student debt.
Even long-term rental property investors must have an exit strategy, and it’s in that exit strategy that investors may be able to help renters move back to ownership. The goals of both parties are aligned, as the buyers will be taking the home off the books of the investor when they want to liquidate the investment. Perhaps there’s a way to increase the number of potential buyers for that investment property by making it easier for them to buy.
Rent-to-own or lease-purchase arrangements have been around for a long time. A buyer who may not be ready to purchase but would like to do so can lease the home with an option to buy at some point in the future. They may need to build a down payment, or improve their credit. There are a number of benefits for the investor in this type of arrangement:
1. The tenant buyer really wants to own the home, so they’ll take better care of it.
2. The lease agreement may be structured with the tenant buyer paying some of the repairs and maintenance, definitely not part of a regular lease.
3. In many cases the tenant buyer will pay a higher rent, increasing cash flow.
A rental home investor with a plan to sell a home five to eight years in the future, perhaps to buy a more expensive rental or invest elsewhere, normally would just follow their plan and list it for sale. They’re already marketing the home for tenants, but now could take a different approach. How about helping a strapped tenant who wants to own but has a few hurdles to jump? Instead of just marketing for a tenant, changing the marketing approach to locating tenants who want to own could work for both sides.
The investor gets a three to five-year lease-purchase agreement providing the tenant with the option to buy on or before the lease expires. The timing of the expiration is when the investor wants to sell. The price is set to provide the desired profit for the investor. The tenant buyer has a plan with a due date, and they can begin to move toward ownership, taking great care of the home. It’s really no big change for the investor, just a different marketing approach. Should the tenant not exercise their option to buy, the investor is just fine, as they can list the home for sale as they would have anyway. It’s a win-win and may help bring back the dream.
Written by Dean Graziosi– New York Times Best Selling Author
Red Rock Management & Real Estate Investment
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• August 24, 2015: -588.47
• August 21, 2015: -530.94
• August 8, 2011: -634.76
• Six more 600 points or larger drops since 2000.
Yes, if you just bought and held for 15 years, you would have done well in stocks. Unfortunately, many people can’t simply drop a major chunk of change into stocks and just let it ride for that long. And, depending on when you buy, having to sell after a drop like these can be devastating to your savings and retirement.
So, that said, I’m not saying dump all of your stocks and buy real estate … particularly not now. However, the next time your stock broker advises you to “diversify,” don’t just do it with stocks. Let’s look at some of the points referenced in the linked article.
Actually, the article wasn’t really that positive about the advantages of investing in real estate. Things like the ease of placing stock trades and low cost of transactions were mentioned. Property taxes were mentioned as a negative, and they are to a point. The article’s title really wasn’t in my opinion supported very strongly by the content. So, let’s take a look at some differences between stocks and real estate as an investment asset class.
Inflation Hedge
Stocks are susceptible to inflation risk. Your return is whatever it is, including dividends. When inflation gets rowdy, it can take away major chunks of your investment gains in stocks. That’s not to say that real estate is inflation proof, but there are some logical reasons why it may be better.
Let’s think about what inflation really is. It is an increase in the cost of goods and services. So, what do you expect to happen to home prices when wood, tile, wiring, plumbing and other materials and labor costs increase? If it costs more to build, usually within a reasonable period of time it will cost more to buy. Your owned property value can actually increase during inflationary periods.
Interest Rate Increases
When interest rates rise, stocks and definitely bonds usually suffer. It costs companies more to borrow to expand and finance operations, so their profits are reduced. Bonds carry a fixed rate of return, so their value drops when interest rates increase.
If you own rental real estate with a fixed mortgage rate, interest rate increases don’t really bother you. In fact, they can help. If mortgage rates rise, more people must rent than buy. Rental demand increases and rents rise.
Taxes
Sure, you must pay property taxes if you own real estate. However, if you’re doing your job, you factor those into your purchase of rental property and the positive cash flow you project to receive. Sure, they can go up, but you may be able to offset that with rent increases.
One major difference is in using the IRS 1031 Exchange rule for growing your real estate portfolio. While the stock market investor will pay capital gains taxes in the year they sell a stock at a profit, real estate investors get a major break. Using this IRS rule, you can sell and roll the profits into another investment and forego paying capital gains. It’s complicated and the rules are strict, so an accountant needs to be involved.
I’m not trying to push anyone into real estate who is afraid of it or not suited for a landlord’s duties. But, there definitely are reasons for real estate as a diversification strategy.
Article Written by Dean Graziosi on Twitter: www.twitter.com/deangraziosi
Red Rock Management & Real Estate Investment
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HOW RENTERS INSURANCE WILL HELP COVER YOUR VALUABLES
Imagine a moment you’ve just returned home from a long day at work to find there’s been a fire. Everything you owned has been destroyed: your flat-screen TV, computer, furniture, books, game consoles, CDs, jewelry, collectibles and clothing. Where will you stay until your home is renovated? Who will pay to replace all your belongings? Not your landlord.
A Renters insurance policy can be the answer. It provides coverage to help you to replace your lost or damage items. If you suffer a covered loss, we’ll reimburse you for your lost or damaged items. And if the loss makes your home uninhabitable, we’ll also pay for the additional living costs for hotel, meals and related expenses.
Renters policies are affordable, generally ranging from $15-$25 each month. For less than a dollar a day, you can have valuable insurance coverage!
BENEFITS
– Personal property coverage
– Personal liability coverage
– Additional living expenses
OPTIONAL COVERAGES
– Personal articles floater
– Jewelry, furs, fine arts
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She writes, “Just recently, a reader asked me about the difference between buying a house with cash and buying a house with a home loan. That’s a great question!
Here’s a rundown of the differences.
Buying a house with cash saves you money. You don’t have to pay for an appraisal. That doesn’t mean you can’t or shouldn’t pay for an appraisal, you just don’t have to.
Buyers using a home loan have to pay for an appraisal. The lender requires an unbiased, licensed appraiser to give a thoroughly researched and documented report on the value of the home so the lender is confident you’re paying the right price and that they are making a sound investment.
A home buyer paying cash also saves on other lender related costs including a credit report, loan origination fee, flood certification, tax service fee (the lender has to be aware of any back taxes owed) lender required title insurance and any points a borrower chooses to pay to bring down the interest rate on the money borrowed.
In addition, a cash buyer is not required to purchase home owner’s insurance.
When you get a home loan, the lender requires evidence of insurance, and you pay for a full year up front.
I’d never recommend not buying home owner’s insurance. However, when you’re buying a house with cash, you can work it out directly with your insurance carrier as to the frequency of payments.
When you are buying with cash, you also save on escrow fees including the loan tie-in fee, the loan documentation prep fee, and the notary fees (you’re not signing anything that needs to be notarized).
The more subtle aspects of buying with cash include the need to prove you have the cash up front with your offer. This means you need to submit, up front, bank statements showing sufficient funds to cover the price.
If you are flush with tons of cash, you may want to keep a bank account that only has a balance large enough to cover the cost of the house and your share of the escrow fee and a processing fee.
You have no need to show the seller how much you have overall.
You get to keep your financial status a secret, as opposed to a buyer getting a home loan. Those who buy with a loan have to provide full financial disclosure to the lender to qualify for the loan.
There’s much less paperwork required when buying with cash. You can also close escrow much more quickly. You do not have to budget time for the appraisal review, underwriting review, management review, and all the time to prepare and review loan documents.
There’s also the advantage of representing less risk to a home seller. If you show the seller the money up front, and if your offer is a figure that is acceptable to the seller, you will probably win out over a buyer who needs a loan. Cash is much easier and less risky.”
Source: OC Journal – leslieeskildsen.com.
Red Rock Management & Real Estate Investment
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Paint Cabinets White
Are your kitchen cabinets a little beat up? Do you have wood cabinets that look dated and make the room gloomy? You can easily upgrade your kitchen by painting your cabinets white. White cabinets work with all types of design styles, so whether your tenant’s style leans more toward rustic or modern, they’ll be able to make their belongings fit nicely. White cabinets also give you a neutral palette to try out an array of stylish backsplashes or even a bold color for a statement wall.
Via Modernize.com
Add Interesting Lighting
Lighting is an inexpensive way to add some real style to your kitchen. Pendant lamps or even a chandelier are great tools for integrating your cooking and eating space–whether it’s a breakfast nook or an adjacent dining room. You can also play with scale to make a cavernous space feel more intimate or a small space more cozy and welcoming.
Via Modernize.com
If you have a kitchen that tends to get very hot, consider adding a light fixture with a ceiling fan. Your tenants will appreciate it in the warm summer months.
Maximize Storage Space
Even if you have a small kitchen, you’ll be able to meet the needs of your tenants with some smart storage solutions.,. Install multiple shelf units within cabinets to double and sometimes triple the storage space. In the area under the sink–always tight because of plumbing–install some handy door racks inside the cabinet to keep supplies organized. You can also make the most of those faux drawers (typically found below the sink) by converting them to tilting drawers that hold sponges and other small cleaning supplies. If you’re working with limited space for dishes, utensils, spices or small cooking accessories, look underneath the cabinets. There are ample options for installing racks with hooks to hang coffee mugs or utensils; magnetic strips for cutlery sets, dish drying racks and even spice shelves. The space underneath cabinets can provide an incredible amount of unexpected storage space, and in a neat and tidy manner.
Via Modernize.com
Utilize a Non-Traditional Island
If you have the space, consider adding an island to your kitchen. The island will provide valuable counter space for preparing meals and can serve as a dining room table for small family dinners or as a serving buffet during parties. Depending on the type of island you select, you may also be able to get some extra storage space out of it. You don’t have to spend a lot of money of a factory produced island (that may or may not match your cabinets). Instead, consider non-traditional islands like a repurposed dresser or bookshelves. Here are some great DIY inspirations for kitchen islands. Whatever you end up using, just make sure to fasten the island to the floor to keep the surface stable.
Source : Bryn Huntpalmer, Editor of Modernize.com Via Modernize.com
Red Rock Management & Real Estate Investment
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For some, now is a great time to buy real estate, especially Las Vegas real estate. Home
values are poised perfectly for an upswing in appreciation. There is a demographic of people
who can really score in this market. According to Yahoo:
“Dual-income customers should definitely buy a home now,” says George Kaiser, vice president
of banking operations for Northbrook Bank and Trust and West America Mortgage Co., its
sister company. “People with assets in reserve and a credit score of at least 680 should buy
as well. Anyone with a credit score less than that will have to verify their income.”
For others it is also a great time to get involved. For some it’s not. If you need help
determining whether or not the Las Vegas real estate market is right for you now get in
contact with your Las Vegas Realtor at www.RedRockManagementlv.com.
Red Rock Management
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The news commonly reminds us of unexpected disaster and loss of home. This Wall Street
Journal article suggests we get our insurance in order. Many of our homes may not be insured
properly for possible issues. We don’t intend to scare home owners but want to point out
that there are ways to verify if the home is properly insured or not.
Las Vegas is known for its storms during the monsoon season. A community can be flooded
quickly. There is a resource home owners can use to determine whether they live in a flood
plain or not. It is a web site with all of the flood zones outlined. Las Vegas Realtors can
provide you with that resource.
Red Rock Management
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An article in CNN this morning was very intriguing and will likely spark some political
skirmish. As mentioned in the article:
“Under the House plan, the Department of Housing and Urban Development would dole out the
loans and grants based on the number of foreclosures and home prices in an area. Cities
could use the money to buy foreclosed homes, renovate the homes to make them compliant with
housing codes, and resell or rent them.”
The goal is to help keep neighborhoods and the city as a whole in good shape since there are
so many vacant homes on the market. They tend to be run down.
In Las Vegas we’re seeing a significant number of homes that are vacant. There has been
issues with dilapitated homes and associated values. Some Las Vegas real estate agents are
wrapped up in these properties and are able to get good deals on them. However, if buyers
aren’t available it takes some technique to sell these properties. We’ll keep an eye out to
see if the bill passes.
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The Realtor® Magazine published an article in March about real estate purchaser preference.
They claim that although incentives are attractive, lower home prices draw more interest.
Many Las Vegas real estate agents don’t oppose incentives and have found success with them.
However, one major factor that affects buyer interest is that fact that buyers who work with
Realtors® typically use the MLS home search. There is no search criteria for “incentives” or
similar terms. Potential buyers have to stumble upon incentives as they peruse and the odds
of being found are lower. However, most buyers do use price as a criteria and if a seller’s
house priced better than its competition it will draw more views. The important thing in a
tough selling market is to get as much attention as possible.
According to the article:
“The single thing that’ll drive buyers and salespeople to a property is that it must be
priced at today’s market value. If that happens, you’ll get buyers at the property, and
you’ll get practitioners there, too, because they believe buyers will buy.”
Red Rock Management
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Recent interest rates cuts have motivated many to attempt to refinance their property.
However, many may be unable to do it successfully. Mortgage lenders are looking for
considerable qualifications. The house must have equity, the borrower must have good credit
and work history, and the house needs to appraise well in the real estate market they live
in.
Many have tried to lock in better rates and a better term for their home but are unable to
because of the previous loan they acquired. To find out if you qualify contact your lender
or your real estate agent who can refer you.
Red Rock Management
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