Archive for March, 2013

By Angelique Tinney

For the last twenty years I’ve intentionally purchased my own homes with Mother in Law (MIL) apartments, also called Accessory Dwelling Units (ADU), in which there is an apartment in the basement.

I don’t know if I’ve just been lucky, but each tenant who’s been willing to rent and live next to me in the same house has been great and never paid their rent late. In fact, they usually remind me that the rent is due by presenting the check in person.

The only downside for us has been noise, but just occasionally. And I’ve given up a space in my garage to make living in our MIL apartment more compelling. One tenant smoked outside our bedroom late at night, as that is where their patio was. Not good in the summer when you have your window open! They were my least favorite: they followed the rules and never smoked inside, but I learned that just saying “no smoking” is not enough! Some of our best friends were also our former tenants. What an added bonus!

For most of my tenants, we were the last stop before they bought a house, so they were young professionals and goal oriented. My MIL apartment has a great remodeled kitchen & bath and a great landscaped setting into the yard, so I often get former tenants referring their friends and family to me!

They usually cover half my mortgage, which has been a real life saver during the tough times and great for building up the retirement savings in the good times.

Utilities are expensed on taxes and split in proportion to the square footage. So it’s a great way to write off some of your cable bill, internet bill and basic utilities. I also write off half of the landscaping service and tools. Hot tub and swimming pool maintenance can be deducted, too. Deduct depreciation, also. You can 1031 a section of the house if your gain is large when you sell, or stop renting two years before you sell to re-characterize the rental area as owner occupied. I do my own taxes, so talk to a tax advisor before proceeding!

Most jurisdictions in the Puget Sound are encouraging ADUs to help increase affordable housing without creating infrastructure needs for the city. ADUs must be owner occupied in all jurisdictions that I know of, but a fellow REAPS member pointed out that you can rent out a house per room and not be owner occupied. Funny. Usually the ADU is limited to 1,000 sqft. Check the rules on-line where you live in the city or county ordinances. Many now also have articles about the rules on the Building Department section of their website.  I’ve also taken it one step farther by short platting the property where my house with the MIL apartment was located. But that was a very big step that took a lot of money, energy and time.

In the future, I plan on buying homes with the unit detached over the garage, to conquer the noise issue. I’ve also toyed with living on a lake, or on Mercer Island, or other expensive core area where my husband and I live in a custom built high-end view unit with a big covered porch/deck over three- or four-car garage, and rent out the main house.

What other investments provide a big chunk of immediate cash flow without much additional outlay or risk, and boost your standard of living so quickly? It’s a great first investment or lifestyle enhancer. Lifestyle, freedom and security are what we real estate investors are about, so think about it!

About the author…
Angelique Tinney is the Chairman of the Board for REAPS. She has been a real estate agent since 1991 and a real estate appraiser since 2002.

REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

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Mar
22

Investor Financing Tip

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By Jason Palliser

In this financing tip we talk about down payments. Do you or do you not need down payment to purchase investment property in today’s market?
The conventional way to buy a house is to locate an investment property and then put the proper amount of down payment down, which is usually 20 to 25% with a 30 year fixed loan and then you move on to the next home. The problem with this is that when you start putting 20 to 25% down on every house you buy, your liquid capital starts to dry up.

The conventional way to buy investment property is a good method if you have located a property that is already fixed up and needs very little to no work. The reason being that conventional lenders will not allow you to refinance without seasoning if you have not demonstrated (via canceled checks) that you have improved the property, and that is why the property will appraise for more than the purchase price.

In the past, the 30% equity rule, or even 20% equity rule, was still in effect whether or not you could document any improvements or not. However, as lending over the past 2 to 3 years has become much tighter, the lending institutions will not let you simply do a no cash out, non-seasoned refinance using the new appraisal value if you cannot clearly demonstrate that you have improved the property. The reason you could do this in the past without improvements was because the banks were still willing to refinance because they knew that within six months or 12 months there was appreciation in the marketplace. Now that most markets in the United States are declining, the conventional method of buying a home without making improvements has gone by the wayside.
So what are some main points to be aware of when locating a good deal and getting the renovation or hard money funding to take care of the cost of the entire project? The first thing you need to understand is that you must have at renovation or hard money funding on a single-family house. If you are seeking renovation or hard money funding on a two family or four family house, then you need to make sure that you have at least 40% equity of the after repair value because the financing terms on a multi-unit property are tougher to secure.

What I want to make abundantly clear is that you need to actually do the work to justify the new appraisal value. What do I mean by that? Understand that paint and carpet does not constitute a renovation that’s worthy of justifying the new appraisal value because in the banks eyes, paint and carpet are just prerequisites to getting your foot in the door to start justifying a non-seasoned investment property refinance.

So what do you need to do? Should you paint, carpet, kitchen cabinets, counter tops, light fixtures, update a 3′ x 4′ bathroom? You do not need to do each of these things, but they are enough to start justifying a non-seasoned investment property refinance using the new appraisal value. Another side note for you to consider is that replacing a water heater and/or doing landscaping typically does not add value to the property. These repairs may be needed, but it may not be enough work to put you over the top to justify using the new appraisal value on an investment property refinance.

A useful tool to consider, which will help get you on right track before you ever buy the property, can be found on my website at: www.REIBlackbook.com. The ARV tool will take your information, and based upon the work you input, will have an appraiser evaluate the exact work that you’re going to do a property to help decide what they think the after repair value will be.

As a new or seasoned investor, you can master the art of identifying properties that need up to four weeks worth of work, then you can also get the funding from renovation and/or hard money lenders. You will also be able to keep the balances of your personal bank accounts intact and reap the benefits of locating a good fixer-upper to grow your real estate portfolio.

The one common concern that I get when teaching investors is that securing hard money loans cost money. Of course it does! But if I can ask you to change your mindset a little bit, then I would tell you to simply make sure that you have accounted for the cost of the hard money loan, which is usually five or 6% of the entire amount of money that you need to buy the house and fix the house. Then you can just offer less upfront to buy the house. You have now successfully considered the renovation or hard money funding cost to make sure that you still have the correct equity position to make your investment deal make sense.

I hope this tip has helped you and put you on the right track to maximizing your real estate potential. Look for more powerful investing tips from Jason Palliser and REI Black book in the days and weeks to come. Now is the best time to buy and invest in real estate, so get out there and utilize these tips and tools to create your own real estate empire. Good luck and happy house hunting!

About Jason Palliser…
Jason Palliser has trained real estate investors nationwide for over 13 years on investment financing strategies. Jason has delivered investment financing strategy trainings for leading national educational companies including Donald Trump University, Robert Kyosaki Events, Wealth Intelligence Academy, REI Conferences and many more real estate offices. He has been ranked of the Top 100 loan originators in the United States for closings per year, as noted by Mortgage Originator Magazine. Jason has been ranked as high as #1 in Missouri for closings. He also serves as a continuing education trainer for Professional Housing Provider program in the state of Illinois. Jason is the creator of Certified Investment Specialist (“CIS”) for training mortgage professionals to be investment specialists.
He has individually trained over 7,000 investors on how to execute investment financing plans centered on acquiring multiple properties with little to no money and has helped them produce portfolios in the millions. Jason is an investor himself so he understands the art of the deal. Jason has a lifetime production more than a half-billion in loan volume funded residentially and commercially.
When it comes to lending and credit he backs up the “Knowledge Truck” and delivers the most cutting edge knowledge on how to fund deals. But as many now know, he built an “Automation Engine” for his real estate business that is changing the real estate world we live in by the second! He teaches how to produce real estate wealth with clicks. He teaches today how he turned his business into an “Automate Deal Maker Engine” that produces results for him 24/7.
His mission is to create financial freedom by plugging the investor’s business into his automated “Deal Maker Engine” which leverages game changing real estate technology needed to out-speed, out-leverage, out-market and simply out-produce the competition with an “all-in-one” real estate weapon with one password!

REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

 

 

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By  James Dainard          

Now more than ever, it’s the ideal time to start looking at cash flow properties. We find many of our investors looking primarily for properties to flip. While flipping can be a great way to make cash, diversifying your investment strategy and seeking a property to hold and generate cash flow is a smart move.

When seeking a cash flow property, as an investor, you need to be able to distinguish which areas make sense and run the numbers to make sure it will even generate positive cash flow. The experts at Heaton Dainard can help you pinpoint properties that meet your specific goals in the right neighborhood and fall in your budget. Many investors fail to compute in expenses such as property management, taxes and maintenance. It’s very important to take a conservative approach when running the numbers on a rental property you plan to hold. It’s essential you don’t make the mistake of being overly optimistic and assuming 100% occupancy or zero budget for improvements or maintenance. Having a Heaton Dainard team member walk you through the process can help you make a sound and low-risk decision on the right cash flow property for you.

Did you know that rents are rising faster than home prices in Seattle and nationally? Rents increased 0.2 percent to $1,278 nationwide during the month of July and were up 5.4 percent compared to July 2011. That’s more than quadruple the gain in home values, which went up a half percent to $151,600 nationally in July compared to the prior month. Home values were up 1.2 percent year over year, with three in five metropolitan areas nationwide seeing price increases.

In the Seattle metro area, home values were flat at $259,800, compared to July 2011, while rents have risen 4.4 percent during the twelve-month period to $1,679. High foreclosure rates have boosted the rental market in several metropolitan areas, with double-digit rent increases posted in Chicago, Baltimore and Philadelphia. Only two of the top 25 markets had a decline in rents between July 2011 and July 2012. Rents slipped 1.1 percent to $1,547 in Riverside, California and 0.4 percent in Atlanta to $1,143. Many people who lost their homes and ruined their credit in the economy are seeking single family homes to rent for their families to maintain a similar lifestyle to what they had prior to the housing bubble burst.

While the gains in home values are small, it is the eighth consecutive month of price increases, according to Zillow Chief Economist Stan Humphries. The relatively tight supply of homes listed for sale in certain markets has resulted in multiple offers on attractive properties and bidding wars. Most of the homes that Heaton Dainard lists are newly renovated, a benefit that is in short supply in the Seattle area and makes our homes more attractive than the competition. People are willing to pay top dollar for a turn-key resale home or rental because they don’t have the time or energy to manage any home improvement projects.

Buying a cash flow property will build your real estate portfolio and retirement plan, rates are low and now is the time to take advantage of that, you can avoid the same capital gains tax you would pay by flipping, you have the ability to do tax write offs on the property and we can expect low vacancy rates in Seattle for years to come.

Sign up to be on the Heaton Dainard mailing list by emailing [email protected] We will send you photos and the number breakdowns of recent cash flow properties that our investors purchased through Heaton Dainard. Don’t hesitate to contact us for more information about attaining a cash flow rental property today!!

About the author…
James Dainard is one of the founding partners of Invest Now, LLC, the largest wholesale property company in Washington. He has been buying and selling real estate in King, Snohomish and Pierce county for many years. Over the past few years James has been actively working directly with investors purchasing real estate, providing them with multiple exit strategies and supplying them with the various different lending sources.

REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

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By Wendy Ceccherelli

One of my favorite educational presentations on the 2013 NAREIA cruise was by Robyn Thompson, known as the “Queen of Rehab” for her amazing productivity and profitability in rehabbing and flipping houses. Her focus at this session was on treating your real estate investing as a business, and she offered some very practical advice. “Face what is,” she advised. “Set aside a minimum of three hours every week to decide what is working and what isn’t.”

Robyn actually sets aside 4 hours per week to plan for business; 1 of those hours is devoted to marketing. During that time, she closes her office door, and does not allow any interruptions. She defines the serious business owner as one who: has a detailed marketing plan for buying properties (1 hour per week to plan); Has saved up some start up capital; Has a full-time commitment; Has a support team of family and friends; and that the business owner demands alone time to plan Robyn focuses her marketing efforts on desperate sellers who live out of state and owned property for a long time.

She gets a 12.7% response rate on her infamous “horsey” letter, with a hand addressed envelope, pretty stamp, and signed with a PS. (e.g. PS. If you would rather email me personally, my email address is 1wendywonder@gmail. If you would like to send me any photos or information of the house, please do so). She pays a disabled worker 37 cents an envelope to hand-address. Responses go to patlive.com. Go to patlive.com/robynthompson for free scripts from Robyn. You do not want responses to go to your personal phone. Robyn will usually offer three different buying scenarios to motivated sellers: Offer #1 $42500 cash (worth $80K) Offer #2 Split funding $10K now, $45K in ten years Offer #3 $800/mo for 100 months Her philosophy is that a “Quick nickel is better than a slow dime.”

She looks for property in a good school district on buy and holds; property taxes and insurance must be reasonable. For fast cash deals, she recommends that wholesalers ask fellow investors what they are looking for, where do they want to buy, how many deals per month, how much cash do they have to buy? Her secretary pulls her list from List Source. Her assistant also pays all bills; answers phones; checks emails; and gets contractor quotes. She advertised for her assistant on monster.com – using criteria such as 5 years of admin experience, good with Microsoft Word, Excel and Quick Books, lives close by, education.

Patlive prescreens all responses from letters. Her secretary pulls comps; and Robyn buys one out of every ten motivated seller respondents. She has 9 types of houses to avoid, which include: busy street, mixed use/commercial property, war zone, junky neighbors, luxury homes, tiny bedrooms, and small houses. She buys houses that 80% of the buying population can afford. She strives to create “a drop-dead gorgeous house,” with nicer kitchens, bathrooms,etc. than the competition. Her independent contractor agreement requires her contractor to pay all permits, pick up materials, and respond to a detailed scope of work listing every SKU # for materials. She warns investors to be sure that the contractor is not your employee; he who buys the material is your employee; have a good independent contractor agreement; never buy materials; make sure there is workmen’s comp, and add yourself to their insurance policy.

Never make payments equal to materials or to labor (so it does not look like you are hiring them as employees). Find the money, find the deals and let the contractor handle everything else. Robyn uses gonannies.com to take care of household chores. She likes to pull LPDU approval on her buyers, with 2 pay stubs, last year taxes, and a bank statement. LPDU-Loan processor, desktop underwriter – full-blown approval, contingent on insurance and appraisal. Until she has LPDU approval, she does not take a house off the market.

Robyn believes that any serious business owner must be a leader and must focus on generating revenue every day. A serious business owner never wastes money on unnecessary frills – but asks, will it make me 3X what it costs me? Robyn also adheres to a strict detailed personal and business budget. Her mantra of “Reserves, reserves, reserves” served her well during the economic downturn.

Robyn’s best book recommendation is Failing Forward by John Maxwell. (This is available as a free eBook download at Seattle Public Library). According to Robyn, the serious business owner lives by these beliefs: Strong work ethic; No excuses allowed; Feed on opportunities and possibilities; Focus on strengths and hire people to cover the weaknesses; Failures are the ultimate learning lessons; accept 100% responsibility; Resilience.

REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

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