Real estate is one of those industries that has plenty of jargon. Some terms may sound like a totally different language. For regular consumers, it is not critically important to understand all the jargon. For real estate investors, industry jargon matters. Here are some of the terms investors should add to their daily vocabulary.
Net Operating Income
Known as NOI, this term defines how much cash flow investors generate if there is no lien or mortgage on the property. Most investors calculate NOI on an annual basis minus vacancy rates and expenses. Experts say investors should see a 40 to 50 percent NOI when compared to net rental income.
The capitalization rate, also known as the cap rate, is used to determine an investment’s annual return based on the estimated profit generated from a property in one year. To calculate the cap rate, divide the above mentioned NOI by the sales price or the appraised value of a property.
Real Estate Owned
When investors use the term real estate owned (REO), they are referring to a property that is currently owned by a bank. In most cases, the property went into foreclosure, and the bank listed the property for sale at a public auction. When a property does not sell at auction, the bank must maintain possession of the property. REO properties are popular among real estate investors since banks often list these homes for much less than their appraised value.
The goal of any investment property is to make money by renting or by capital appreciation, also known as capital gain. To determine the capital gain of a property, subtract the current value of the investment by the purchase price. If there is a gain in value, investors must pay a capital gains tax. However, the tax is not applicable until the asset is sold
This ratio helps investors determine how much real ownership they have in a property. The ratio, expressed as a percentage, compares the total debt owed on an investment compared to its equity. For example, if an investor buys a property valued at $100,000 and used an $80,000 mortgage plus $20,000 of their own money as a down payment, the investment would have an 80 percent debt-to-equity ratio. Many banks and mortgage lenders prefer a ratio of 80 percent or less.
Now that you have a better understanding of some of the most frequently used jargon in the real estate investment industry, you are ready to tackle your next investment with ease.
Real estate agents have long known that the winter months provide a slight softening in the prices of homes. This is due to a number of factors. One is the simple fact that people, especially those in the more northern regions of the country, do not want to deal with the many hassles of moving when they have potentially sub-zero and blizzard-like conditions to contend with. Another factor is that people who have kids of school age typically will avoid removing their kids from a given school halfway through the year.
But even higher-end properties and condominiums tend to see slight reductions in prices over the winter months. More importantly, real estate prices almost never rise throughout the winter even in years with significant appreciation. The universality of this trend across the entire gamut of real estate offerings means that for those who can deal with the impositions of buying a new home between November and March, doing so may have some nice rewards.
A recent article
went through some of the hard evidence that there is a secular decline in home prices throughout the winter months. The most compelling of these pieces of evidence is an index known as the Case-Schiller Price Index, which tracks general real estate prices throughout the country, independent of the underlying composition of the property types that are selling.This index provides a way to adjust for the seasonal composition of home types, which can vary quite a bit. It shows that, even adjusted for the types of properties that are sold, there is a clear secular decline in home prices throughout the winter months. And this can often amount to a three to five percent savings for homebuyers that are willing to close transactions in this period.
Of particular interest is the fact that the Case-Schiller Price Index almost never increases throughout the winter months. And this is true even in years that have experienced tremendous appreciation in home prices, like 2012. This means that in years where sharp appreciation in home prices is likely, buying between November and March could save buyers more than 10 percent on their purchase price.
This is a good strategy to keep in mind, especially for those who may need to buy using a mortgage. 10 percent differences in the purchase price can make a huge difference in the overall returns on investment.
Buying a luxurious waterfront property will reap the long-term rewards of enjoyment on the property. With that said, people must understand a few key facts to know what they must avoid when buying beautiful waterfront properties. Waterfront properties can turn into a hassle if not bought under the right conditions. From the ongoing battle with rust and mold to being in a potential flood zone, waterfront properties can present a number of challenges. Potential home buyers must do their due diligence to make a solid real estate investment.
#1: Failure to Examine the Bulkheads
The bulkheads require a specialist to inspect the bulkheads because this protects the property from the water. Bulkheads could be logs, large stones or a concrete slab. Ensuring its integrity from the start is a great way to protect a real estate investment.
#2: Not Preparing the Financing
Before an individual goes out to buy a waterfront property, they should first understand how the financing must be there. Waterfront property classifies under a specialty loan, and they will normally cost more than a regular property. Because of this, home buyers shouldn’t wait until the last minute to try to put the financing together because it will cost more.
#3: Not Checking That It Can Withstand Harsh Weather
Waterfront property will normally put up with more abuse than a regular home because it sits on a waterfront. Because of this, the property could face more wear and tear from mother nature. Check to see that the property uses stainless steel, and they have storm shutters for the home.
#4: Not Securing the Right Property Insurance
When an individual owns waterfront property, they must secure the right type of property insurance to protect themselves. Living near the water opens the home to the potential for flooding, so an individual should have the right kind of flood insurance to protect them. Not to mention, they should look carefully at the terms of the flood insurance. Insurance often comes down to someone’s level of risk tolerance, but when someone owns waterfront property, flood insurance is a must.
These are a few things that people should avoid when it comes to buying a waterfront property. These mistakes can cost a homeowner thousands of dollars. Many times, when someone goes to buy a property like this, they feel excited to own it, but they have to keep their wits about them and examine it carefully.
With its sprawling natural wilderness set next to cities booming with high-tech business ventures, West Coast cities are increasingly viewed as a real estate entrepreneur’s dream come true when it comes to outstanding investment opportunities. Here are just four great cities with amazing potential for investors looking for properties that will provide healthy profits and rising value in the years to come.
1. Portland, Oregon
Smaller and more approachable than its sibling cities Seattle and San Francisco, Portland still has a booming real estate market thanks to its quality of life and its setting as the headquarters for industry titans like Nike and Intel. Portland is especially popular for young people, who have moved to the city in droves for its vicinity to natural wonders such as Mt. Hood and the Oregon coast and its numerous bookstores, coffee shops, and fine dining restaurants.
2. San Francisco, California
With its proximity to Silicon Valley and Stanford University, San Francisco is a powerhouse location for the tech world, with tech billionaires driving a market for great real estate opportunities and wonderful standards of living. With its beautiful views and charming hillside apartment buildings, San Francisco should be at the top of any real estate investor’s list for high-value opportunities.
3. Seattle, Washington
The birthplace of Microsoft and Starbucks, Seattle truly has it all for savvy real estate investors: A large professional class eager to move to the city for its stunning natural wonders and high culture, and a real estate market that is set to continue its astounding arc in value as companies like Amazon move to the city for its tech-friendly culture and high standard of living.
4. Napa, California
When most people think of Napa Valley, they think of sprawling vineyards and Michelin-starred restaurants. The high quality of life in Napa, the largest city in the region, is driving a booming real estate market that provides incredible deals for entrepreneurs aiming to rent out properties. The added bonus of owning property one of the most beautiful regions in America is also a big plus for investors!
For these reasons, the West Coast is home to some of the hottest real estate markets in the world. For the right investor, the region presents unbelievable opportunities for growth and personal satisfaction in the foreseeable future. Combining high quality of life and an entrepreneurial spirit that fostered business geniuses like Bill Gates, Howard Schultz, and Steve Jobs, the West Coast truly has it all. For real estate entrepreneurs, that is business done right!
Building a profitable real estate portfolio is a proven way to attain financial freedom. However, finding profitable investments on a continuous basis is a challenge, especially in red-hot housing markets. When demand is greater than supply, housing prices rise causing many investors to struggle with finding those lucrative discounted properties. Here are some tips that will help investors find profitable deals in competitive markets.
Search for Less Competitive Markets
Although the housing market is hot in many locations, there are still regions in the U.S. where competition is minimal and prices are low. However, to find these markets, investors will need to step outside their comfort zone and look for areas where they do not normally invest. The Midwest, the Deep South, and some Southwestern locations are still affordable. Additionally, these regions are at the least amount of risk to see deep losses in value if the housing market does tank. Because properties in these regions are affordable and are typically not subject to the regular up and down cycles of appreciation and depreciation, investors can find profitable properties that can help them shore up their portfolios.
Look for “Quick Flips”
Finding a property that produces huge profits in a competitive market is a rarity. Therefore, many successful investors turn to “quick flips.” Essentially, they scale down the size of their projects and look for smaller investments that produce smaller returns. Foreclosures, short sales, and distressed properties will always sell at discounted prices in any market, so it should not be any trouble finding properties at reasonable prices that investors can flip in a short time frame.
Narrow Searches to “Off Market Properties”
The bottom line in today’s real estate market is many sellers want to market their properties privately. Instead of all the headaches of dealing with an aggressive marketing strategy, some sellers just want to go through the process quietly. This is good news for real estate investors who are struggling to find quality deals with “on market” properties. To find quality off-market deals, investors should contact agents in their chosen regions and ask for information about properties for sale that are not listed on the MLS. A few other tried and true methods to find profitable deals is through networking, word of mouth or to just keep looking around.
Keeping these tips in mind when you are looking to make your next investment in this competitive market, will make your next investment a breeze.
Television reality shows, like Flip This House, give a skewed impression of the reality of flipping a house. Unfortunately, many new investors jump right in, believing they will make those big paydays. They often end up disappointed and taking huge losses. While every house won’t sell for as much as reality television implies, there is still money to be made, if you act wisely.
How Much of a Profit Can You Really Expect?
It’s difficult to give an accurate estimate because the only way to measure this is by looking at all home sales. The sales in a given region within a specified time frame provide the general home sale price for properties in that area. For instance, ATTOM reports that housing sales averaged $65,520 in the second quarter of this year, but that number doesn’t differentiate between fix and flip investments and other residential sales.
When going directly to investors for information, it’s estimated that they make an average of $30,000 on each fix and flip. This is acknowledging that some investments may bring in less, while others may bring in more. It depends on the overall value of the home, the resources invested in its renovation, and the health of the market in that area.
How Can You Maximize Your Potential Profits?
While you may not be able to do much about the health of the market, you can act to affect the home’s value
by renovating wisely. The real trick is to spend as little as possible on repairing the property and getting it back on the market quickly. As a general rule, the more time you spend fixing up a property, the bigger the chance that something major will eat up your resources.
One thing to keep in mind is not to update features that won’t boost the home’s resale value. When a buyer is interested in the property, their lender will send an appraiser out to inspect the property. If the appraiser doesn’t agree with your estimate of the home’s value, you’ll likely lose money on those upgrades. It’s a good idea to consult a realtor, or a private appraiser, for insight into the upgrades you want to make.
Overall, you will want to keep upgrades simple and cost-effective. Bear in mind that major upgrades may not appeal to homebuyers, who will likely remodel to add their own style, anyway. Look for properties that can be made sale-ready with just some simple and relatively cheap improvements to maximize your return on investment.
A growing number of investors have decided to flee the volatile stock market seeking safety, and they will find this in hard assets like in real estate. Nevertheless, many people wish to stay a passive investor, and they don’t want to knock on doors seeking foreclosures and fixing toilets while working as the landlord. A simple search on Google for passive real estate will equate to people becoming the victim of online advertising in a market property known as turn-key rental properties. But what is a turn-key rental property? And is it truly worth your investment?
Turn-Key: What Does It Mean?
To most investors, turnkey sounds like nothing more than a buzzword, and a lot of people throw it around. Many times, the people who throw it around are the new companies that don’t have a definition of what this means. What’s the standard that defines this word? For the uneducated buyer, you might assume that turnkey properties mean that you don’t have to do anything. Don’t let something that looks too good to be true pull you in. The false belief that someone else will renovate, buy, lease and manage the property while all the other people have to do is deposit the rent check is false.
Some companies will sell a turnkey property that will be fully renovated to what looks like-new condition. You will need a property manager who understands how this works. Some companies only slap on a little paint, calling it turnkey. They have hopes that they will attract buyers from out of state.
How Can Investors Protect Themselves
People have to learn how to disregard the marketing in the message. The marketing is what investors have to stay alert to the most. People don’t want good marketers to manipulate them simply because they understand how psychology works. Beware of messages that say, “This is turnkey, and you won’t have to lift a finger.” In addition, investors should go to see the property before they buy it because of what it looks like in photos might be misleading in person.
What’s the bottom line with these investments? Although a may look like it has a cheap and reasonable price, chances are that there will be more work and time you will have to put in. If investors decide to pursue turn-key rental properties, they should always check to make sure that they will be receiving the best price.
After experiencing another long year of rising rent and home prices while going through a declining inventory throughout the country, it is evidently challenging to find a suitable place to invest in expecting to reap reasonable returns shortly. Nevertheless, there are still some scattered sweet spots that can offer investors some much great returns. These cities provide a rare combination of job growth that is better than average.
They also offer some runway before housing is overpriced. Investors who are looking for high-growth markets should try to put their investment in the following cities that have a promising future of good returns in the coming years.
1. Orlando, Florida
Orlando is known as the land of Harry Potter World and Mickey Mouse. In 2017, the housing and home prices of Orlando recorded a hike of 9%. This price increase hit an average of about $247,550 in that year. Interestingly, a Local Market Monitor predicts that these prices are likely to rise with an estimate of 35% from 2018 to the start of 2021. Generally, Orlando city does well when the average American market improves. Optimistic investors should consider investing in Orlando.
2. Provo-Orem, Utah
Provo-Orem was the top newcomer city in the list produced by Forbes for the most promising cities regarding the future of housing prices. The city recorded an estimated average home price of $266,169, a 7.2% population growth in three years, and a 6.7% job growth in the last two years. The city was estimated to have attained a 10% home price growth over the previous year. Moreover, Forbes predicted that the towns home price growth at 31% in the next three years.
3. Ogden-Clearfield, Utah
The Forbes listed Ogden-Clearfield at position five. The city recorded an average housing price of $246,251. Its population was found to have achieved a 5.1% population growth in the past three years. Additionally, Ogden-Clearfield attained 5.7% job growth in the last two years and a 1-year home price growth of 10%. Forbes also forecasted home price growth of 29% in the coming three years.
4. Springfield, Missouri
Springfield city has an average home cost of $154,557, a 3-year population growth of 2.3%, and 5.1% job growth in the last two years. Moreover, Forbes predicted that the home price of this city at 14% in the next three years.
Springfield, Ogden-Clearfield, Provo-Orem, Orlando prove to some of the best cities to invest in housing in 2018. Any of these cities serve as a great option for an investment opportunity for anyone who is looking for a strong return.
If you’re looking to turn some extra cash into profit, you have a multitude of options. Real estate investment is only one of them, and many people enjoy it. While it is a solid business, you might find yourself encountering these common myths when researching this subject.
It Takes a Lot of Money
You don’t have to be a millionaire to become a real estate investor, and you don’t need to be free of debt. Many entrepreneurs make money by finding opportunities and presenting them to buyers who have existing capital. Even if you have only $5,000, you can enter a real estate investment trust and split profits down the line.
You Have to be Rich to be Successful
Thankfully, your level of success doesn’t depend on your existing bank balance. You can choose from three different types of real estate investing: residential, commercial and land. These come in assorted sizes, shapes and price points. Mostly, your skills and knowledge determine the level of success.
You Need Special Certifications
Real estate professionals often function as investors, but it’s because they know the market and deal with properties daily. Their success does not rely on a real estate license. Since any adult can legally buy property, you can purchase real estate that’s in any type of condition for investment purposes.
Real Estate Investing is Time Consuming
People see frantic professionals darting from place to place with a phone pressed to their ear. This makes them think that investing in real estate takes a lot of time. While it is true that engaging in pursuits that lead to profit takes time, it won’t eat up your day.
Consider that many people spend at least three hours per day watching television. What if you used some of that time to research sound investments? Additionally, when you go house hunting, you can involve the whole family and have some fun too.
You Need Experience
Chances are, some people might try to talk you out of real estate investing because you lack experience. However, don’t let irrational fear stop you. While experience improves chances of success, it’s neither necessary nor does it guarantee anything. At one time, everyone is a beginner and will gain experience by practicing.
While there are plenty of myths out there about real estate investing, do not believe them before you conduct some research first. With the right information, you will be ready to take on the world of real estate investing in no time.
When built-ins and fixtures in a home start looking worn and old, it’s time to update.
Homeowners don’t usually think about making changes that can increase the value of their homes until it is time to sell. Then they may be short on cash or the time to make improvements that can add value. The key is to make gradual changes along the way that will keep a home looking fresh and contemporary. Consider the following ways homeowners can increase the value of their homes.
Keep the outside looking fresh
Nothing grabs attention more than a home with curb appeal. Since the outside of the home is the first impression a buyer will make, the outside should be neat and inviting. Keep shrubs and other vegetation under control with regular trimming. Pressure wash concrete surfaces and siding to keep them looking new. Remove dead flowers and plants. When perennials start to get grassy, it may be time to dig them up, clear out the weeds, and start fresh. Make sure wood trim is painted, and clean the cobwebs from around doors, windows, and light fixtures. Curb appeal is usually a matter of regular maintenance and costs very little.
Consider a kitchen upgrade
An upgrade can make the kitchen a place where the entire family enjoys gathering, but an out-dated kitchen can be depressing and a deal-breaker for a buyer. Swap out tired looking white or black appliances for edgy stainless steel. When today’s homebuyers walk into a kitchen, they expect to see stainless steel appliances and granite countertops. Something as simple as s trendy new backsplash can add pop to an otherwise boring kitchen.
Turn a bathroom into a spa
Not only do homebuyers expect kitchens to wow them–clean bathrooms with that spa vibe are also on many homebuyers’ wish lists. If you can’t put in a new shower, consider adding a rain shower head. Clean the tub and shower until it is sparkling. Replace old sink fixtures and faucets with updated versions. Consider adding a new mirror and get rid of the 1990s vanity strip lights. Replace the wallpaper with a fresh coat of paint in a spa-inspired color.
These are just a few simple, and mostly low-cost changes that a homeowner can make to increase a home’s value. Even when a homeowner is not thinking of selling, updates can make a home feel like a brand new living space.