When it comes to financing real estate, there are a variety of channels. Some are very standard and well known, while others are hidden gems. Some factors to consider when selecting an avenue are the timeframe, the amount, and down payment. To get ready, set up contacts with as many financial systems. When a viable piece comes up, run it past several outlets to compare interest rates, fees, and terms.
This type of financing is something that big-box banks and institutional lenders offer. The loan officer must adhere to standard protocol. In the event some data does not fit into the box, they may not approve the deal. Some individuals choose this form because it is straightforward and comfortable.
Some hybrids of traditional real estate loans are FHA, USDA, and VA. These are government loans, and each one requires the applicant or property to meet specific criteria. Borrowers will pay mortgage insurance on an FHA loan. USDA loans are restricted to certain rural areas, and to qualify for the VA product, one must be a veteran or a veteran’s spouse. Both active and retired military personnel can apply. These loan products have different down payment requirements, which run from nothing down for the VA loan to 20% or more.
Private money is an agreement between two parties that does not need any outside confirmation. Private money can come from friends or family members or outside groups. Peer-to-peer platforms are popping up online. Through these portals, people can put in their credentials, the type of project, and the cost. Investors on the site comb through the opportunities and offer deals, or some operations have preset parameters.
Interest rates are typically higher, but the terms can be very flexible. Often these investors can get the cash out quickly, which is essential in a hot market.
Depending on the contract, there may be little to no down payment. For family and friend loans, that is not uncommon, but the peer-to-peer ones usually require some down.
Hard money is a blend of traditional financing and private funds. A hard money lending company collects funds from a group of investors. The borrower will have to meet some standards, and the process will go through a review. The investors will want some level of security, which can come in the form of a hefty down payment.
If the S&P CoreLogic Case-Shiller Home Price Indices are anything to go by, then the West Coast real estate is experiencing a boom. More home buyers are looking to Phoenix, San Diego, and other West Coast cities for the best real estate opportunities. If you are an investor, what are the top 3 spots to consider for real estate investment at the West Coast? Check them out below.
San Jose is a high-income capital of Silicon Valley with an excellent history of long term investment opportunities. Here, home values are some of the most expensive in the United States. Yet, the San Jose market is currently a buyer’s market with some of the most successful high-tech firms on the listings. In turn, sellers are willing to accept the asking value or below. Zillow estimates the median prices for San Jose at $1,002,873. The last ten years saw the industry appreciate by 77.36%.
In the Los Angeles area lies Hawthorne, a hidden gem for rental properties. Up to 70% of the residents here own or live in rental units. In turn, expect a high and steady rental income from your investment. The average monthly rent stands at $1,736. Typical neighborhoods with rental values are on an upward trend of as high as 194%, including Delta, Washington Ave/W135th St, and Del Aire. Plus, most home sizes fall in the two bedrooms’ apartment complex category.
When you are looking for an affordable real estate investment opportunity on the West Coast, get to Anaheim. With a median price of $685,000 and an appreciation rate of 41% in the last three years, this buyer’s market is popular with single-family homes. Further, it is a favorite tourist spot home to attractions like Disneyland that push up the rental income of the houses. Average mortgage costs stand at $2,535. Then, expect the sellers to lure you with competitive listings as they tap into the lower demand.
Other prime real estate spots at the West Coast include east of Los Angeles as you get to the Interstate 710, Portland’s’ rental units that are popular with students, and Oakland that is now appealing to a higher class of tenants. Then, liaise with an experienced broker who will take you through the steps of owning a part of the West Coast today.
A substantial investment portfolio includes commercial real estate. This type of investment remains as one of the best in providing excellent risk/reward profile to investors. Let’s review five reasons why investing in commercial real estate should be considered for growing wealth.
EXCEPTIONAL APPRECIATION OF ASSET VALUE
Compared to other investments, commercial real estate has historically shown outstanding appreciation in value. Real estate can increase in value due to internal factors such as renovations and cost-effective improvements. Also, due to external factors such as supply and demand in the market.
Property owners in the United States benefit from the real estate tax code in place.
Mortgage interest and depreciation deductions can affect a large portion of a property owner’s stream of income. It is advised to consult a tax professional to understand all of the tax advantages received from owning commercial real estate.
Commercial real estate is considered a hard asset, meaning it has a valid inherent value. The land the property sits on has value, as well as the structure built there. Choosing a quality location and asset creates security to investors in knowing that the property will earn income no matter of the existing tenant. This is where commercial real estate proves to be a stable investment compared to the stock market, which dramatically fluctuates.
LEVERAGE AND INCREASE CURRENT CASH-FLOW
An investor can multiply net spendable cash by borrowing at a lower cost than the property returns to them. For example, if person A loans person B $10 and asks for $12 back, a two-dollar interest fee is applied. Then, if person B takes those $10 and lends it at a $3 interest fee, without any additional investment, they can pay back the $12 they borrowed from person A, and still make one dollar in profit. That’s positive leverage, and it is commonly practiced with commercial real estate.
SIGNIFICANT INCOME AND SPENDABLE CASH
A huge benefit of commercial real estate is that assets are usually secured by leases. These provide a regular stream of income. Compared to stock dividends, commercial real estate dividends are significantly greater.
It is recommended that the benefits of owning commercial real estate are carefully considered as well as the challenges one might face. This type of investment is full of advantages that allow an investor to grow the value of their investment portfolio securely.
Purchasing and maintaining your first rental property is a big step. It can easily become overwhelming. When you are making such a large investment, there is a lot of pressure to ensure you achieve a positive cash flow in return.
There are many successful real estate investors out there. How do they do it?
Most of the rental property basics for success are likely things you can assume, but may not think about until you list them out and make them more manageable. As with any investment, long term success is about running the numbers and doing your fair share of research.
Residential Versus Commercial Investment Properties
Most first-time real estate investors will choose to purchase residential property, such as a single-family home or duplex. This is a smaller investment than purchasing an apartment building or office space (commercial property).
Other benefits to residential real estate include that it’s easier to secure investing, it’s a more familiar purchasing process to most buyers, and the path to finding renters is more straightforward. It is easier to manage one tenant than it is to maintain a building full of them or deal with the concerns of business spaces.
Choosing a Residential Property To Invest In
While there is certainly ongoing maintenance to make a rental property successful, most of the work for a financially viable rental is done before the purchase is ever made. You need to choose the right property to invest in.
The old adage about real estate is true: location is everything.
While many investors will choose to purchase something close to where they currently live, this may not always be the wisest choice and deserves careful evaluation.
If you want to manage the property yourself, as opposed to hiring a property management company that would take 10% of the revenue, you will want to be near by to handle maintenance emergencies.
However, you will need to run the numbers to see if this earns you the best returns in the long run.
When looking at a location, consider property taxes that will need to be added to your regular expenses. You should also consider the type of renters your location will attract. Will you be renting a property near a college campus? You will likely have more maintenance problems than a property rented to someone older. Are you renting to a family? In this case, what are the schools in the neighborhood like? The crime rate and job market are other important factors to take into consideration.
To have a profitable rental property, you will need to look at what your projected expenses are (mortgage payments, property taxes, and a healthy maintenance budget) and put that up against your projected income. Take a careful look at the average rent in your neighborhood and add in some time for the property to be empty while you find renters.
The more work you put in to finding the right property to invest in, the better chances you’ll have for a long term successful investment.
State lockdowns have only been in effect for less than two months — and many states are already beginning to reopen in stages — but the impact of the coronavirus pandemic on the real estate industry is already being felt. Real estate transactions are difficult to complete, many apartment buildings are unable to handle showings, and nearly two million homeowners across the country have missed a mortgage payment already amid skyrocketing unemployment rates.
The impact of COVID-19 on the real estate market is widespread and comes from many sources.
Mortgage rates continued to fall and reached an all-time low in March but may fall as low as 0% or lower as the Federal Reserve worries about keeping the market functioning and credit and liquidity available.
The market has already been slow, but Chinese buyers, who for years have been a significant source of foreign demand for U.S. real estate, are no longer buying in in-demand markets in California and New York. Some of this impact is due to rules by the Chinese government on international spending as well as tightened U.S. immigration rules, travel bans, and quarantines.
Delays in closing are also having a major impact on sales. In many cases, it can be very challenging or even near-impossible to close a real estate deal with travel restrictions, different state definitions of “essential business,” and mandatory quarantines. These complications can make it difficult for a buyer to see a property before making an offer and complete due diligence.
In a handful of states, real estate transactions can only be conducted with significant limitations. In New York, for example, real estate must be conducted remotely, including appraisals, inspections, and title services.
As unemployment skyrockets and uncertainty grows about the state of the economy in the upcoming year, demand for homes has also fallen. More than 10 million unemployment claims were filed in two weeks at the end of March alone, and this number is expected to rise.
Some banks are suspending foreclosures, and many cities and states have enacted eviction and foreclosure moratoriums as one-third of renters failed to make rent payments in April. While this is a temporary fix to ensure people have homes, it doesn’t fix the long-term problem of how rent and mortgage payments will be made. If mortgage payments are suspended for too long, it will also strain lenders who will not have the capital to lend to new homebuyers when demand increases.
While this is an expected impact, other forms of damage to the real estate market aren’t so apparent at first glance. Homebuilders are facing supply chain disruption as nearly one-third of materials come from China, which may delay construction when demand does pick up.
The mortgage and real estate industry may rebound very quickly from the uncertainty and impact of COVID-19, but it will likely still lead to fewer people in the market in the year or two to come.
Real estate presents a lucrative opportunity to you if you can do due diligence, yet having business partners will boost your individual potential. Using the skills or experience of other professionals in real estate is smart, but partnerships can also be more challenging than sole proprietorships. Just don’t be discouraged by the potential cons of partnerships, for many people do thrive within them. Below is a better look at what partnerships in real estate can and can’t do.
A lack of resources in generating leads or building a property portfolio can be overcome through partners who have the contacts you need. What you must ask, however, is if you have anything to give to your partners in return.
You reduce your personal exposure to risk if others share in with your liabilities, but you’ll have to state how much liability each partner has. Be sure that you’re also comfortable with any risks that you agree to.
Business partners are ideal when they can offer strategic perspectives. You know the phrase that “two heads are better than one,” but if you can’t always communicate professionally with a certain person, then they might begin a habit of disagreeing with you without cause.
Having diverse skillsets gives a business the ability to expand by specializing in more than one area of expertise. Your objective, before acquiring partners in real estate, should be to examine how you can use the diverse skills of your associates.
Some professionals see the potential of profit as being reduced if it’s to be shared, but you should consider that more money can actually be made when more manpower is available. Try to also measure your end rewards based on your individual sacrifice. You can come into a partnership knowing that your share is small if your input is also kept small, having little to do or oversee.
It’s important to be able to discuss differences in opinions with your partners, for without establishing professionalism, you all may end up misunderstood. Look for partners with enough character to stay patient in the wake of misunderstandings. Partnerships are rewarding, but you dictate the dynamic between you and the people you work with.
The impactful strides towards economic recovery have resulted in an influx of millennial homebuyers. The ability to pay their debts and advancements on time through their careers has accelerated confidence in owning homes. In fact, the homeownership rate is four times higher than any other age group, making this a heated topic of discussion. According to projections soon, the smaller cities will run out of space, owing to the housing boom powered by this generation. However, millennials do not view homeownership as permanent as they change houses from now and then. Let’s review the expected millennials’ impact in the housing market:
No life of a millennial is complete without technology. It is not a surprise; most of them deploy technology in the process of buying homes. This has fundamentally changed the duties of real estate agents and brokers. As a result, the housing market has adapted to new marketing strategies and methods.
The standards of living in urban centers have soared, as the majority of the millennials nowadays are opting for suburban homes. Mostly rental market is the contributing factor to urban life audacities. Due to the many cost-conscious millennials, the housing market will have to shift for cheaper suburban homes.
As the economy continues to strengthen, the majority of the millennials will actively participate in the housing market. This will contribute to higher levels of competition in the housing market as investors strive for perfection to satisfy their customers. This means the commercial real estate investors will have to focus on new constructions rather than the “fixer-uppers.”
Transparent Information and Communication
Due to the housing crisis and frustrations, many millennials value having access to trustworthy information. Thus, the housing market will have to adjust to an airtight system of keeping the customers happy and mitigate the risks. This is only achievable through authentic communication mechanisms.
Millennials will continue to shape up the housing market according to housing dynamics. Their preferences will be significantly crucial to favorable housing market evolutions.
The population growth, growth of job opportunities, and its affordability, primarily determine the best places to invest in real estate. A market with the three factors is likely to have investment opportunities. The rising costs of homes in the United States mean it can be challenging to find the right investment; however, there are cities to invest in and have good returns.
Arlington is attractive and lucrative for real estate investments due to its sustainable population growth. The city’s population growth is 2.2%; the employment growth stands at 3.4%, making it one of the best in the whole country. The value of homes in Arlington increased to 10.3%.
Additionally, the median pricing for homes is an affordable price of $240,000, while that for renting costs most people a whopping $1,498. The combination of the factors translates into a robust rental yield of 7.5%, meaning investors have a high chance of paying off the investment in slightly more than 13 years.
The sunshine state of Florida has seen an increase in the demand for family houses; an individual can get a completely refurbished home in a great neighborhood at a price of below $193,000. Although it is affordable to buy a house in the state, many people choose to rent.
Orlando is particularly interesting because of the magnificent beaches, conducive climate, and numerous entertainment spots. From 2010, the city’s population growth stands at more than 20% and expected to see a 3.44% job growth in the coming ten years. Retirees, job seekers, and students drive Orlando’s real estate business.
The city is popularly known for its space missions and the bountiful Southern heritage. Huntsville offers excellent real estate opportunities owing to its affordability and numerous defense, space, and technological industries.
STEM workers in the city enjoy salaries that exceed the national average. Investors need about $158,750 to acquire a three-bedroom family home in Orlando. The fact that 38% of the residents prefer to rent should further encourage real estate investors to venture into Orlando’s real estate.
If someone intends to have a piece of the real estate market, think carefully about the location because not every town will give a return on investment.
An investment property can be a highly lucrative opportunity for all kinds of investors. Even so, these types of investments do require a bit more hands-on maintenance than other investment vehicles. Fortunately, it is quite easy to increase the value of an investment property. To do so, homeowners must only complete minor upgrades that will significantly improve the overall aesthetics of the property in question.
To get started with your upgrades, first look for minor cosmetic improvements that can be made. For instance, the flooring within many rentals often becomes quite damaged over time. By simply regrouting and deep cleaning tile flooring in the kitchen and bathrooms, you may instantly improve the overall aesthetics of your property. This goes for the rest of the house too. Renters love clean properties. The cleaner are you able to make every surface found throughout your property, the more desirable will it become in the eyes of discerning renters.
A fresh coat of paint on interior surfaces may also go a long way towards convincing renters to occupy a property. Fresh paint can instantly cover up any scuff marks that were created by past tenants while also allowing you to customize the property’s appearance. Try to avoid choosing paint colors you would personally enjoy having in your own house, though. When selecting a paint color, it’s essential to use a color that is widely accepted so that your property may appeal to the highest number of potential renters.
The same principle may be applied to the exterior of your property as well. Dirt and grime build up over time on the exterior of every house. By simply washing down the exterior of your property, and giving it a fresh coat of paint, you can make the entire house look just like new. If you also make the wise decision to add some color through the addition of a few new plants here and there, you will undoubtedly be rewarded for your efforts.
While minor, aesthetic improvements will definitely help to boost interest in a property, they are not the only upgrades that should be made. To ensure your renters will want to occupy your property for many years to come, it is also important that every aspect of your property be in good working order. Replacing hinges on doors and upgrading the hardware on kitchen cabinets will provide renters with an excellent experience that will keep them satisfied for many years to come.
Investing in international real estate requires more planning and understanding than investing in real estate domestically. Anyone considering adding international properties to their investment portfolio should keep these six tips in mind.
Understand Financing and Funding Sources
Getting the proper funding in place comes with a few challenges when dealing with foreign areas. International laws need to be learned and followed. Financing must be secured in local currency. It’s typically challenging to obtain a mortgage as a foreign investor. A person looking to invest internationally should consult with a local professional.
Think Through Tax Liabilities
Each country has its own unique tax laws. Some countries require an investor to pay inheritance tax, stamp duty, or title transfer tax at the point of purchase. Others require the payment of land tax. All of these factors must be considered. U.S. investors need to understand IRS tax deductions when investing internationally.
Confirm Title and Ownership
Proceed with caution when dealing with title and ownership issues. This is especially necessary when it comes to debts on the property. For example, a developer may not have repaid borrowed money. The new owner might be made liable for this debt after the completion of the sale.
Is it Legal to Invest in the Desired Location?
Some countries don’t allow non-citizens to invest in real estate. Other countries regulate where foreign investors may buy properties or restrict the type of property that can be purchased. The best way for any international investor to learn the legal specifics is to hire a local accountant and attorney.
Consider Liquidity Needs
For the most part, foreign investments are non-liquid assets. This must be considered so that the investor doesn’t lock up cash that may be needed in the short term.
Consider Who Will Manage the Property
An international investor must hire someone to manage the property. There needs to be a system in place to handle contractors, repairs, or even language barriers. Security is required to protect against trespassers or burglars. A management company should be hired to maintain an international investment property.
Investing in international real estate can be lucrative if done correctly. Investors should follow these tips and also build a local team to become successful.