How do you know if a house is a smart investment or a good property to flip? You may be looking to acquire properties for your portfolio. The problem is it can be a struggle to identify good deals quickly. Read on to learn how the 70% rule will help you.
The 70% Rule is a Simple Rule of Thumb.
Investors and flippers should use the 70% rule to determine whether to buy a property. The rule states that you should only pay 70% of the after repair value of a home.
An example would be a $175,000 home that needs $10,000 in repairs. After repair, it would be worth roughly $200,000. A flipper or investor should only pay 70% of that. The total they should pay is $140,000 for the home.
This protects them from overestimating the value of the home. It also protects against downturns in the market.
Speculating that a property will increase in value can be very dangerous. Seasoned investors prefer to make money when they buy to minimize their risks. This also protects them in case they missed something.
Other Factors To Consider For the 70% Rule.
You should also consider a few other factors. Settlement costs, financing costs, and carrying costs take a large chunk out of the deal too.
Closing costs on a $200,000 property could easily be 2 to 5% of the property. This means it would be up to $10,000. Financing costs would likely be around $5,000.
You should subtract $15,000 from your offer price to account for these factors. Some sellers may not discount the whole amount. It is better to get some of these off the cost to protect your margins.
Exceptions to the 70% Rule
The 70% Rule is a simple rule of thumb for finding rentals and flips. It is only a starting point. There are other circumstances where you might want to ignore it.
One of these cases will be if you’re holding the property long-term. Then, you would not spend as much on renovations.
You would be more concerned about the cash flow. Getting a good deal would still be necessary. A better price will still allow you to get lower monthly payments. Lower payments will help you with cash flow.
Take the time to determine your situation and goals. Are you looking to get quick cash? Other times you’ll be looking for steady returns over the long-term.
The 70% rule is a good rule of thumb. You should always be cautious with your repair and closing costs. It is a good starting place to protect your profits.
As a real estate agent, finding the right home for your client isn’t always easy. To find a home that interests a buyer, make sure that you know the buyer’s interest, which is a step in the right direction. To do this, you can ask the client what features they want in their home, and this way, you’ll be able to find the right home for them. Below are some of the trends that attract home buyers;
Many home buyers are always interested in a home with an outdoor space where they can get out of the house and relax without leaving home. In other cases, buyers want a blending indoor and outdoor living space where the living room is extended to the backyard. Outdoor spaces are important to buyers because, in summer, this space is perfect for dinners and barbecues or holding large gatherings.
Location is another critical feature that buyers consider while buying a home. A home that is located in a secure neighborhood is one of the homes that interest buyers. Also, many are usually interested in homes that have easy access to main roads. Locations like these can
be very pricy, so it always necessary to go with your client’s budget.
The kitchen is usually considered the heart of a home. Homes with large kitchen areas, especially open floor kitchens, seem to sell faster. They sell faster because an open floor kitchen allows easy transition between rooms.
Many people have jobs which allow them to work from home. A home office is a feature that such types of buyers look for when purchasing a home. A home office with a door is essential because it helps one concentrate on their work without destructions. The room’s color choice should be considered because some colors do not provide a conducive environment to work.
Nowadays, home buyers are interested in homes that are energy efficient. Such homes are the ones that have hardwood floors, double panned windows, and energy saving lightbulbs. Homes that are energy efficient help to limit utility bills and also benefit the environment
The Number of Bathrooms
Homebuyers are often interested in homes with at least two bathrooms. As an agent, try looking for new homes for your client because most of them have this feature. A home with two bathrooms or more will tend to sell faster than that with only one bathroom because they help save time because you don’t wait around to wait for someone to finish using the bathroom. You could use the other one.
Every home buyer wants a home that has the features mentioned above. To find a home that ticks all these boxes, real estate agents should consider modern homes at affordable prices.
Staging your home can help your home sell faster and for more money. When it comes to selling a home, it is all about appearance. This is what staging is about, making your home appear perfect for home buyers. You will want to stage your home before taking any photos for the listing.
The first thing you’ll want to do is to get rid of the clutter. A cluttered home looks smaller, and you want it to appear bigger. Box up all knick-knacks, out-of-season clothing, and personal items and store them. Don’t store them in closets. Potential home buyers will look in the closets, and you want the closets to look big.
The next step to staging your home is cleaning. Not just a normal spring cleaning, but a thorough deep cleaning from the floors to the ceiling. If possible, hire a cleaning crew to clean your home.
Stage the Living Room
According to a 2017 National Association of Realtors survey, 55% of the agents believe that the living room is the most important room to stage. Next are the master bedroom and the kitchen.
You can store your old furniture and rent new furniture for the living room. If this sounds like a lot of money, it could be worth it. Staging your home can add 1-5% to the offer price.
Make it Bright
You want your home to be bright. Before a showing, open up the curtains and blinds. If your lampshades are old and dull, or the fixtures are outdated, consider replacing them.
Even dusty light bulbs can limit the amount of light. Install new LED bulbs and play with different color temperatures that range from soft to daylight. Check the Kelvin ratings to choose the perfect lighting for your home.
Stage the Outdoors
Curb appeal is important since it will be the first thing home buyers will see. Staging the outside of your home should include:
- Mow the lawn
- Trim the shrubs
- Power wash your home, sidewalks, and driveway
- Clean the windows
- Plant flowers
- Add some potted plants on the front porch and have a welcome mat
- Add some outdoor furniture to the front porch
- Make sure the house number is easy to read
As a first-time homebuyer, it might be hard to raise the down payment needed by the seller. This should not kill your dream to own a house because you can obtain a mortgage loan to help you raise enough money. However, you might encounter challenges to prove that you are eligible for a home loan. You should take the following steps to enhance success in your application.
Early Inspection of Your Credit Scores
You should assess your credit score record immediately you decide to apply for a mortgage loan. Visit the relevant sites to and check for any issues that might disqualify you. If your credit record has problematic issues, use the months before the application to correct them.
Clear all the balances you owe other financial institutions to give your credit record a better rating. The actions might take months to change your credit score. Therefore, it is advisable to undertake them several months before your loan application. You should concentrate on mortgage loans without visiting other financial institutions until the current application is successful.
Compare Your Income and Expenditure
To know your deficit for the right income ratio, divide your monthly deficit expenditure with your total monthly earnings. That will assist lenders to decide whether you are eligible for a home mortgage or not. The financial institutions will either decide to lend you a small amount of money with a low monthly housing cost or keep all your monthly debts low compared to your monthly salary.
Weigh Your Options
If you have visited several financial institutions and all of them tell you that you don’t meet the loan application threshold, you should seek other alternatives to get financed. The only disadvantage is that you will have limited alternatives, and the loan you might get will have a higher interest rate. Try to improve your credit record before applying for a loan for a better chance of qualifying.
If you are a first-time homebuyer, you may not have enough funds to purchase it. However, you can apply for a mortgage loan to finance your project. If you want the application to be successful, take the steps above before starting the application process. The steps will enable you to have a good credit record before the application.
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.