How to Begin Investing in Baton Rouge Real Estate – Part 5

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Wilfred Iven – stocksnap.io

In Part 5 of how to get started in Baton Rouge Property Investing I will be discussing various means potential investors can secure the funds necessary to buy investment property. This is meant to be a general discussion for educational purposes and not an endorsement of any particular course of action.

One thing to keep in mind is an investment property will be non-owner occupied for the most part. There are advantageous ways to purchase properties with 2 – 4 units where the owner occupies one of the units but I will be talking mostly about single family residences occupied by tenants.

One of the first questions I receive from potential investors is, “Where do I get the money?” This is of course the main barrier that most people have when it comes to purchasing real estate. You need to look at this as a different process than the home loan process for a home you will occupy. Not every bank will even entertain making a loan on investment property so you will need to explore other sources.

Borrowing from friends, family or other private money sources is an option for some. These loans usually have more flexible terms than many other options and lower interest rates than what are known as “hard money” loans.

Hard money loans have some advantages in that they don’t have to be approved by a sometimes cumbersome home review committee put in place by many banks. The loan approval is based on you, the deal you have in mind and the judgement of the lender. They are secured most often by the home that you want to purchase with the loan amount based on a percentage of the value of the asset after improvements have been mad, commonly, 65-70%. Interest rates are much higher than the 30 year home mortgage rate, so there may be some sticker shock. The repayment terms of these loans are shorter than 30 or 15 years.

I spoke with Lynn Sharer, Senior Loan Officer with Assurance Financial in Baton Rouge, LA, about the ways a mortgage banker can help people who want to purchase investment property. For situations where the home does not require more than $6,000 worth of repairs, Lynn says that a buyer can put down a minimum of 15% of the value of the home, finance for 10-30 years and pay only about .5% more in interest than a home they would occupy. The loan process for an investment property purchased in this manner has similar requirements to an owner occupied home.

Another great opportunity offered by Assurance Financial is financing the sale of a duplex or fourplex. When the buyer moves in one of the units, they become eligible for a FHA loan and can put as little as 3.5% down. Lynn also talked about using a “cash-out” refinance of your existing home to generate cash to purchase the investment property. There are no restrictions on the amount of work that a property needs and the only limit is how much equity you have in your home. You could borrow up to 80% of the equity in your home.

One of the most flexible ways to purchase an investment property is by using a home equity line of credit (HELOC).  This is similar to the “cash-out” refinance in that it is tied to the value of your home but the advantage is that you can make interest only payments or pay off the whole amount if you choose.

Buyers with 401(k)s or other investment accounts can borrow against these assets or liquidate them to buy investment properties. There may be some tax consequences to this so research it thoroughly before you do this.

Thanks to Lynn Sharer (lsharer@lendtheway.com ), senior loan officer with Assurance Financial for her help in writing this post and as always if you need help with your real estate investments, I can be reached at ssaporito@coldwellbankerone.com .

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How to Begin Investing in Baton Rouge Real Estate – Part 4

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When tenants move in, it can be a happy day. Your investment is starting to pay off!

In Part 4 of how to get started in Baton Rouge Property Investing, I wanted to pass on some ideas and tips on managing your rental home after you’ve made the purchase.

One of the first things you will want to do is to find a tenant to live in your rental home and start having those monthly rent checks come rolling in. Before that happens you will want to establish a tenant evaluation process.  Common practices in the business include having prospective tenants fill out an application which is a good first step. You may want to take it a step further by getting a credit report, background check, criminal records and eviction records. This sounds like it is too much work but web services like TransUnion’s My Smart Move make it very easy. It’s a one stop shop for all of the information I mentioned above plus the tenant prospect can pay online directly to TransUnion with a credit card and you receive an email when the report is ready. You will definitely want to brush up on the Fair Housing Laws so you can be fair to applicants and stay out of trouble with the law.

When you find a suitable tenant it is a good idea to walk through the house with them and

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It’s important to have a record of the house’s condition before and after the lease.

note any issues with the property and you both should sign it, maybe even taking pictures would be helpful. What you are doing is establishing a record of the condition of the property when the tenant moves in and when they move out so there are fewer disagreements when the tenant moves out and items need repair.

You will also want to set up regular inspections of the property to make sure your tenants are not doing things they may harm your property or cause you to have major repairs in the future. Usually two to three times per year would be sufficient.

Home warranties can also play a role in helping you pay for large unexpected repairs. You do not want to let repairs go unmade because if you do not take care of your property you can’t reasonably expect a tenant to. If repairs are not made, in time your property will not rent for as much and that will cost you money in the long run. Please make sure you read the fine print before you buy one. In my opinion, home warranties sometimes get a bad reputation because the buyer did not know what was covered and what was excluded.

In the fifth and final part of this series on Baton Rouge property investing I will discuss some of the methods of financing residential homes purchased for investment purposes.

If you have any questions, please contact me at ssaporito@coldwellbankerone.com .

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How to Begin Investing in Baton Rouge Real Estate – Part 3

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Property evaluation will go a long way in determining if your investment will be successful.

In Part 3 of how to get started in Baton Rouge Property Investing, I am going to provide you with some tips on how to greatly increase the odds of generating cash flow, asset appreciation or equity build up in a property you purchase.

Buy the right property – while this is an over simplification there are a few things to keep in mind when trying to select an investment home.  For many, this will be their first investment property, so there is no need to try and hit a home run the first time, a single will be good enough. If you are not in to baseball analogies, this means it’s ok to start small and be conservative. Your goal is to just get started.

Is the home located in a stable neighborhood that people want to live in? If there a large number of vacant homes that may be a sign of bad things to come. Location is important for investment homes just as it is for other forms of real estate.  Having a university, large shopping area, entertainment districts or other attractions can certainly help attract people to want to live in your home.

Evaluate the propertythis is perhaps the most important part of real estate investing. You will want to take into account how much the property costs to buy, how much repairs or upgrades you will have to do, the costs of acquiring and holding on to the property and for how much you can rent the home. Property evaluation can be as simple or as complicated as you would like depending on your personality and your tolerance for risk but it is very necessary and it must be done. If you are not skilled or comfortable with property evaluation you should look for a Realtor who is experienced in working with property investors and one who can help you with advanced analysis.

 

Other ways to lower your costshave a property inspection which will help point out defects of the property. Home warranties can help with unforeseen maintenance issues as well as implementing a preventative maintenance program. One other step you should take before you buy a property is to have an appraisal done. The role of the appraiser is to be an unbiased third party that uses past sales, market conditions, details of the property and a list of other factors to determine the value of the property. This helps the buyer know how much the property is worth before they purchase so they don’t pay too much.

If I can answer any residential property investing questions you may have or help you make a purchase please contact me at ssaporito@coldwellbankerone.com.

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How to Begin Investing in Baton Rouge Real Estate – Part 2

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Buying income producing rental properties in the Baton Rouge area can be financially rewarding, but there are some challenges to consider.

In Part 2 of how to get started in Baton Rouge Property Investing, I want to explore some areas of concern that my clients frequently mention. Just remember that investing in rental property is not for everyone and it may not be right depending on your current circumstances.

What if I can’t rent the house or it is vacant too long? Having reserves of at least three months’ worth of expenses will definitely help with those times the house is vacant. With proper planning you should be able to acquire houses that can be rented without too much difficulty.

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Spend some time with your tenant prospect before making a decision.

How can I make sure I won’t choose the wrong tenant? There are no certainties but you can take steps to increase your odds of finding a good tenant. One way is to have a formal screening process in place. Many property owners have had success using credit reports, payment histories and background checks. There is also no substitute for spending some time with prospective tenants and getting to know them before you make a decision.

How can I lessen the likelihood of unexpected repairs and expenses? There are a number of strategies that can be used to handle this problem. The first is to have a professional property inspection, second is a home warranty and third you will probably want to implement a preventive maintenance checklist to catch problems before they get bigger, and more expensive.

Will I receive calls from tenants at all hours for repairs? There’s just no way around this, some repairs can be emergencies and you will have to react quickly. For routine maintenance items, consider having tenants email you.

How do I select a property to buy? This is where the expertise of a Realtor comes in. I have a multi-point list of criteria that I use to select properties as well as a handful of financial calculators and spreadsheets I use for the benefits of my clients.

How do I know my investment won’t lose value? You don’t, real estate investing is not a sure thing but it is the IDEAL investment.

I – Income – the property generates income while it is rented

D- Depreciation – this is a complicated tax issue, see your tax professional

E – Equity build up – paying a monthly mortgage adds to your equity

A – Appreciation – most of the time, real estate increases in value

L- Leverage – this is a way to increase your buying power by borrowing funds

If you are interested in becoming a real estate investor in the Baton Rouge area please contact me, I can help.

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How to Begin Investing in Baton Rouge Real Estate: Part 1

This is the start of a multi-part series on buying and holding rental properties as an investment. Everyone’s situation is different and buying rental property may not be right for everyone. If you have decided that you would like to buy your first rental or maybe add a second or third please keep reading.

What are your goals? Are you looking for cash flow now, asset appreciation or do you want to use it as a way to generate income during your retirement? All of these are possible with the purchase of real estate but depending on what your goals are, there are different ways to achieve them.
Which types of properties are you interested in? You should give some thought as to which types or property you would be interested in. Single family homes, four-plexes, condos, vacation properties or maybe even college student rentals. All of these can be very different and create their own unique set of challenges. Part of this decision will be guided by how much money you have to put toward the investment. It’s OK to start small and work your way up over time.
How will you pay for it? One of the biggest challenges investors will face will be coming up with initial investment needed to buy a rental home. Typically 25% of the purchase price will be needed but there may be other ways to acquire property that a good banker or financial planner could help with.
Coming up in future posts I will be addressing common concerns from beginning investors, how to select and evaluate rental properties, how to finance rental properties and how to manage the property after you buy it.
If you have any questions please contact me by email at ssaporito@coldwellbankerone.com .

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Thinking of taking on some home improvement projects over the holidays?

If you are then you obviously don’t want to do things that will lower the value of your home. That’s pretty much the opposite of what you would want. But seriously you should check out this list of mistakes that can lower the value of your home. I’ve seen them all and it’s more common than you would think.

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Infographic courtesy of FortuneBuilders.com

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My favorite apps I use in my Real Estate Business

Here’s a list of the apps that I could not do without in my real estate business. I prefer to use Android so I will only address those apps although most are probably available for iphones and Windows phones.

CamScanner – great little app that lets you take a picture of anything and convert it to a pdf file. Great for documents.

Dropbox- most people are familiar with this but it is a way to store files in the cloud that you can access anywhere. I use it mostly for automatic backup of my pictures.

Expensify – great way to keep track of my receipts and expenses. My favorite uses are tracking your driving by gps so I don’t have remember to track my mileage manually and taking a picture of receipts that are automatically entered into my expenses.

SMS backup and restore -great way to back up your text messages, this is important because most clients are texting these days so this helps to create a backup of those conversations.

This is not the whole list of apps that I use but they are very helpful. Let me know what your favorites are.

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Pop Quiz Time! What is the first thing you should do when buying a home?

Stumped? I’ll give you a hint, it’s not looking at houses. I would accept “contact a Realtor” but that’s not exactly what I’m looking for.

The correct answer is to contact a mortgage lender and get a “Pre-Approval” letter. Not all lenders are created equal so be careful with this part. It may be tempting to contact your bank or credit union but that is not always the best choice. Contact me and I’ll help with this part.

Here are the top 3 reasons you should get a “Pre-Approval ” letter.

1. Speaking to a lender will help you determine how much you can spend on a home. It’s no fun trying to pick a $200,000 home after you’ve seen some $300,000 homes.

2. If you wait until you find the perfect house before you contact a lender, someone may buy it while you are talking with your lender.

3. Sellers will not accept an offer from a potential buyer before they know if that buyer is qualified to buy the house. Sellers do not want to waste time with unqualified buyers or waiting on buyers to get qualified.

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So, you want to be a FSBO?

I am a Realtor and I will make money if I represent you in a real estate transaction. OK, now that the disclaimer is out of the way, let’s talk about “for sale by owner” and some of the problems I can help you avoid like being sued or just avoiding a terrible experience.

Which problems with your house should you disclose? Yes, you need to disclose problems.

Which documents should you use to protect yourself?

How do you tell a qualified buyer from an unqualified buyer who is going to waste your time?

How do you avoid fair housing and discrimination lawsuits?

Why would you make it mandatory for a buyer to have a professional inspection?

Why you don’t won’t to use your cousin straight out of law school as your closing attorney?

If you want to know more about how I can help you, please contact me at ssaporito@coldwellbankerone.com.

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Send in the Drones! Taking aerial pictures for Real Estate

There has been a large amount of news lately about using drones to take pictures for real estate sales purposes lately. This is not mainstream yet but it could be soon unless early indications by the FAA puts a screeching halt to it. They argue that Realtors are not hobbyists and therefore can be regulated by the FAA.

First let’s get over this whole drone name, it’s a model plane or helicopter- they have been around for years and you never hear of any problems with them. They are armed with cameras not missiles like their big brothers in the military, very harmless. I think if it’s ok for hobbyists, it should be ok for all. What do you think? I would love to hear your opinion.

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