Types of Real Estate Investing

There are lots of different “types” of real estate investments. You can invest in land for long term hold, commercial property and so on.  However, since I am primarily a residential REALTOR, this post is about different types of residential real estate investing.

The first time I learned about real estate investing I was 4.  My dad had built 4 houses for a developer on Vale Road in Oakton.  The market was terrible and when he was done, the builder owed him about $70,000.  But he could not pay because he could not sell the houses.  Eventually, he came to my dad and made an agreement to give my dad a house in exchange for the debt, and my dad could take a loan out on the property to pay off his suppliers, etc.  My father was not happy about being forced into homeownership.  However, it’s probably the best thing that ever happened to him.  Today, both of my parents (since divorced) own homes that they own free and clear of any mortgage because since that time, they have both been homeowners, and the value of the properties they have owned, over time, have always increased.

So I believe that real estate ownership DOES built wealth over time.  Here are some examples of how YOU can build your wealth in the world of real estate.

Personal Residence

There’s no better investment, in my opinion, than the real estate you purchase to live in.  Sure you are going to let emotions and non-financial things guide this purchase but the truth is, you have to live somewhere.  So even if you pay a premium for something that may not equate to market value, you’re still reaping the dividends.  Buy what makes you happy – life is short.  Then, maintain it and care for it and love it.  Most importantly, do not use it as an ATM.  Do not refinance every 2 years to pay off revolving debt, buy a car or go on vacations.  Choose your financing wisely, take advantage of tax benefits and focus on paying down your mortgage until you own it free and clear.  A good equity position goes a long way in increasing your net worth.

Residential Rental Properties

Some people intentionally buy their first home to keep as an investment, and once more established, they keep that residence as a rental (as recommended in David Bach’s Automatic Millionaire series).  This may or may not be a good decision.  At the time you’re deciding, consider the net value of the home vs. the rental income and consider how it will impact your next primary home purchase (i.e. your ability to have a sizable down payment, and to be able to afford the mortgage on the home you want).  If it passes that test, evaluate that house just like you would any other residential rental property investment.

When evaluating a purchase of residential investment properties, first decide how long you wish to own the properties.  A “long term” investor (in my book) is 10 years or more.  Consider the acquisition cost (including any repairs), the expected costs to hold (taxes, insurance, maintenance, financing, and management costs), and expected rental income.  Then assume moderate growths in all of these areas, including a moderate rate of appreciation for the home.  At the end of 10 years, are you making money?  How much?  Will it have been worth it?

Fix & Flip

If you want to buy property to fix up and sell, you need to have high risk tolerance because just when you think the market has recovered, and it’s got no place to go but up, it’s sure to change.  So make sure you have a back up plan or lots of room for error.

Know your acquisition costs, your hold costs, your repair costs and your cost to sell.  Then pad these numbers in case you’re wrong, because unless you’ve done this a few times, you probably are.

The residential real estate market is hard to predict in 6-12 month increments because it can turn in the blink of an eye.  So, my F&F friends – work fast.  Be ready to start the “fix” on closing day and get that thing back on the market quickly – 30 to 60 days should be the goal, because you want that place sold within 90-120 days.

The key is making this work is to know when the market is turning and react fast.  If you see a slow down, don’t “wait and see” if it picks up next month – drop your price, cut your losses and get out.  If you can’t… if your budget was blown and you’re not going to reap the benefits, know your back up plan.  Can you rent it and still be comfy cozy?  Then do it.

Builders

This type of investment is also high risk in my opinion.  It circles back to my original story about how my dad became a home owner.  Much like the “fix and flip” investors I just mentioned, these investors most know their acquisition costs, their construction budget, their hold costs, and their costs to sell.  But the building process will take longer than repairing a property, which means they need even more market knowledge and wiggle room in their assessments.

I guess that developer that had the four properties in Oakton made a judgement error.  But, kudos to him for realizing that the properties did have value and he could still pay off debt with them.  He did sell the other three properties, in time.  And he did not go bankrupt.  Most importantly, because of him my parents have personal wealth today and a home that costs very little for them to live in.

Remember:  There Are Tax Consequences

The goal with real estate investing is to build wealth and produce income.  Wealth and income are taxable.  Don’t forget that.  So, a tax advisor needs to be involved in helping you to evaluate any purchases and sales like these.

Legal liability

I can not mention real estate investing without talking about legal liabilities. Owners are responsible.  For everything. All real estate owners need to have good insurance, and lots of it.  You’ll need to protect yourself from being sued, as well as against Acts of God.  Make sure you understand your risks by talking to an attorney, and consider limiting your risks through various avenues.  Get that legal advise before you even write an offer, so that you take title the best way (in your name? your business name? as tenants by the entirety? in an LLC?  in a trust?)  and so that any financing you’re using to acquire the property is also in the right entity name.  Then, talk to your insurance advisor and make sure you have plenty of coverage for all the what ifs.

Are you ready to get started?  You can reach me at 703-669-3142 or MyAgentVicky@Gmail.com.

If you’re considering owning rental housing, you might also enjoy this post: Property Management 101

Remember, I have moved my blog and only occasionally post here anymore.  Be sure to stay tuned to "The Real Estate Whisperer" at this link.

So You Want To Be A Real Estate Agent?

I hear this from friends quite often... "I want to get my real estate license. I think I'd make a good real estate agent. I like looking at houses."

While the meat of the business is far more than looking at houses, the truth is that most agents fail because they can't find the people who want to look at the houses - or at least not the ones who wish to purchase them and are ready, willing and able.

See this post on Trulia, where someone posted, "I recently got my license, activated it and got my MLX lots of money invested.. I signed on with a brokerage that supposedly has one of the best training's out there but all they have told me is to send out cards and call my family..seriously...is there any brokerage firm that will actually say "hey agent here is a property go sell it or here is a buyer find them a house? or do i practically walk around in the dark questioning why i ever decided to make this my career and feel completely alone?"

Sadly, this agent will not likely make it. You see, the brokerage hired you to find business... not the other way around. And the brokerage was right when they told her to talk to the people she already knows - Are they willing to hire you? Refer you?

In this market, I know I would not hire someone who is new. Buying or selling a home a HUGE investment decision and very complicated and when you hire a real estate agent, you're relying on their expertise. Expertise you get from doing business. In some cases a new agent may not know as much as their consumer. It takes years and years of experience.

Luckily, when I entered the market as a new agent, I was not new to the business - I'd been working in real estate for decades, and so the transition was easier for me.... but it still took adjusting. I wasn't used to having to ask for business or referrals either. My advantage was once I had the "lead" I had the experience to justify them hiring me. But what if you were a home maker or negotiated labor contracts for a living? Not only are you not used to having to "find" your next client, but once you have them you're not really sure what to do.

Sure, some people get lucky - and I am often surprised by some of the people that make it in this business. It can defy logic. Maybe that will be you. But if you're that lucky, maybe you should just play the lottery.

Bottom line, here is my advice to anyone who wishes to get into this business... You are starting a new business, you are self employed, you are not getting a job. It is not the same. And, the projection on what you should make the first year... Here's how you figure it out:

How many people do you know RIGHT NOW who will buy or sell a home in the next 12 months? Of those, how many people will hire you to help them? Multiple that number by 75%, and those are the clients you'll have this year. Guesstimate your income per transaction based on sales price and the normal commission charged in your area, and then take out the costs for your broker, taxes, and expenses. (Generally an agent gets to keep 30% of their gross earnings.) That is what your projected income will be in the next 12 months. Are you excited? Probably not so much, but it's the truth that no one else wishes to tell you.

Yes, marketing helps, but the cold calling, bulk mail, door knocking, etc. can only do so much. It's a drop in the bucket, because everyone who talks to you will not hire you. Some will. Many won't. Once they do, if you do a great job, then they will refer you and use you again. That's why it's worth it. It's never about today's sale. It's always about tomorrow's.

Having shared all of this info, I have a message for my friends, family, and clients: I hope now YOU realize why I need your referrals, why I need your business, why I work hard to try to be the smartest, best, most loyal, most helpful, most competent real estate agent you know. If I have managed to establish that impression in your mind, take a moment to think about who you know that needs my help, and then connect me. I will be forever grateful. Without the support of my friends, family, and past clients, I would have no business. Thank you, thank you, for your continued support.

***

Vicky Chrisner, REALTOR

703.669.3142

MyAgentVicky@Gmail.com

www.VickyChrisner.com

EVEN REALTORS MOVE!

Even REALTORS have to move sometimes... and the time for me has come!

I am pleased and proud to announce that I have completed my transition from a national franchise brokerage to a local boutique brokerage based in Loudoun County called Fieldstone Real Estate.  

As a result of this change, you'll be seeing some differences in marketing materials but clients who have been working with me for many years can already attest that there has been no change in the service level being received.

I have a great new web site that is being published for the first time later today... You can find it at the same old URL:  www.VickyChrisner.com

Like any good real estate web site, you can search for your new home right there.  Unlike many other real estate sites, this web site is updated hourly with a direct feed from the MLS system... that means when my web site says the house is available, it is!  Imagine that!  No more lost time drooling over listings of homes that are no longer available!  Plus, when new listings come on the market, you'll see them listed here within the hour!  With the market heating up and the best homes often selling within days, you don't have time to be leafing through old listings.  

I'll be adding lots more info to this web site in the coming days, weeks and months and look forward to your feedback.  If there are some real estate resources you'd like to see, email me at MyAgentVicky@Gmail.com.

My "New" Contact Info is basically the same - only the logo and email address has changed.  Reach out to me anytime for the real estate info you need.

Vicky Chrisner

REALTOR (R) 

Serving Loudoun County and the Dulles Area

703.669.3142

MyAgentVicky@Gmail.com

www.VickyChrisner.com

Facebook.com/TheRealEstateWhisperer

4: REOs in 2010, Making Your Offer

REOs in 2010, Making Your Offer (Part 4 of a Series)

So you want to make an offer on a property that is bank owned?  Great.  Many things are the same as buying a traditional resale home.  And, there are a few differences.  Here are a few highlights!

IMPORTANCE OF A BUYERS AGENT:  A buyers agent is critical when you're buying an REO.  Here's the thing that people just don't understand:  A listing agent represents the seller.  A buyers agent represents YOU.  They tell you about options, help you access and interpret information, and guide you through the process.  A listing agent can be very nice to you as a buyers, even helpful.  It is very possible that the transaction will work out well for you and you will never know that you didn't get a very good deal or that you were taking high risks during the process.  Ignorance can truly be bliss.  But, you need to trust me on this, a good agent will bring huge value to your transaction for you in reduced risks and more money in your pocket.  And, there's no up side to NOT using a buyers agent. In most cases, listing agents prefer you have your own agent, as do the sellers and it will not save you any money, time or frustration by 'cutting out the middle man'. If banks didn't want a 'middle man' they wouldn't hire one, and actively seek out a second (buyers agent).

PRICE:  Banks are going to price similarly to traditional sellers, except without any emotion.  So they will be pricing where they honestly believe the property will sell.  This is not a game for them.  Within a few weeks to a month (depending on the market activity level), if they've had no other offers, they will be willing to consider a price lower than their asking price.  The longer the property is on the market without receiving offers and without adjusting the price, the more likely that they will consider a lower price. 

FINANCING:  No, you do not need to make a cash offer. However, banks do prefer cash offers and will sometimes even sell at a bit of a discount if there is no financing contingency.  How much discount?  Well that depends on how difficult they believe that property is to finance.  In 2008 loans were hard to get.  Now, money is flowing again, and creditworthy individuals with a downpayment are getting fiancing without too much difficulty.  Selling banks continue to dislike FHA or VA loans, but in some submarkets there is no way to avoid them. Some selling banks will even give "preference" to buyers using FHA or VA loans (believe me when I say there is a hidden agenda for this, it is not from the goodness of their heart), but it may benefit you and if you luck into that situation, enjoy!

DEADLINES AND TIMELINES:  In 2008, when I wrote about this, I talked to you about ridiculous behavior from banks-I wanted you to know what to expect.  But since then things have gotten better.  Banks respond much quicker, they are more reasonable, and the personnel involved have a reasonable work load and good systems.  In other words, they are no longer crazed lunatics, nor are their agents...generally speaking.  Every once in a while I bump into another crazy one (refer to the video in the first post of this series).  So, in this case, it doesn't hurt to understand what "used to the norm" in the marketplace.  To set some expectations for today's market, here are some quick tidbits:

-Especially if the home is a "fixer upper", but in any case where a property is priced really competitively, banks prefer to sell to people buying with cash.  You might think "yeah, right", but a lot of investors are buying with cash.  If the home you're looking for is a great deal, and a fixxer upper, then cash is certainly king and in many cases, the banks continue to sell at a discount to those buying with cash.  Not buying with cash?  Banks will look more favorably on offers with larger down payments, and those not asking for seller paid closing costs. 
-Expect the selling bank to require you sign their addendum which has language to protect them and sells the house "as is".  Read it and understand it.  Make sure you agree to the terms before you sign it. The terms may or may not be negotiable.  A buyer's agent that understands the marketplace can advise you.

-Despite buying a property "as is" you can usually do a home inspection.  Depending on the sub market and your contract, you may be able to ask for some limited home repairs based on the inspection - usually this will only be approved if it is likely to be a condition of your financing/appraisal, or something significant you would not have been able to anticipate when you wrote the offer originally.

-Banks do still take a bit longer to respond on some offers.  Consider padding the timelines in your offer, or make the timelines contingent on you receiving information from them (i.e. home inspection will be 10 days from ratification, financing contingency for 25 days from ratification, and closing 35 days from ratification) rather than building in specific dates.  This way, you steer clear of only getting 2 days to do your inspection.

-At least in Virginia, you do not have to use the seller's suggested title company.  You can, and might consider it if they are offering you a financial incentive to do so, but I do have a slight preference for using the title company your agent recommends.  That is only because your agent knows what to expect from them and there's an open line of communication so that if there are any "issues" your agent will know in advance and have an opportunity to solve the problem before it's a problem.  And, if they need a favor for you, your agent is more likely to get that favor from a company they regularly do business with.

A RATIFIED CONTRACT? 

Really?  You've ratified your contract?  It's so exciting!  You're well on your way to being a homeowner.  Once your contract is ratified, this becomes an almost "regular" transaction.  Just make sure you understand your contract, that the utilities are on before you go to do the home inspection, check and double check that you're on top of things and you can close on time, since many of these contracts have built in "per diem" penalty fees if you don't close on time.

Congratulations..... and good luck in your new home!

Lender or Mortgage Broker? What's the Difference?

Attention: Buyers and Borrowers There IS A DIFFERENCE!

A lender is a specific lending institution, often times a bank, that lends their OWN money. When they pre-qualify you they are using the actual, real time standards that institution has in place. A pre-qualification means something. An approval means something. It means the person that has the money has agreed to give it to you. A mortgage BROKER does not have any money to lend. A pre-qualification means that they THINK they can get a loan for you SOMEWHERE. The approval from the actual lender will generally come at the very last moment, and when it does the loan program may look very different than what you originally discussed. When getting loans was easy, using a mortgage broker offered an advantage because they could look at all the products available on the market, and (theoretically) find you the best loan available - no matter who was offering it. But, today, with loans being harder and harder to obtain, and guidelines and programs changing by the minute, you need to be talking to someone as close to the source of money as possible. When lenders change guidelines or discontinue a loan program, it is their own people who learn of the changes first; and their own people who have opportunities to close loans in progress under those programs. Any broker planning to use the same exact loan program runs a higher risk of not being told as changes are taking place, and of the programs vanishing before the loan can be securely placed and approved. Plus, many banks are considering brokered loans higher risk, since they do not know if that broker operates under the same standards that their employees do. In my opinion, with our current climate, I do not recommend attempting to get a loan through any mortgage broker. And, only use reputable lenders. I recommend you speak to your real estate agent to get a referral... even if you're not buying, but just refinancing - ask your favorite real estate agent for a referral to their most trusted lenders. Remember, without a good lender, a real estate agent may never close a deal. They need to keep lenders who are trustworthy and knowledgeable very, very close to them. Conversely, those loan originators work hard for those agents that are sending them business....they know that messing up ONE loan could cost them the potential of a lot of future business from that agent. As the consumer, you can benefit from that relationship.