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real estate investing

3 Big Problems When You Buy Real Estate to Flip For Profit

When You Buy Real Estate to Flip For Profit it is Tricky
3 Big Problems When You Buy Real Estate to Flip For Profit

Flipping real estate for profit seminars, advertising, and marketing is going on in my town and all over the internet and television. Since I have experience in long term real estate investing and I have friends who have tried to flip for profit, I would like to share some of our experiences.

Home ownership the right way-is pure joy

I, and some of my friend’s own properties out of state and we constantly get letters from people who want to buy our properties? We get letters, cards, brochures and everything in between.

Some of the letters are almost begging us to sell our property to them. Some claim they have all-cash, and others claim they are immediately qualified to buy. Here are many of the problems flippers have with those properties, so you may want to think hard before you answer advertisements to attend a flipping seminar who makes their money up-selling tapes and books after the seminar, that don’t work.

  1. It is Difficult to Find Properties That Aren’t Ready for the Bulldozer

Many of the so-called flippers are going to public records to find owners who live out of state and therefore, their reasoning is that they should want to sell. Many of the properties have family members who are taking care of the properties, living in them, and paying the rent. When you buy real estate to flip the most difficult task is finding a property that is not near condemnation.

Money is more important than you think, understand home buying the right way

The fact that dozens of the flippers are going to public records to find sellers tells me the difficulty they are having finding quality properties to buy and flip. Many of the properties that are readily available are in bad shape, so after renovation there would be no profit. Properties that are held by realtors are already priced for the current market. Those that are auctioned off in foreclosure are usually bid up too high for a profit after renovation.

The surprises, especially to the amateur flippers are enormous. The missed surprises include hidden floor dry rot, floor and wall dry rot, rotten plumbing pipes buried under a slab, large holes in the roof, outside gas leaks, damaged foundation, bad electrical junction boxes in the wall or under the house, clogged main drain, asbestos in the outside shingles or inside in the walls, and mold. These are real life problems I have seen others have when buying a fixer or home to flip.

Any of these problems can take anywhere from $2000 to $20,000 or more to fix, each.

Home buying the right way take skill

  1. Flippers Real Estate Agents Offers That Generate Profits For the Flipper

Flippers contact homeowners and write ridiculously low offers, so they have money to flip for profit after fixing up the property. Most of the offers are rejected, even if the home is in bad shape. If the home is in an area with properties that sell quickly and the resale is high, they constantly beg for offers that are below appraisal. This process is easier in areas were homes have low sales value or with homes that stay on the market for a long time.

These homes tend to have more hidden disasters since they have stayed on the market longer. What happens is that the flipper, out of desperation takes the best offer they can get and after finding they bought a home in bad shape they will hide existing problems or get a false appraisal that is too large.

  1. Most Flippers are Forced to Get Financing from Investors

To buy real estate to flip you must have financing. Banks don’t want to do business with most of the flippers who have no assets, little experience, and may not sell the home before they run out of money for renovation, upkeep after renovation, and mortgage payments until the property sells.

After the flipper finds that the home was overpriced for profit and they find the house is in much worse shape than originally thought, then they find that after sharing their profit with their investor or pricing the home for the market, they don’t have much left after sales, sometimes nothing. Then, this is where the flip begins to turn into a flop. Because of these problems, most flips are not profitable, and many flippers constantly find themselves in deep financial trouble.

The ultimate home buying course for women

Before you think you can buy real estate to flip you should have some command of  both real estate buying and selling, the construction process, and the tax consequences when you have to pay short term taxes. Read the FHA rules to flipping properties.

There are many more facts to consider that you will have the privilege to read when my new eBook about Real Estate Investing comes out.

You can get my sample of “The Ultimate Guide to A Great Money WorkOver” and 7 other eBooks along with expert help with my course.

the ultimate guide to homebuying for women

Lois Center-Shabazz | Course Delta Agency

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Should You Sell Your Home With a Real Estate Agent or Sale by Owner

Sell Your Home With a Real Estate Agent and Avoid Major Mistakes

Should you sell your home by a real estate agent or sale by owner

Here are major issues you may face selling your home by owner:

  1. Real estate agents know the process and documents you need to execute the entire selling process properly.
  2. The real estate agent will understand how to fill out all the real estate documents correctly.
  3. The real estate agent can monitor the process and make sure everything is done in a timely manner. They will get the right documents, and help you find the right mortgage and escrow company, title company or real estate attorney.
  4. Sometimes the real estate agent can negotiate a higher price for your home, than you can since they know the price trends in your area.
  5. Safety is a major concern when you do a “sell by owner”. When a real estate agent brings someone to your home, they have usually vetted them and met them at the real estate office in advance. Most of the potential buyers you let into your home will drop in randomly from the sign in your yard, so they may have sinister ideas when they come visit, and are not actually looking for a home.

I don’t recommend that anyone sell their home by owner unless you have a buyer you know already as a friend, relative, neighbor, or close associate. Make sure you research the process thoroughly before you start.

The only reason I can think of that anyone would want to sell a “home by owner” to the greater is that 1. You MUST sell to move 2. Don’t have enough equity to pay a real estate agency (the fee is as much as 6%-7% of the sales price).

I have sold two homes as a “for sale by owner” seller. So, it is possible to do a “sell your home by owner” home sell, but It wasn’t as easy as I thought it would be. If you sell you home with a real estate agent you will avoid mistakes that can cost you later.

real estate home buying success you must know your finances like the back of your hand

I made the decision since I had not owned the one home long enough to generate enough equity to pay a real estate agent commission, they other home I wanted all of the equity for a down payment on my next home.

These are the things I learned from my actual experience, my research, talking to real estate agents, and talking to others who had sold a home. I spoke with two friends who are ex-real estate agents, and they helped me quite a bit.

I also took an appraisal course many years ago in anticipation of starting a real estate appraisal business. I did not start the business, but I learned a lot about appraising homes.

Get all the basics of home buying with The Ultimate Home Buying eBook For Women
Successful home buying tips for women

First, expect to be bombarded by real agent’s eager to list your home, when they see your, “For Sale by Owner” sign. They will contact you over and over hoping that you will become frustrated with the whole process, throw up your hands and say, “where is that pesky real estate agent? I’m listing my house with her or him, yesterday!” Unfortunately, sometimes you will feel like that, but don’t give up too soon.

The following “for sale by owner” information should be helpful: 

  1. There are many legal forms, those dreaded forms! They are dreaded but necessary for the legal transfer of your property to another person. You will need legal real estate sales and disclosure documents for your home sale.

You can get these documents from a title company or you can pay a real estate lawyer to do the work for you. The real estate lawyer will provide you with the documents and fill them out correctly, for no more than an hourly fee. Verify his/her fee, the time it will take, and agree on a fee before he/she fills out the documents.

  1. Then you need to decide how much to sell your house for. If your asking price is too high, your home could stay on the market a long time. If your asking price is too low you may lose money you deserve. There are several ways to find out the right sales price. If the homes in your neighborhood are very similar, i.e. square footage, number of bedrooms (bathrooms), and similar size yard, you can use the recent sales from the last two homes like yours, in your immediate neighborhood. It gets a bit more complicated when the homes are all different, but appraisers use a similar method.
  1. You will have to find homes with your similar square footage, number of bedrooms, number of bathrooms, and if the home is on a lake, gulf course or ocean, or has a lot of land. You can also pay for a sales appraisal, use your local yellow pages for a listing of real estate appraisers. The next option is to check city or county records. Just call your local city records office and ask them where you can find information on the most recent home sales in your area. Verify which of these homes are like yours and use those comparisons to price your home.
  1. Fix up your home to make it presentable to sell. That includes electrical and plumbing in tip-top shape, clean carpet, clean walls, clean doors, an attractive front door, and well-groomed landscaping, and maintenance painting, just to name a few.
  2. Let the buyer know that he/she can pay for an independent inspection of your home, and put it in writing. The new buyer can have an inspection for plumbing, electrical, and structural soundness as well as other things. To be on the safe side, I paid for an independent inspection on my home sells, I had several things fixed as a result, before I sold the home.
  3. Let them know that they need to choose a mortgage company, you can also talk to mortgage companies up front. Both buyers in my case had never purchased a home. So, I did some research on the best mortgage companies in the area and gave them several to choose from, this just helped to speed up the process.

In real estate and home buying successOpportunities don't happen, you create them.

The mortgage company gave them title companies to choose from or they can search for their own title company. For safety purposes, you could have the person go to your mortgage company of choice and get pre-qualified, before you show your home. This way you will know, who the person is, and that they are serious about purchasing your home.

  1. Talk to escrow companies before your put your home up for sale, (in the case of fee simple states-talk to a title company or real estate lawyer for closing).
  2. Now let’s get back to those pesky real estate agents. There may be an aggressive real estate agent or two who will present you a buyer. If that agent is willing to take 3 or 4%, which very few can, and they have a buyer, then you may want to talk, if your equity covers that reduced commission.

The problem you may experience is trying to negotiate with an experienced real estate agent, they will most likely try to get you to reduce your price for their buyer. Make sure you add up your cost, 4% to the realtor, fixing up the home for sale, your mortgage sellers cost (sellers usually pay around 2%), and your moving cost. This is one of the disadvantages you face when you sell your home with a real estate agent and you don’t have much equity.

Do you have enough equity in your home to pay these costs and still have a substantial amount to put down on another home? Most homeowners who sell their own home, do so because they don’t have enough equity to pay a real estate agent cost of 6 or 7%.

Home buying the right way take skill

So, don’t let an experienced real estate agent come along and talk you into decreasing the price of your home, and giving them 3 or 4% real estate commission, in that case you could have hired a real estate agent to do everything to begin with, and the agent could get full commission for your home. If there is not enough equity to pay the commission, you will have to come out of pocket to pay the commission, using an agent.

  1. Keep yourself safe. Consider “for sale by owner” only when you can’t justify the real estate agents commission (6-7% of sales cost). Take appointments from interested buyers, get caller ID and ask for their name and address first. Send a postcard to the address your potential buyer gives you to remind them of their appointment. If the postcard comes back, “not at this address” cancel the appointment.

10. Ask lots of questions on the phone of your potential buyer. Get their name, address, and employment and salary, if they are pre-qualified for a loan or if they will pay in cash, before you give them an appointment. Ask to see an ID before they look. Verify information you are given by searching the internet for their presence. Use a private investigator to authenticate information if you can afford it.

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Doing a “for sale by owner” can also be done by companies that help with the process. In other words, most areas have “for sale by owner” real estate agencies that assist you with the process to make sure the sells process is done right and they will help to keep you safe. These agencies usually charge a flat fee. Here you can “have your cake and eat it too”, you will sell your home with a real estate agent, but do it at a greatly reduced cost. The process and the contracts are different for each state, be sure to research your state.

If you have plenty of equity in your home, a real estate agent should be your first option. Make sure you get references on which real estate agent to use, don’t choose one at random. There are good agents and bad agents.

Lois Center-Shabazz | Course Delta Agency

Interested in a Free Discussion about how I can help you with Fantastic Finances? Let’s Chat – Make an Appointment Here

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Your 3 Investment Stops To Start Investing

Use these 3 investment stops and invest with the right knowledge

Don’t Let Negative Thinking Place You in Investment Stops, Start Investing Now

Here are 3 investment stops to start investing money for retirement, savings, vacation or just a rainy day. It is essential that if you want to retire ever.

I don’t have enough money to invest.
I have to pay off my bills first.
I have money to invest, but I am afraid.

What is stopping you from starting to invest? Three of the most common investment stops are listed above. What can you do to start yourself to invest? There are many inexpensive ways to start investing. You can open an investment account with a broker that sells shares or partial shares of stocks. You can open a mutual fund account with a mutual fund company that will allow you to start with a small amount of money. And finally, you will have to shed some old baggage about investing, for example, “I will start investing when I get my bills paid off,” or “I am afraid to invest.”

Start with the right investment priorities:
Invest in the right car
Invest in the right home
Learn comprehensive investing in mutual funds, credit scores, budgeting,
saving money, and student loans.

You don’t have to have a lot of money to start an investment account. There are mutual fund companies that will allow you to start an investment account for as little as one hundred dollars, and add as little as twenty-five dollars a month . The monthly additions work to significantly increase your account due to dollar cost averaging.  Low-cost, low-risk mutual funds have a tendency to be less complicated than stocks. But, low-risk dividend paying stocks of stable companies are a good research vehicle as well as mutual funds.

There are companies that will allow you to invest in a few shares or partial shares of stock starting with as little as eight dollars a month, and adding eight dollars a month to your account to purchase these shares or partial shares of stocks .

I have to pay off my bills before I start to invest. It is a good idea to have your debt well under control before you start to invest. The interest rates on outstanding debts sometimes are in excess of the interest rates on investments, coupled with compounded interest, debt payments can be excessive. There is an easy way to invest after you have your bills under control, that is to treat your investment as “just another bill,” before you know it, you will have a significant investment account.

Do you have plenty of money to invest, but you are simply afraid? I think the term for that is, “fear of the unknown.” That is probably the easiest investment stop we address in this article. Study the investment tutorials in my eBook and course; Step by Step Car Buying Tips for Women, that can save your financial life. You can download it instantly, and the eBook is practically free, the price is so low.  Then, you can go on to understand high level home buying tips, so you buy the best house for the best prices.  Then move on to my free discovery lesson and enjoy the preponderance of money information there.

Lois Center-Shabazz | Course Delta Agency
Interested in a Free Discussion about how I can help you with Fantastic Finances? Let’s Chat – Make an Appointment Here

Get Your FREE Fantastic Finances Tips Course by eMail

How I Build Fantastic Finances ; Read More…

Don’t forget your free sample copy of “The Ultimate Guide to a Great Money WorkOver

Owner-Occupied Real Estate Now and in The Future as A Personal Investment

Owner occupied real estate now and in the future

Owner occupied real estate purchase as an affordable home

Your owner-occupied real estate now and in the future, is one of the best long-term investments one can make. Time has shown that owner-occupied real estate can produce tremendous long-term returns. In a few areas of the country the tremendous returns have even been short-term. In some cases, homeowners have sold homes held 30 or 40 years, for 30 to 40 times their original cost.

The least expensive for maintenance cost is the owner-occupied real estate investment, simply because most owners correct problems as they arise.

The hardest part of real estate investing is to know when prices are inflated or low. To understand this, you must do a lot of research or endure a lot of pain until prices stabilize. Residential real estate as an investment requires, skill, intelligence, research, intuition, a lot of time, very hard work, and luck.

Here are items to look for before and during your owner-occupied real estate now and in the future home search, for a successful property.

Good Credit Score

Before you start to look for a home the first steps are to;
Get a copy of your credit report
Go over it closely, make sure all the credit listed belongs to you
If you Find credit that does not belong to you, write Experian.com and challenge the reporting with them.
Stop charging, and start paying off credit you already have
Pay off anything that is past due, and maintain your bills monthly

Quality loan

Do not get a loan until your credit is cleaned up to the best of your ability, this may take months to a few years. Save for a down payment or get a no down payment loan and pay more points (or higher interest rate). Research any mortgage company you plan to use and make sure they are legitimate.

If you are a first-time home buyer consider FHA loans, or NACA (naca.com) to help with the qualifying process. Every city has a first time home buyers organization in town to help with the buying process.

Home ownership the right way-is pure joy

Quality home – Well inspected

Make sure you are getting a quality home, by getting quality inspections from plumbers, electricians, HVAC, and carpenters. There are many home buying nightmares where buyers used a lone home inspector who missed most if not all the problems. If you find problems in an inspection, you will know what you are up against. You can either: 1. Find another home, or 2. Ask for a reduction in price so the problem can be fixed in your increased loan amount.

Home purchased at the bottom or middle of a market

Know if your home buying market is in a bubble or if your home is over-priced. If it is you may not be able to sell the home for several years, even if you must move.

Affordable price

An affordable price is a home that fits your budget and is generally around 30% of your gross. Create a sustainable “overall budget” before you buy.

Well maintained

Look for signs the home has been well-maintained. Inspect the heating and air conditioning units well, the roof should stand the test of a heavy water hose. The floor should be level when you place a marble on the floor it should not roll, if it rolls, you may have a serious foundation problem.
Value increases over time: The more jobs or tourism there is in the area, the more valuable the area may be in terms of increase in home value over time. Then an area with no jobs or tourism can transform in several years when something valuable is added. As well as places that go under due to a decline in an area that has no jobs or amenities. It is best to look at an area with amenities at the time of sell.

No monthly house payment or rent

After the mortgage is paid off, you will have no house note or rent to pay. This is a tremendous savings. But, you will still have maintenance and taxes. It is important to factor in taxes as you age. Will your retirement check be enough for taxes and home maintenance?

The advantages and disadvantages of owner-occupied real estate is listed below:

Key advantages of owner-occupied real estate are:
• You can qualify for the lowest interest real estate loans available
• You can qualify for low down payment consideration, of 5%-10%. There are also extra low-down payment loans for first time buyers who qualify, as low as 3% down.
• You qualify for a full array of owner-occupied tax deductions. IRS Homebuyers Credit
• Most owner-occupied homeowners take pride and joy in maintaining their own home, so the long-term maintenance is usually reasonable.
• Owner-occupied real-estate profits have been tremendous when held long-term.
• There is a capital gain exclusion for taxes up to $250,000 if you have lived in the house for 2 of 5 years.

Home ownership dream for women

Key disadvantages of owner-occupied real estate:

• The debt carried when a home is leveraged with a mortgage loan.
• The responsibility of up-keep, for some this is an advantage, since they enjoy the up-keep.
• You are responsible for taxes.

Your owner-occupied real estate now and in the future, has many more advantages than disadvantages.

Lois Center-Shabazz | Course Delta Agency
Author, Blogger, Course Creator, Investor, & Money Strategist

->Interested in a Free Discussion about how I can help you with Fantastic Finances? Let’s Chat – Make an Appointment Here

->Get Your FREE Fantastic Finances Tips Course by eMail

->How I Build Fantastic Finances ; Read More…

 

Residential Real Estate As An Investment

You May Want to Think Carefully Before Deciding on Residential Real Estate As An Investment

Residential real estate as an investment

Owner-occupied real estate is one of the best long-term investments one can make. History has shown owner-occupied real estate has produced tremendous long-term returns. In a few areas of the country the tremendous returns have even been short-term. In some cases homeowners have sold homes held 30 or 40 years, for 30 to 40 times their original cost. Other types of real estate investments, are the non-owner occupied rentals, and a combination of the owner-occupied/non owner-occupied rentals. The least expensive for maintenance cost is the owner-occupied real estate investment. The most costly is the non owner-occupied rental. The hardest part of real estate investing is to know when prices are inflated or down. To understand this you must do a lot of research or endure a lot of pain until prices stabilize. Residential real estate as an investment requires, skill, intelligence, research, intuition, a lot of time, very hard work, and luck.

The advantages and disadvantages for all three types of residential real estate as an investment is listed below.

Advantages of owner-occupied real estate are:

  • You can qualify for the lowest interest real estate loans available
  • You can qualify for low down payment consideration, of 5%-10%. There are also extra low-down payment loans for first time buyers who qualify, as low as 3% down.
  • You qualify for a full array of owner-occupied tax deductions.
  • Most owner occupied homeowners take pride and joy in maintaining their own home, so the long-term maintenance is usually reasonable.
  • Owner-occupied real-estate profits have been tremendous when held long-term.
  • There is a capital gain exclusion for taxes up to $250,000 if you have lived in the house for 2 of 5 years.

Disadvantages of owner-occupied real estate:

  • The debt carried when a home is leveraged with a mortgage loan.
  • The responsibility of up-keep, for some this is an advantage, since they enjoy the up-keep.

The next possibility for real estate as an investment is residential real estate rental property or 100% non owner-occupied property. A few investors have very good luck with rental real estate as an investment, while most find it very costly and highly stressful to deal with tenants, even when a management company is hired to collect rents and maintain the property.

The advantages of residential non owner-occupied real estate as an investment (rental property):

  • It is possible to have high returns when held long-term.
  • You can depreciate the property (this is far more advantages for property purchased prior to 1987 though, the depreciation deduction is much less after that year).
  • You get a deduction for up-keep.

Disadvantages of residential non-owner occupied real estate as an investment (rental property):

  • Non owner-occupied mortgage loans carry a higher interest rate than owner-occupied loans.
  • Required down payment for non owner-occupied loans is much higher than owner-occupied loans. In many cases requiring 20%, compared to an owner-occupied loan of 3%-10% down.
  • You must pay capital gains tax on profits, when you sell.
  • Yearly maintenance cost for residential non owner-occupied real estate is usually much higher than owner-occupied cost. Most people simply do not properly maintain property that does not belong to them.
  • Long-term maintenance cost can be phenomenally high.
  • Is difficult to find reasonably priced properties in quality neighborhoods.
  • Neighborhoods with a lot of “four rent” signs are particularly difficult to avoid vacancies.
  • Lost rents are not deductible.
  • A low quality neighborhood (that with high unemployment), brings a low quality tenant, i.e. the default rate on rent payment is high.
  • The debt carried when the rental is leveraged with a mortgage.

The combination of an owner-occupied/non owner-occupied residential real estate can be a viable consideration for those who feel some form of non owner-occupied rental real estate is a must, as an investment. An example of a combination of residential owner-occupied and non-owner occupied real estate is a four-plex where you live in one unit, and rent the other three.

The advantages of the combination owner-occupied/non-owner occupied real estate investment:

  • You can qualify for the lower interest owner-occupied mortgage loan.
  • You can qualify for the lower down payment of 10% allowed with your owner-occupied real estate.
  • You can deduct the repairs and up keep on the rental portion.
  • You are present to monitor the repairs and encourage maintenance.
  • You can depreciate the rental portion.

You have a better probability of purchasing a property in a quality community since your initial cost are lower than a non-owner occupied property. A quality community brings a higher probability of a quality tenant. Attracting quality tenants is probably the most important aspect of residential non-owner occupied investments.

Disadvantages of the combination owner-occupied/non-owner  occupied real estate investment:

  • Your tenants may know where you live.
  • You can only deduct expenses for the rental real estate portion of upkeep, but not your own.
  • You will be liable for normal capital gains taxes on the non-owner occupied portion when you sell. There is a capital gain exclusion on the owner-occupied portion.
  • In our example, it would be 25% of the profit up to $250,000. This is current as of 2004.

Laws change on just about everything,  yearly. Consult directly with current Internal Revenue publications for the latest changes.

See IRS publication 527 at www.irs.gov: Residential Real Estate Property
See IRS publication 523 at www.irs.gov: Selling Your Home

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