Monthly Archives: November 2016

Real Estate Investors Should Avoid This 5 Mistakes

Real estate investors and first-time home buyers face an uphill battle in a slow real estate market. When it comes to buying and selling properties, it is still possible to make money, but it won’t be easy. However, avoiding some classic mistakes will help put you on the right track.

Mistake 1. Lack Of Research

Before most individuals buy a car or a television set they compare different models, ask a lot of questions and try to determine whether what they are about to purchase is indeed worth the money. The due diligence that goes into purchasing a home should be even more rigorous.

There are also research considerations for each type of real estate investor – whether a personal homeowner, a future landlord, a flipper or a land developer.

Not only must the prospective buyer ask a lot of questions about the home, but he or she should also inquire about the area (neighborhood) in which it is located. (After all, what good is a nice home if just around the corner is a college frat house known for its all-night keg parties? Unless of course, you’re attracting a student renter.)

The following is a list of questions that would-be investors should ask regarding the home in question:

Is the property built in the vicinity of a commercial site, or will long-term construction be occurring in the near future?
Does the property reside in a flood zone or in a problematic area, such as ones known for radon or termite problems?
Does the house have foundation or permit “issues” that will need to be addressed?
What is new in the house and what must be replaced?
Why is the homeowner selling?
What did he or she pay for the home and when?
If you are moving into a new town, are there any problem areas in town?
Mistake 2. Getting Lousy Financing

Though the real estate bubble in North America ostensibly popped in 2007, there are still a large number of exotic mortgage options. The purpose of these mortgages is to allow buyers to get into certain homes that they might not otherwise have been able to afford using a more conventional, 25-year mortgage agreement. (Learn more about exotic mortgages in Choose Your Monthly Mortgage Payments.)

Unfortunately, many buyers who secure adjustable/variable loans or interest-only loans eventually pay the price when interest rates rise. The point is that home buyers should make sure that they have the financial flexibility to make the payments (if rates go up). Or they should have a back-up plan to convert to a more conventional fixed-rate mortgage down the line.

Mistake 3: Doing Everything on Your Own

Many buyers think that they know it all, or that they can close a real estate transaction on their own. While they might have completed a number of deals in the past that went well, the process may not go as smoothly in a down market – and there is no one you can turn to if you want to fix an unfavorable real estate deal.

Real estate investors should tap every possible resource and befriend experts that can help them make the right purchase. A list of the potential experts should, at a minimum include a savvy real estate agent, a competent home inspector, a handyman, a good attorney and an insurance representative. These experts should be capable enough to alert the investor to any flaws in the home or neighborhood. Or, in the case of an attorney, he or she may be able to alert the home buyer to any defects in the title or easements that could come back to haunt them down the line.

Mistake 4: Overpaying

This issue is somewhat tied into the point about doing research. Searching for the right home can be a time-consuming and frustrating process. And when a prospective buyer finally finds a house that actually meets his or her needs/wants, the buyer is naturally anxious to have the seller accept the bid.

The problem with being anxious is that anxious buyers tend to overbid on properties. Overbidding on a house can have a waterfall effect of problems. Buyers may end up overextending themselves and taking on too much debt, creating higher payments than they can afford.; as a result, it may take years for the home buyer to recoup this investment.

Are You Overpaying?

To find out whether your dream investment has a high price tag, start by searching what other similar homes in the area have sold for in recent months. Any real estate broker should be able to provide this information with relative ease (particularly with their access to a multiple listing real estate agent database). But as a fallback, or if you are not using a realtor’s services, simply look at comparable homes in the local newspaper, and see what they are being offered for. Logic should dictate that unless the home has unique characteristics that are likely to enhance its value over time, the buyer should try to keep any bids consistent with other home sales in the neighborhood.

Buyers should realize that there are always other opportunities out there, and that even if the negotiation process becomes bogged down or fails, the odds are in their favor that there is another home out there that will meet their needs. It’s just a matter of being patient in the searching process.

Mistake 5: Underestimating Expenses

Every homeowner can attest to the fact that there is way more to owning a house than just making the mortgage payment. Unlike renting, there are maintenance expenses that go along with mowing the lawn, painting the shed and tending the garden. Then there are the costs associated with furnishing the house and keeping all of the appliances (such as the oven, washer/dryer, refrigerator and the furnace) running, not to mention the cost of installing a new roof, making structural changes to the house, or other little things like insurance and property taxes.

The point is that first-time investors tend to forget these costs when house hunting. Unfortunately, this is exactly why many new homeowners tend to be house poor and cash poor.

The best advice is to make a list of all of the monthly costs that are associated with running and maintaining a home (based upon estimates) before actually making a bid on one. Once those numbers are added up, you’ll have a better idea of whether you can really afford a property.

Determining expenses prior to purchasing a property is even more important for house flippers and investors. That’s because their profits are directly tied to the amount of time it takes them to purchase the home, improve it and resell it. In any case, investors should definitely form such a list. They should also pay particular attention to short-term financing costs, prepayment penalties and any cancellation fees (for insurance or utilities) that might be borne when the home is flipped in short order.

More Information About A Guide To Home Insulation Materials

Insulation is one of those building products that you never see, because it is usually covered up by something else. But if you don’t have enough, or if it is installed incorrectly, you’re wasting energy and paying more for heating and cooling than is necessary.

There are a number of insulation products you can use to prevent energy loss. However, it is important to realize that insulation is only one part of a two-prong approach to energy efficiency. The other arm of the plan involves sealing all of the holes, cracks or openings caused by pipes, wires, chimneys or anything that creates an opening in a wall, ceiling, or most importantly, attic floor.

These openings allow interior air to escape to the unconditioned (not heated or cooled) space that surrounds your home. The sealing process is called “air sealing,” and requires silicone caulk and expanding foam that comes in a can. It isn’t exciting work, and while easy, it requires attention to detail. It is extremely important because the openings are escape routes for heated and cooled air and because many insulation products do not stop moving air. If you plan on insulating, be sure to attend to air sealing as well.

Where to Insulate

Basically, insulation should be placed in any area that separates your heated and cooled living spaces from areas that are not heated and cooled. These areas include:

Attics
Cathedral ceilings
Sidewalls
Walls between the living area and an attached garage
Floors over unheated basements
Floors over crawl spaces
Foundation walls
Insulation Materials

The effectiveness of insulation is measured by its R-value – “R” stands for resistance to heat flow. The higher the R-value, the better. It is important to match the insulation to the application as well. For example, fiberglass insulation has an R-value of about 2.8 to four per inch. Some foam panels have R-values of seven or eight. But you can easily find fiberglass batts or blankets that are 12 inches thick and designed for use as attic insulation, providing over an R-40. Standard foam panels only come in one-half to two inch thicknesses.
Some products are easier to install than others. Fiberglass batts simply roll into place. They are manufactured to fit snugly between ceiling joists and wall studs. When installing any insulation, it is important that the product be placed flat against the surface you are insulating. Any air space under the insulation or gaps around the edges will limit the effectiveness of the product.

More Information About 5 Things Every Real Estate Pro Knows

Those who consistently make money in real estate know the market. They know the location and the history. They know what new developments are planned. They know the transportation and the schools. They know everything about the area where they invest. They have to know it all.

Staying ahead of the competition in real estate investment means doing your homework. If you are new to the business, it can be daunting, but in this article we’ll teach you five tricks that the old pros use to get ahead of the trends instead of chasing them.

Study Local Pricing

The first things to study are the current price trends in the area. For example, a potential investor should look to see if the price of homes is accelerating faster in one area than in others. Next, check to see if the average home price is more than in other neighboring towns. This will provide an idea of where the biggest demand is. Another reason to study these trends is that, over time, you will start to develop a sense for which prices are “fair” for certain properties and which are overpriced. For individuals looking to buy properties at the lowest cost possible, this knowledge can be invaluable.

Realtors and real estate agents are a terrific source for this information given their access to the Multiple Listing Service (or MLS). The local newspaper, the internet and the town hall may have a record of recent sale prices as well.

Look for a Catalyst

One sign that an area is up-and-coming and that it will be desirable in the future is the development of new infrastructure. When you see new roads and schools being built, it’s a sign that the community is set for a growth spurt. Investing in a growing community can be very profitable. In addition, certain types of development, like new shopping centers, may be extremely attractive to homebuyers, and may also help keep the tax base low.

Spotting new developments can be as easy as looking out your car window as you drive by. Telltale signs of land clearing, surveying or the beginnings of construction in and around major roadways are pretty big tip-offs. Also, look for widening of traffic lanes, the installation of turnaround lanes and the erection of new traffic lights. All suggest the possibility of increased traffic flow.

Next, visit town hall at the municipality or the county level, and speak with the road and the building departments. They should be aware of any major projects slated to begin in the area, and they may even be able to provide you with a connection at the state level so you can find out if any state-owned roads or properties are slated for development as well. Real estate agents also have general idea of what new projects are about to be undertaken.

Explore Low-Tax Alternatives

If there are two towns side by side – one with high property taxes (or with progressively rising property taxes) and the other with low property taxes – the one with the lower taxes will usually be more in demand.

Real estate agents can help you determine which areas have the best and worst tax structures. In addition, a simple call to the local tax assessor can reveal how much the town charges in taxes per $100 of house. The assessor can also let you know when the last time the area was evaluated by the township. Also watch to see if a reassessment is set to take place in the near future, as it may mean that property taxes are about to go up. Beware of towns and communities that are becoming overcrowded. Signs include schools filled to capacity and inferior roadways. This could mean the town will have to do some major construction to accommodate the influx of people. And how do they pay for that construction? Tax dollars.

Check the School Rankings

Nearly every state ranks its schools by how well students in each district fare on tests in math and English. Sharp-eyed investors should look for schools that are moving up or are atop the list. These areas are often desirable to parents. Access to quality education is a big selling point to new home buyers.

There are several ways to find this information. Check our your state’s board of education website. Also, PSK12.com has public school rankings for most states in its free section. Visiting the schools yourself is also a good idea. Schools that rank the highest are usually quite eager to provide information.

Watch the Outskirts

If the properties in a major city or town have become overpriced, the areas on the outer fringes most likely will soon be in demand. Areas in close proximity to major bus and rail transportation are even more desirable Nearly any area that is about to install a major train stop or a new major bus route will see its proverbial stock go up in value.

To find out what’s planned, you can check with the local railroad or bus company to see if they will be expanding service in the area. The local town hall or planning department will also have this information.