Month: March 2017

Patrick Mackaronis: The Business of Real Estate: Investing

patrick mackaronis

The following is a guest post on real estate investing from Brabble CEO and Founder Patrick Mackaronis. Pat is well-versed in investments and entrepreneurship, and runs a high-level social media startup in New York City.

Enter Patrick Mackaronis

Deciding to invest in real estate can, for the long term, yield a profitable return. Along with market conditions, it is important to remember that there are other factors that can influence your success. To have a prosperous real estate investment business, you must have a detailed strategy and you must know the local market.

Real Estate Strategy

The most important aspect of real estate investing is to remember that this is a business, and all businesses take time to grow. A good business plan, cash reserves and patience are key components to a successful real estate business. A business plan will outline exact goals and the steps needed to get there, and will also delineate your exact financial position. A clear plan will serve to guide your business through both downturns and growth.

Cash reserves are essential to run your real estate business properly. Having reserves on hand will make the difference between waiting for a suitable tenant versus renting to just anyone, or selling your property at a very reduced price instead of waiting for market conditions to improve. You will also need cash reserves for building repairs, appliance replacement, yard work or general maintenance items that may be necessary.

The Real Estate Market

Perhaps the most important piece of real estate investing is to know your market. Knowing the market does not mean having knowledge of national trends and figures; while this is indeed important, it is more important to know the local trends and numbers. This means knowing the median sales price for single family homes and condominiums, as well as the median rental fees for your area. Sometimes prices can vary from one neighborhood to another, so it is important to do the research prior to making an investment.

Stay current on houses listed for sale and what the prices are, as well as the final sales price. In certain markets houses are selling significantly below list price, while in other markets houses are selling at or above list price. The U.S. Department of Housing and Urban

Development has a fair market rental tool for rental market analysis in your area. Remember, national trends do not provide an accurate reflection of local market activity.

Foreclosure Investments

Foreclosure investing can be tricky. Unlike regular real estate investments, these properties have the potential to be fraught with hazard. For the most part, houses that have been through foreclosure will need more work than regular houses to make them worth market value.

It is important to remember that foreclosure properties might have other surprises, as well. Federal tax liens, unpaid property taxes and incorrect property information are just a few issues you might be facing. It is imperative to thoroughly research all applicable state laws prior to making a purchase. Also research the property for sale as much as possible. Incurring hidden costs is not favorable for any business, but it can be especially devastating in the real estate investment business.

When considering purchasing foreclosure properties, remember that there may be hefty competition from other investors. Typically, foreclosure properties can be bought at a public auction which takes place in or in front of the local courthouse. If there is a bargain to be had, you may find yourself in a bidding war with others, ultimately driving the house price higher than intended. Be certain you know exactly how much you can spend, taking into account expenditures for repairs and maintenance on the property.

Real Estate Decisions

When treated as a business and approached with caution, real estate investment has the potential for long term financial growth. Always do your research and avoid risks, no matter how big the alleged payoff. Remember, this is not just a business, this is also your future.

Patrick Mackaronis can be reached on Twitter at @patty__mack, or through the Patrick Mackaronis blog.

Avky Inc: How Sellers Prepare for Closing

avky inc

The following is an extended-length guest post from Avky Inc.

Avky Inc: How Sellers Prepare For Closing

Closing Date

Sellers All written contracts should have a closing date. The closing date is the day where everyone signs and the sale becomes a “done deal”…right? In theory, yes, that is right. In reality, that date is actually a “target” date to sign the paperwork. I can’t specifically recall any contract that has actually closed on the actual closing date. You see, most prepared contracts also provide for an automatic extension of that date to finalize contract terms and contingencies. Additionally, addendums are available allowing for more time to close a sale. With that said, every effort should be made to aim for the contract specified closing date. Ever, that if something does not fall into place that does not mean the entire sale is lost. Agreement of the parties is the key to determining the actual closing date.

Again the warning, make absolutely sure the agreement of the parties is in writing. This is, in particular, the time when the practice of getting things in writing seems to become lax. You have limited or no recourse if you allow the contract to expire without obtaining an extension in writing. Protect yourself!

Sellers Focus

The buyer will have to satisfy the lender requirements, review title policy, obtain insurance, etc… You do not need to pre-occupy yourself with the buyer’s responsibilities other than to get reassurance that they are being fulfilled. The details of their financing is of no importance to you. This book focuses attention to the sellers, so you need to pay attention to your duties. All too often sellers are so nosey finding out how much down payment the buyer is having to make or what interest rate they are getting that they fail to fulfill their own obligations. Unless the seller is owner financing, this information is useless to you.

What exactly are the responsibilities you need to focus on? Let’s discuss some of the basic ones. When you go to closing you will be reviewing, among other forms, a HUD1. This is a standardized forms that discloses all credits and debits to the buyer and seller. I have provided a blank sample for you to familiarize yourself with.

Loan Payoff

If you have a mortgage on your property how much is your payoff? It is generally not the amount that is shown on you monthly stub. That amount represents the payoff if you were to pay your loan in the time frame it was originated. You will need to call or fax a note to your lender requesting the payoff . They will need the name and address of the closing agent and the closing date

The closing date? Oh no, what happens if you don’t close on the closing date? Don’t fret, typically the mortgage company will add ten days or so of interest to the quoted payoff allowing for transaction and courier time. If you close on time you can expect a refund for a few dollars of interest. Other lenders might give a payoff for the actual closing date and instruct the closing agent to add a per day amount to cover the interest for each additional day past the quoted closing date.

It may seem petty for the lender to be so sticky about a few dollars here and there but I assure you they are not pleased about losing the long term interest they would have made had you kept your loan through the original term. They’re going to get every penny they can at this point.

Escrow Amounts

Many mortgages contain escrow clauses allowing the lenders set aside a monthly account to cover insurance and taxes. In these cases a portion of your payment is placed in this account. “Many people do not realize this. It is easy to take for granite that your lender pays your property taxes and insurances–not realizing that you are the one actually paying for them”, notes Avky Inc. co-founder Kyle Uchitel.

Since taxes and insurance may not be paid at the same time depending on your loan specifications (taxes are paid in arrears, insurance in advance) you will most likely have an amount due you from your escrow account.

Some lender will take this amount into consideration when supplying your loan pay-off to the closing agent and give you credit. Others will wait for a written request from you. It is your responsibility to determine which type of lender you have. I suggest that you request the status of your escrow account in writing at the same time you request your loan pay-off. Also at this time include a stipulation that if the lender does not provide credit at the time of closing they need to issue a refund check.

Taxes

Good news with the property taxes! Other than checking for accuracy you can leave the work to the closing agent. Depending on what time of the year you close on your sale you will either receive a credit or deduction for your taxes, states Avky Inc.

If you close on July 7th and taxes for the year have not been paid the closing office will estimate your taxes from January 1st through July 7th (the seller pays through the closing date) and charge that amount to you. That is, you will be have that amount deducted from your proceeds

Here’s the confusing part. The buyer will have that amount credited to their settlement costs. This means that they will have to come up with less funds at closing. However, when the tax bill becomes due the buyer will have to pay for the entire year, not just July 7th to December 31st.

This is really very simple but it sounds so confusing. Just remember taxes are paid at the end of the year (in arrears).
Now, for example, if you close the sale of your home in November, say November 12th, and your taxes were paid in full on October 31st the tables are turned. You have already paid the buyers portion of the taxes due (the amount from November 16th through December 31st so the buyer will have a charge on their closing statement for their pro-rated portion of the taxes and you will receive a credit. Remember, either way, the seller pays for the closing date.

Credits and More

These credits and deductions are irregardless of your status with your escrow account. You will have to get the refund from them, if applicable. The closing agent deals directly with the buyer and seller to issue tax credits and will not accept any lenders promise to pay taxes. Title can not be transferred with taxes due as the title insurance will not accept a tax lien on the property from an existing owner. Late taxes and penalties will also be taken from the seller proceeds.

A word of warning to the seller. It is not unheard of for a seller to have to come up with money to close a sale. If you are in a predicament where you have not paid your taxes in a few years you could find yourself in quite a bind come closing time. Those penalties add up fast! You can try and get a reduction from the taxing entity by begging but don’t count it as a sure thing! Some areas have laws prohibiting this. Don’t be embarrassed at closing time and expose yourself to liability. If you fall in this hole check out your financial ability to sell your home before placing it on the market.

Insurance

Unlike taxes, insurance policies are paid in advance. That means, depending on when your policy is issued, you have a full year of coverage. Say, for example, you paid your policy from April 1st to the next April 1st. If you close your sale in July you will be due a refund from the insurance company of a portion of the policy.

Avky Inc is a distribution company based out of Phoenix. Avky Inc can be reached on Twitter at @avkyinc.

Alex Vasser: Buying a Home in a Slow Real Estate Market

alex vasser

The following is a guest post from real estate economist and expert Alex Vasser, based out of Manhattan.

Enter Alex Vasser

If it’s a sellers market or a buyers market, it doesn’t matter. There are solid fundamentals that should be considered before buying a home. This is an unofficial list of the 5 most important things.

Get Preapproved from a Good Lender

A pre approval letter is simply numero uno when buying a home. All the other things are a moot point if a person can’t get the money to buy the home. A good lender, will not only get a competitive rate, but will spend the time and look at all the income and worth, to determine what can be afforded.

“Lenders aren’t giving away money anymore,” cites Arline Wong, a residential Real Estate agent in the Seattle area.
“It means something to get lender approval. Thsi shows you sat down and brought paystubs, W-2’s, and you worked to get that pre-approval letter. It shows you’re serious.”

Just remember, when submitting an offer, most will ask for an approval letter from the lender.

Hire a Qualified Buyers Agent

Not just any agent but a buyer’s agent. Like doctors, or lawyers, Realtors also specialize. Some just do listings or just concentrate a certain neighborhood. Don’t just hire the agent with the television commercials and all the signs around town. Make sure you get one that specializes in buyers.

“A good buyer’s agent will help you do everything you need to buy the home,” says Sue Brodie, , Prudential NW Realty’s VP and Managing Broker. “They’ll make sure you’re approved, tell you about the neighborhood and everything that comes with it. Even if they don’t have all the answers, they are qualified to find the answers you’re looking for. Realtors are held to a higher standard”

Prioritize Needs

The husband wants to be closer to work, the wife wants a good school district and the kids want to a big backyard. But what’s the most important? As buyers, be on the same page and prioritize the needs.

“So much falls under this category,” explains Brodie. “Whether it’s location, schools, or being close to work, it’s important the decision makers are in agreement. If they’re not, it’s like they’re working against each other.”

The 5 Year Plan

Especially in a slow market, plan on being in the home a minimum of five years. There is no such thing as flipping the houseanymore.
“I tell all my people to prepare to live in the home for at least five years,” says Joseph Ho, a commercial and residential agent of 25 years. “To build equity and recapture your investment, you’ll have to be in it for a while. There’s really no way around it these days.”

Brodie adds, “It’s not a short or a long term investment. It’s a moderate investment. You can’t flip things now.”

Stay within Spending Limit

It happens all the time, people try and buy big when it comes to the new home. The lender says you can afford a $300,000 home, and the buyers stretch it to a $325,000 home.

“It’s called being house poor,” according to Brodie. “When all you can do is feed the house payment, and there’s no money left for anything else. You don’t have to have everything right away. The first home is usually not the dream home.”

Alex Vasser can be reached on Twitter at @alexvasser2.

Aleksandr Vasser – The “Must Have” List Can be Harmful!

aleksandr vasser

The following post is a guest post from the other Avky Inc co-founder, Aleksandr Vasser. Aleksandr is a chemical engineer, real estate expert and entrepreneur in Phoenix.

Enter Aleksandr Vasser

“My home must have…”

This is something I hear so many people rattle off. That long list of “must haves” in regards to their house hunting wish list. Things such as this make me wonder if these people are really planning to find a home! Sure, it’s preferred to have an idea of some things you want to find in a home. Remember, though, that items carved in stone can cause the whole stone column to crumble.

A good way to handle your wish list is by listing items that are necessary (separating wants from needs). Examples of this are the numbers of bedrooms and bathrooms, or if your home should or should not be one story. If you plan on having pets, or wanting a pool, or a large yard, this would also be considered a necessity.

If you are disabled or can’t tolerate the thought of stairs, you may want to consider only single-story floor plans in your area. Other things may include access to schools, public transportation, cooling systems, and more.

Separating Wants from Needs

On another paper, you might list options you would like, but can live without. These are your wants. Things like green wallpaper in the kitchen (these things can always be changed). An extra room for a computer, gym, or sewing machine. A built-in entertainment center, a self-cleaning oven, and landscaped yard, the list goes on. These are all things that can be changed with very little effort on your part. They shouldn’t be the final deciding point in whether or not you buy a home! However, they can be the deciding point on which of several homes you can choose from.

The point being made here is that it is a bad idea to eliminate homes based on a lack of one or two luxury must-haves. I can tell you that I have a friend who has sold countless homes to people who, at first glance, would not have even looked at the home if they would have mentioned “there’s no pool” or “the basement is unfinished”. It’s incredible how many other plusses can eliminate a must-have. Keep an idea of what you want in a home, but keep the ideas very separate from actual must-haves, and also the two lists have surprisingly little to do with one another.

Maintain an open mind in regards to house hunting. Always remember that cosmetic choices can always be modified to fit the family.

Aleksandr Vasser can be reached on Twitter at @aleksandrvass1.

 

Kyle Uchitel: Unemployment Claims, Market Not Disasters

kyle uchitel

Though investors are still waiting on a couple more pieces of the puzzle (namely the new home sales stats for August, which comes from the Census Bureau), enough of February’s real estate data has been posted over the last couple of weeks to make a meaningful assessment of the real estate market’s – housing mostly – overall health. The following is a guest post from Avky Inc co-founder and Phoenix native Kyle Uchitel.

While far from ‘great’, the gloom-and-doom chatter and worries that the “real crash is yet to come” appear to be off-base as it stands right now.

A chart of all the critical data speaks for itself…. almost. A couple of details need to be highlighted.

Kyle Uchitel Presents Unemployment Highlights

One, starts (single-family as well as multi-unit structures) are technically trending higher now. These facts are made even more amazing in that this is the time of year when starts have already tapered off.

Two, there has yet to be any heavy inflow of ‘shadow inventory’. Part of that may be simply because so-many would-be sellers still know it’s going to be very difficult to sell a house. These people are simply sitting on the sidelines. Some if the lack of inflow of inventory may stem from the fact that the phantom inventory isn’t there.

While that’s the minority opinion to be sure, these same forecasters are rightfully reminding investors they are judging facts known to be true, rather than judging facts that are only assumed to be true. In other words, there’s no real evidence that the shadow inventory is looming out there, but there is evidence that the home market is off of life support (though that’s about it).

On the flipside – and this may well be the cause of the thus-far missing phantom inventory – home prices are still dropping. This indicates a lack of demand and/or a desire to scale down home sizes. New home sales are also still trending lower, which doesn’t necessarily bode poorly for the real estate market as a whole, but does bode poorly for the construction industry. And yes, it’s in conflict with the recent upturn in building starts.

News In The Economy

The only other significant news on the economic front wasn’t even all that significant – new unemployment claims pushed higher again. The reading of 465K was above expectations, though it was not an unusual reading for the last several months. Right in the middle of the range, in fact.

Continuing claims actually sank a bit, to 4.489M. Bear in mind that the continuing claims data was from the week before initial claims numbers above are considered.

As has been the case for quite some time, this is neither bullish not bearish for stocks. This is despite much of the media’s insistence that even the slightest misstep means Armageddon is around the corner. Weak? Yes. Disastrous? No.

Kyle Uchitel is a chemical engineer and co-founder of Avky Inc. He can be reached best on Twitter at @kyleuchitel.