So you finally found the perfect property that a tired landlord wants to sell. You have to wonder why they trying to sell. Do they want to upgrade their property with a 1031 exchange, have all the money they need selling you a ready made money machine, or has the tenant taken control and is now driving them nuts?
You are going to want to get copies of existing leases, statements of security deposits, move-in inspection reports, rent rolls for the last year, tenant contact information, tenant applications, expenses for the last year and any warranty information for warranties in place. Some buyers even go to the extent of getting statements from each tenant as to their interpretation of their obligations under the current lease. To do the latter, you will need the seller’s permission to contact the tenants and they may not want them to know the property is selling.
Once you determine the situation and if you still feel good about going forward you then need to consider a few things. What you do next will make all the difference in the world in your cash flow going forward. If the house is rented, after reviewing the existing lease, you will want to include language in the purchase agreement about receiving current months rent and security deposit at the closing. We make the leases attachments to the purchase agreement.
We like to close on the fifth of the month, and request the seller to pay us the full monthly rent at closing. It then leaves the issue of rent collection to the seller if the tenant is late with their current months rent. It also minimizes the amount we have to come up with at closing.
The rent roll will give you payment history so you will know up front which tenants pay on time and which are habitually late. For the ones with the bad habit, you will know to take immediate action when they are late with their payment so they will know you mean business.
Last years expenses will include payments made to service providers. The list may reveal that you have to pay certain utilities such as water & sewer of trash pick up and this information may not have been mentioned by the seller in the negotiations. The last thing you want at the purchase is the seller canceling a service and the tenant being without water or trash pick up.
You will need to send a letter of notification to the tenant of the change of property management, the date of change, where to send future payments, who to call with maintenance issues and the bank account number where their security deposit is now being held. You can use this occasion to reemphasize your expectations of the tenant’s performance under the existing leases.
Use the transition of property manager to meet with the existing tenants and find out if anything is in need of repair. This goes a long way toward good will, and it gets you into the property to do a quick inspection.
Handle the transition in a businesslike manor; remember now you are in the property management business.
Archive for April, 2009
How to Purchase a Currently Rented Property
Wednesday, April 29th, 2009The Cold Hard Truth About Mortgage Property Appraisals
Tuesday, April 28th, 2009With the present downturn in the market and home prices dropping faster than a lead balloon, I thought it best to share with you what I’ve learned regarding property appraisals.
Here is the cold, hard truth on valuations and what appraisers will NEVER tell you. Keep these points in mind on every loan you do.
1. Cosmetic stuff such as paint, new carpets, window treatments, etc. do not increase appraised value, they only increase the perceived value of the property from the viewpoint of the buyer. Yes, cosmetics will affect your asking price and what the buyer is willing to pay, but it will NOT increase the intrinsic value of the house on the appraisal report. It also won’t get a customer out of PMI if you try to refinance him and all he has done to improve the property is wallpaper and paint. Lenders are much savvier than this and (if the time period has only been a year or two and prices haven’t increased) will require “significant” property upgrades to kick off PMI, not just cosmetic effects. Remember this.
2. Also, high end appliances such as sub-zero freezers and granite counter top upgrades do nothing to increase value on the actual appraisal report. And even if by chance they do, it will be very, very low and insignificant. Yes, some appraisers will try to tell you that they took the upgrades into account when determining value, when the real reason is they didn’t. Appraisers just say that, because it’s the borrowers who belly ache with “well I put all this work into the house, and surely my shiny new stainless steel appliances added some value, didn’t they?” Of course they did. *wink* *wink*. 
3. On condo’s, the appraiser must first look within the same complex development for comparable properties BEFORE looking elsewhere to justify a value. That’s because lenders want to know what other units next to it have sold for, and most likely, these units are all similar in nature and have a common historical precedence for valuation.
4. If the appraiser goes outside the normal mileage boundaries of the area to search for comparable properties, there must be a valid and overriding reason given. And this reason must be CLEARLY articulated and stated on the appraisal report. Failure to do this and you risk having the appraisal report kicked back to you from underwriting and requesting additional comparables. (This delays the closing, risks your interest rate lock and may even kill the whole deal!)
5. Carefully watch your hits and adjustments on the rate sheet and beware of pricing bumps because of a low appraisal. If the “loan to value” on the property is too high and the customer is taking cash-out, then this WILL affect the interest rate and–more importantly–your income! On the other hand, if the appraisal comes in higher making the “loan to value” lower, you can either keep the extra yield spread you earn or pass the savings onto the customer and lower their interest rate or reduce some of the closing costs. If you do nothing, you can simply use this additional “found capital” as additional leverage to make yourself more competitive with the borrower. As the deal progresses, you may have to bargain and cut your fees to save the loan. Keeping a bit of padding, gives you a way to make amends without losing your shirt!
6. Keep in mind that appraisal values are a moving target and that the appraiser can only go back so far to pull out comparable properties, typically no more than 3 to 4 months. Anything longer and the bank will condition you for it and ask for more comps. Again, you don’t want to delay the closing and risk losing your commission.
7. Any value that is given to a home is only as good as the value of the other properties surrounding it. If the market is in a downward trend (as we are today), then the prevailing prices will be downward. Duh?! Customers don’t like to hear this. Everyone thinks they are sitting on a “goldmine” and I can’t even tell you how many BBQ’s I’ve been at where so-and-so is bragging about how much their house is worth. You can imagine the shock on their face when they try to refinance and get the appraisal report. That alone is enough to deflate their enthusiasm. Sorry to spoil the party, Mr. Customer, but all value is subjective and only as good as what someone else is willing to pay.
8. Tell customers, that no matter what the property value comes in at, you have absolutely no control over it. Appraisers are independent third parties and their opinion is usually firm. They are bound by legal, ethical and moral obligations and could lose their license if they stray too far beyond the guidelines. They could lose their job!!!
9. If customers doubt the appraised value and think it should be higher (again the goldmine mentality), tell them that it is up to them to get a second opinion if they choose too. However, be sure to tell them that it will cost them another appraisal fee (this usually is enough to stop them cold in their tracks!). Reiterate the points mentioned above. You are acting as their trusted advisor so they should heed your advice.
10. As a last resort, you could call the appraiser and see if they may have overlooked something on the report such as significant upgrades (meaning finished basements, porches, attics, additional rooms, etc.) Also, are there any other recent sales in the area that you know of? Could the appraiser use one of those comparable properties instead? Maybe this will help you get to the value you are looking for. Maybe not.
Remember when working on loans you need to set expectations with the borrower. I always tell customers that no matter what they “think” the property is worth we actually have no idea until an independent third party takes an objective look at it. It’s no use trying to guess and speculate!
When someone tells me the value of their home I take it with a grain of salt because I know that most likely the appraisal will come in far less than they think…and I price my loans accordingly. I suggest you do the same. Listen to your gut instinct and never just take the borrowers word for it.
I hope the above tips regarding appraisals help you in this ever changing market. If you want to survive you’ll need to adapt and become your customer’s best friend. The better educated you are about the mortgage process, the less fall-out you’ll have and the more loans you’ll ultimately close.
Real Estate Listing – Helping in Easy Access to Reality Estate Information
Tuesday, April 28th, 2009
The world of buying and selling of homes and property is inflating in a regular tandem with the time. With options for free and relevant data over the internet is making a northward go, any one can expect for a quick service from ones in the business to help in finding a desired locations. Much to the satisfaction, real estate professionals are breaking the traditions and have connected with the emerging technology to reach out to a large number of people who might be interested in property dealings.
The triple benefits of a fluctuating market, legal pressure and improving competition has laid huge pressure on real estate professionals to make information related to a property more detailed and open online. The emerging situation has brought in better services for interested property buyers. The phenomenon presages to increased and detailed listing of properties with a broker and make all of them readily available for buyers to see.
Nowadays, real estate agents confer to real estate listing in creating successful business deals. Their decision understandably stems from the growing participation of construction companies in listing their projects.
Real Estate Listings are Important for Realtors
Real estate listings are essential if you have just started your career as a realtor. It is mainly because of the fact that a full-fledged listing helps in providing a thorough information for buyers as well as for sellers to consult.
Listings add value to the credibility of a real estate agent and satisfy the curiosity of the interested property buyers and sellers. For example, if a buyer visits the page and likes the listings displayed there, he will feel secured and confident of approaching the services of the website and the realtor thereby.
Are you an interested buyer or seller? Find a website that offers a real estate listings that suits your needs best.
Avoid Top 10 Mistakes Made By Real Estate Investors
Tuesday, April 28th, 2009Real estate investment is perhaps one of the most lucrative forms of investment today. But it is also equally risk bound especially when one is not well versed with the trends and nuances of the real estate market. So if you are contemplating on investing in real estate, it is best to avoid costly mistakes in real estate investment especially when you invest your hard earned money into it. Knowing the most common mistakes made by real estate investors helps one steer away from making such mistakes in the future and ensures good return on investment.
Here are the top ten mistakes made by real estate investors, according to bankrate.com. Bankrate has put together the top ten mistakes after speaking to established, full-time real estate investors and other professionals involved in real estate investment such as bankers. Read on to know them and avoid them.
1. Not planning up ahead. Lack of a proper plan is the biggest mistake made by novice investors. Finding a house after forming a proper investment strategy is the right way instead of looking for a house to fit the plan. Many make the mistake of buying a house because it seems to be a good deal and then trying to see how they can fit it into their plan. Instead of buying a house and thinking one can plan in due course, investors should rather concentrate on the numbers and try to make offers on multiple properties. This will ensure a good property that not only matches their investment model but also works out well with the numbers they had planned for.
2. To believe you can make money quickly. The second major mistake that real estate investors make is to think it is very easy to get rich in real estate. This is only a myth and the reality is that investing in real estate is a long term project.
3. Doing it single-handedly. For becoming a successful real estate investor one needs to build a team of professionals who would assist the investor in his deals. This would ideally include a real estate agent, an appraiser, a home inspector, a closing attorney and a lender.
4. Making excess payment. One another reason that investors in real estate goof up in their investment is by paying too much for the properties they buy. Paying too much and locking up all the funds in the erred property deal will leave you with no money to redeem yourself.
5. Leaving out the groundwork. Not doing your homework could be a costly mistake if you were a real estate investor. Every field of business needs sufficient amount of homework to be done, and real estate investment is no exception. Learn the fundamentals and then venture into investing in properties.
6. Throwing caution to the winds. Investors have to exercise a certain degree of caution and take earnest efforts while making a deal. New investors often fail in this regard and sign a deal without doing adequate research on the property.
7. Miscalculating money flow. Investors whose strategy is to buy, hold and rent out properties need to ensure sufficient cash flow for maintenance. Property managers could be expensive and the owner has to incur more expenses such as mortgage, taxes, insurance, advertising costs etc. Investors have to allocate their budget such that all these expenses are taken care of, or end up having their asset turn into a liability.
8. Lowering the volume. A larger volume of deals or transactions helps in increasing the profits by reducing the impacts of marginal deals.
9. Getting trapped in your own deal. Having more number of options at hand for the property you buy is a wise strategy. This helps one to be prepared for fluctuations in the real estate market. Plans to rent out the house could go awry when the rental market slumps. Having alternative plans helps you cut down losses and tackle unexpected situations.
10. Making incorrect estimates. People who plan to rehab their house need to check if they will still reap the benefits at double the time that they had estimated. This ensures they do not miscalculate and lose money on the deal.
Which is a More Lucrative Deal: Buying or Renting?
Tuesday, April 28th, 2009With the immense progression of property and real estate in Dubai, the price patterns have changed to a vast degree. In the precedent decade, the property has been affluent and it proposes an avid investment. But there has been an undulating change in the rates of property. Now the question arises whether one should purchase the property or hire it for accommodation. The property in Dubai is lively and is in great stipulation. But due to stupendous variations in the pecuniary value of the property, one needs to shape out their requirements that they want to gratify from the property.
In 2002, the mortgage rates were lesser than those of rentals were. In those times it was economical to buy property than to reside on lease. But at the moment the costs have mounted to meet the towering demand. The mortgage rates have augmented a good deal ahead of the rent expenses.
If one has to reside in Dubai for a petite span of say three years or less, then the idyllic lodging approach should be to hire property on lease. The main reason for that being, although there is demand of property, it is primarily for complete property. Also demand has not outlived supply thus far. Thus the mortgage prices are anticipated not to come down. Furthermore the majority of people bought the property as an investment. So now they would like to incur their expenditure through rent prices.
If a property is bought for a smaller period, chances are more that a good number of investors would permit out their property for sale. Therefore the market would be buyer-driven instead of being dependent on the seller.
Another alternative for a short-term accommodation is to buy a property that is in demand. It would be a one-time investment as one can rent it out after their usance. The mortgage overheads can be recuperated through the rent payments of the tenant. After the property suppurates, in around 8-10 years, one can let it out for sale which would bring in a substantial amount of profit.
If a person needs the property to fulfill his demands for a long term, the ideal tactic is to invest in the property rather to take accommodation on rent. In long-term ownership, the mortgage is paid off which would have otherwise been given off as rent. The buyer can easily let it out on rent later on and can place it for sale whenever market favors him.
All the alternatives recommended here are based on the assessment that the market of Dubai would prolong to expand per say. Although this is not an inveterate or stated fact, it is just an assumption. But the market mode and scrutiny illustrate that it would remain a vigorous and affluent market as Dubai will turn into one of the chief areas of commerce in the world.
How Much Will a Property Appraisal Cost?
Tuesday, April 28th, 2009A professional appraisal is usually required when you are either selling or buying a property or a home. An appraisal is not just required, to have a professional come and do one can be costly for you also. There are a number of factors that influence the price of a professional appraisal done on your property. Depending on the type of property you are getting appraised or the value of it, a professional appraisal can cost from a wide range of costs.
First, you need to find out what type of appraisal you would need. There are different types of appraisals that can be done. The most commonly used appraisal is called the Uniform Residential Appraisal Report (URAR). There are also shorter appraisals that can be done called “Drive By Appraisals”. These can be less expensive than the URARs, for those on a budget. Although, some banks and lenders do not accept these appraisals for your loan, so you should find out what they will take before you decide on which to get.
The type of property is one of the factors that can affect the cost of your appraisal. A professionally done appraisal of single family homes will typically cost you less if you are selling your own home. Multi-unit properties, however, will run you a bit more than single family homes due to size. The cost can also depend on where the location of the property is. If the property is hard to get to or there are less appraisers around, the cost will most likely increase.
Even though you are trying to find the value of the property, it is also one of the factors in determining your appraisal cost. The higher the value of your property, the more the cost will increase. Although, the cost may not be dramatically different until you pass the $500,000 mark. The cost will most likely be around $300-600 for that valued less than that. Any property that is valued more, though, you will expect to have to pay more for the appraisal.
Lastly, what the property will be used for will affect the cost. For properties that are used to rent out and generate income will generally cost more than an appraisal done for a home. An appraisal of a rental property would usually include a rent survey as well as an income statement for the property. For example, the cost of a single family home that is under $500,000 will cost around $300-450, while a rental property with similar value will probably cost around $400-550.
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