Condo as an Investment

When it comes time to make a decision about  housing, one of the choices you might want to consider is a condo. You can choose the right condo; however, it may more difficult than it may seem. There are a number of factors that you should consider when choosing a condo in order to make sure that you find the right place to call home or a perfect investment.

First, you should always look for a building that is well maintained in a nice neighborhood. This is very important because  to do not want problems later on.   If the  building has been lived in for a number of years you will probably want to do some minor clean up such as paint, new carpet update kitchen cabinets, facets and bathroom fixtures.   

 Second , you should also take the financial status of the condo association in consideration, keeping mind that if the building appears to be ill maintained this can be a sign that there is financial trouble with the condo association. In the end, this could cause maintenance fees to rise. You could also have problems trying to resale later.   Don’t forget to request a copy of the most recent financial statement of the condo association. The association wants you to know the rights so that you can save yourself some money.

Also take the time to find out whether there are any major improvements or repairs scheduled for the unit. If you discover that there are, find out the estimated cost for these repairs or improvements. Keep in mind that if there is not enough money in the condo association reserve to cover these costs, then you should ask the seller to pay for any major repairs before you make the purchase.

Make sure you check the by-laws of the condo association to find out what restrictions and prohibitions may apply. Some of the most common include pet restrictions and sub-renting of the condo units. In other cases, you may discover that in the event you want to sell your condo, the board may have reserved the right to refuse any potential sales. Always find out these things at the beginning.

Take time to  perform a research to find out whether there have been any legal disputes regarding the homeowners association. You can research this by reading the minutes of the association meetings.

Usually condos  have been purchased as an investment; in which case, there may be a higher percentage of tenants in the building. This may not always matter, but it could if the tenants do not care about preserving the integrity of the building.

 

 

Tenants Makes the Deposit

Resident Makes the Deposit I realize many of you will completely balk at this idea, but I’ve tried it for years now with some success. Prior to having a drop box location, I would give my late payers a bank account number to which they could deposit the monthly payment directly. Naturally, I graduated from that step to providing deposit slips that were pre-printed so the account name and the account number wouldn’t be inaccurate. In this case, this added effort did reduce the monthly “I don’t have such and such information” telephone calls from the residents. I was never that concerned about a resident attempting to make a withdrawal from my account, although I’m sure that’s a possibility. To decrease this risk, you could have a separate bank account for deposits and sweep the funds into another account periodically. Another consideration here is that potentially you could run into a failed eviction for accepting partial payments. Whether or not a judge would consider a tenant making a small deposit in a last ditch effort to avoid eviction “constructive receipt”, I’m not able to answer. So far, (knock on wood), none of the folks I’ve evicted have tried this angle. However, what will invariably happen is that residents WILL make partial payments. The truck broke down, the child custody legal fees, etc. get prioritized over shelter and what few remaining funds there are end up in your account. Then you’re left with the fun job of trying to determine who paid what. Advantages to this method are that you don’t have to make a trip to the bank and if you have online banking, you know within a day or so if the deposits are there. Again, you don’t know whether or not they paid in pennies or stolen checks from their neighbor, but you at least see the deposit made.

I don’t recommend this method as a standard way of collecting, but perhaps consider it for the good payer who’s just had a bad month. Print the Checks for Them (Thanks to Earl B. for the following tip) I forget when it was, but probably sometime around eighteen months ago, one of my friendly competitors suggested I try this service. One of his friends was using it with success so I signed up for it. It’s inexpensive and allowed me to just sit down and print all the monthly payments at one time. I signed all new residents up on it and bribed some of my existing residents to join. The service is presented to the residents as an auto draft service and they sign off on a one-page form that authorizes you to debit their account. The program itself is a Windows-based software application that allows you to print these “Demand Drafts”. The advantage is that the payments can be set up as a recurring monthly payment and you can print them whenever you want. So, rather than waiting for the mail to arrive, you just sit down at your PC and hit print. The checks roll off your standardized printer. In other words, you don’t need any special equipment. On the first of each month (or whenever) you just head on over to the bank. Again, you don’t know if the resident has good funds or not, but at least you’re not waiting to make your deposit. One of the disadvantages is that you will have to purchase check stock, but I believe I received 300 checks with my initial purchase. Another advantage to using this software is that you could set up your own bills on this so that each month you just print out your recurring bills or a set of blank checks with your pre-printed information.

How Bankers Make Secret Money

Actually, it’s not really a secret at all. In fact, bankers have been doing this for over a hundred years. Bankers make money by borrowing at low interest rates, then lending at higher interest rates. You deposit money in a saving account and they pay you 3% interest. They lend the same money back to you for home loans at 7% or more. The “spread” between the interest rate they pay and the interest rate they collect amounts to incredible profit!

Consider this simple example: You are shopping for rates to refinance your home loan. A lender quotes you 7% interest. On a $100,000 loan, the monthly payment (amortized over 30 years) is about $665 per month. However, at the last minute someone at the bank decides that the color of you underwear isn’t right, so your interest rate changes to 7.25%. Your monthly payment will now be $682. You aren’t terribly upset, since, after all, what’s $17 per month? What you don’t realize is that the extra ¼ percent amounts to over $6,000 in additional interest! An Incredible Opportunity in Today’s Market We are in a unique time in history in that real estate prices are rising, yet interest rates are dropping. This means that those who can borrow at low interest rates and loan at higher interest rates are making a bundle! Combine the interest rate “spread” and the “buy low, sell high” principle and your profit grows exponentially.

10 Inexpensive Ways to Spruce Up Your Rental or Rehab Property

It’s easy to fix up your properties if you have unlimited cash. However, you need to keep your repairs to a Related Information: “Flipping Properties Course” minimum to stay profitable. You also need to keep your properties in good shape to attract tenants or buyers. There are the basic improvements, such as carpet and paint, but these can still costs thousands of dollars. The following are some inexpensive ways to improve your properties with very little cash.

#1) New Electrical Switch Plates
This is such a minor, yet overlooked improvement. Most rental owners and rehabbers paint a unit and leave the old, ugly switch plates. Even worse, some even paint over them.

New switch plates cost about 50 cents each. You can replace the entire house with new switch plates for about $20. For the foyer, living room and other obvious areas, spring for nice brass plates. They run about $5 each – not much for added class.

#2) New or Improved Doors
Another overlooked, yet cheap replacement item is doors. If you have ugly brown doors, replace them with nice white doors (you can paint them, but unless you have a spray gun it will take you three coats by hand).

The basic hollow-core door is about $20. It comes pre-primed and pre-hung. For about $10 more, you can buy stylish six-panel doors. If you are doing a rehab, the extra $10 per door is well worth-it. For rentals, consider at least changing the downstairs doors.

#3) New Door Handles
In addition to changing doors, consider changing the handles. An old door handle (especially with crusted paint on it) looks drab. For about $10, you can replace them with new brass finished handles. Replace the guest bathroom and bedroom door handles with the fancy “S” handles (about $20 each).

#4) Paint/Replace Trim
If the entire interior of the house does not need a paint job, consider painting the trim. New, modern custom homes typically come with beige or off-white walls and bright-white trim. Use a semi-gloss bright white on all the trim in your houses.

If the floor trim is worn, cracked or just plain ugly, replace it! Home Depot carries a new foam trim that is pre-painted in several finishes and costs less than 50 cents per linear foot. Create a great first impression by adding crown molding in the entry way and living room.

#5) New Front Door
You only get one chance to make a first impression. A cheap front door makes a house look cheap. An old front door makes a house look old. If you have nice heavy door, paint it a bold color using a high-gloss paint. If your front door is old, consider replacing it with a new, stylish door. For about $125, you can buy a very nice door.

#6) Tile Foyer Entry
After the front door, your next first impression is the foyer area. Most rental property foyers are graced with linoleum floors. Consider a nice 12″ Mexican tile. An 8′ x 8′ area should cost about $100 in materials.

#7) New Shower Curtains
It amazes me that many landlords and sellers show properties with either no shower curtain or any ugly old shower curtain in the bathroom. Don’t be cheap – drop $40 and buy a nice new rod and fancy curtain.

#8) Paint Kitchen Cabinets
Replacing kitchen cabinets is expensive, but painting them is cheap. If you have old 1970’s style wooden cabinets in a lovely dark brown shade, paint them. Use a semi-gloss white and finish them with colorful plastic knobs. No need to paint the inside of them (unless you own a spray gun), since you are only trying to make an impression.

Americans spend 99% of their time in the kitchen (when they are not watching TV). A fancy modern faucet looks great in the kitchen. They can run as much as $150, but not to worry – most retailers (Home Depot, Home Base, etc) often run clearance sales on overstocked and discontinued models. I have found nice Delta and Price Pfister faucets for about $60 on sale.

#9) Add Window Shutters
If you have ugly aluminum framed windows, consider adding wooden shutters outside. They come pre-primed at most hardware retailers and are easy to install. Paint them an offset color from the outside of the house – (e.g., if the house is dark, paint the shutters white. If the house is light, paint them green, blue, etc.).

#10) Add a Nice Mailbox
Everyone on the block has the same black mailbox. Stand out. Be bold. For about $35 you can buy a nice colorful mailbox. For about $60 more, you can buy a nice wooden post for it. People notice these things….and they like them!

Your Own Real Estate Is Your Best Investment

Your Own Real Estate Is Your Best Investment
You probably have heard the concept of making extra principal payments to reduce interest and payoff your mortgage early. The concept may be simple, but it is often overlooked and rarely practiced. A typical promissory note amounts to incredible interest over thirty years. For example, on a thirty year $100,000 loan at 9%, you will pay over $189,000 in interest.

If you have a positive cash flow on your rental properties, consider using it to make extra principle payments. By making extra principle payments, even small ones, you can save significantly on interest. This is because interest is charged on the outstanding balance owed. For example, if you paid an extra $50/month the loan described above, you would save $49,000 in interest and pay off the loan balance six years earlier. If you paid an extra $100 per month, you would save over $75,000 in interest and pay off the balance ten years earlier.

What About Security Deposits?

If you have a security deposit from the tenant, you can apply that against anything he owes you for back rent or damages. However, you still must comply with state law for notifying the tenant of your intent to keep the deposit. Even if you return the security deposit, you can still sue the tenant for actual rent owed and/or damages incurred to the unit. If the tenant left before the court date or you did not otherwise get a money judgment, you can always sue the tenant in your local small claims court for money owed and any damages to the property. The process is quite simple, and does not require a lawyer. You have to file the claim before the end of the statute of limitations, which generally ranges from three to six years, depending on which state you live in.

Once you have a money judgment, you can collect it against all non-exempt assets of the debtor. Certain assets, such as retirement accounts, are exempt from collection by creditors. Also, keep in mind that assets of the debtor’s spouse may be attached as well in states that recognize community property (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin). Cash in bank accounts is the easiest target. If you have a copy of a recent check from your tenant, you can file for a “levy of execution” on their bank accounts through the local sheriff (this is why it is a good practice to make copies of your tenants’ checks each month to make sure you know where they are banking).

If the tenant is working, you can garnish wages, but most states limit garnishment to 25% of the wages of the debtor. Still, if they have a steady paycheck, you will get your money back, plus interest. If you get a transcript and record the judgment in county records, the tenant will not be able to buy a house in that county without paying you off. If the tenant owns other real estate in his name (not likely, but always possible), the judgment will create a lien on that property as well. If you do not know where the tenants assets are located, you can start a debtor proceeding in court to make him appear in court and answer questions regarding his assets. Failure to comply may result in a warrant issued for the debtor’s arrest. Depending on the amount of money owed and likelihood of collecting, this process may not be worth your effort. But, considering a judgment may be valid for as long as 10 years and you get interest on your money, why not make it a part of your business practice?

Surround Yourself With Like-Minded People

Whether you are new to real estate, or have reached a “plateau”, the following will help “jump-start” your real estate investing career.
“Creative” real estate is non-traditional, which means that most people don’t do it this way. Thus, most people you speak with will tell you it won’t work. If you tell them you heard it in a seminar or a course you bought from a late-night television “guru,” they will laugh and call you “gullible.” Attorneys and other professionals will denounce it, because it sounds unusual. Keep in mind that these people are either threatened by their own lack of success or are looking to protect their own butts.

The first thing you should do its join a local real estate association. These associations will help you keep your thoughts in the right place and prove to your subconscious that it really does work, despite the opinions of the 20/20’s, Datelines, 60 Minutes and other self-proclaimed “consumer watchdogs.” If you cannot find a group, form a “mastermind” group that meets for breakfast once a week. If you don’t know what a mastermind group is, you should read Think and Grow Rich by Napoleon Hill. If you already read it, read it again, again and again.

Have a Team
Don’t wait until you have a deal brewing to find the players. You need to find the following players on your team:

• Attorney – preferably one that does real estate deals for himself as well as others
• Title or Escrow Co – stay away from the big name companies; find one that caters to investors. Make sure they understand double closings, land contracts etc.
• Insurance Agent – find one that understands land contracts, landlords, etc.
• CPA – find one that is aggressive and owns real estate
• Contractor – one that will give you free estimates and knows how to “cut corners” in the right places
• Mortgage Broker – one that is savvy, creative and experienced with investors
• Partner – in case you need it for money or experience
• Mentor – someone you can call to smooth out the rough spots

Limited Partnership

The limited partnership is a partnership that has at least one limited partner and one general partner. Most states require the filing of a certificate with the state in order to be recognized as a limited partnership.

The limited partners generally have no liability beyond their contribution to the partnership. If the limited partnership business fails, the creditor cannot go after the limited partners for debts (there are a few minor exceptions to this rule that are not difficult to avoid). Furthermore, limited partners are not personally liable for wrongful acts committed by the other partners. In exchange for this limited liability, the limited partners give up their right to participate in the control and management of the partnership.

The general partners run the management of the partnership. The general partners control the cash distributions to the partners. The general partners also have unlimited liability, as in a general partnership. Creditors of the partnership can look to the general partners’ personal assets if the limited partnership’s assets are insufficient. Furthermore, the general partners are liable to third parties for wrongful conduct within the partnership business (e.g., a “slip and fall lawsuit”). Thus, a corporation is usually better for pure liability protection for its owners.

The limited partnership does not pay taxes as an “entity.” It files an informational tax return to the IRS. It issues a form K-1 to the partners who include the partnership income or loss on their personal tax returns. The partners must pay income tax on all gains whether or not the profit is distributed.

Creditors of individual partners cannot take a partner’s place in the partnership. A creditor may garnish the partner’s share of income (called a “charging order”), but has no right to participate in the management or utilize partnership property. Thus, if a limited partner’s income is garnished by a creditor, the general partner (who should be under the limited partner’s control) can frustrate the creditor by not distributing income to the partners. Since a partner is required to pay taxes on his share of the income whether or not the income is distributed, guess who gets the tax bill? You guessed it, the creditor! If your assets are held in a limited partnership, they are virtually judgment-proof!

What makes a Real Estate Contract

The real estate contract is the most often used, yet little understood tool in the real estate business. Whether you are a rank beginner or seasoned expert, there is no excuse for not knowing and understanding the real estate contract.

Real estate contracts are based on common law contract principles, so it is important that you understand the nuts and bolts of contract law. Offer, Counteroffer and Acceptance. In most states there are standardized contracts used by real estate agents and attorneys. The contract is generally drafted in the form of an offer. The offer is usually signed by the buyer (the offeror). The contract is not binding until the seller accepts, creating a “meeting of the minds” (called “mutual assent”).

An acceptance is made if the offeree (the seller, in this case) agrees to the exact terms of the offer. If the seller replies, “I’ll accept your offer if you agree to close fifteen days sooner,” there is no binding contract, but rather a counteroffer. The basic building block of a contract is that there is mutual agreement.

If the offer is not accepted in the time frame and manner set forth by the buyer (offeror), then there is no contract. For example, if the contract specifies that acceptance must be made by facsimile, an acceptance by telephone call or mail will not suffice.

Eight-Step Approach to Estimate a Property’s Current Market Value

Use the following eight-step approach and the current value worksheet on the following page to get a rough estimate of a potential investment property’s current market value:

Step # 1: Log onto your county’s property appraiser or assessor’s Web site to obtain the tax assessed value of the property under consideration.

Step # 2: Search your county’s property tax rolls for recent sales of three to five properties that are comparable in size, amenities and features, and located within two miles of the property under consideration.

Step # 3: Carefully analyze any comparable properties that you find, and make sale price adjustments for differences in amenities, special features and the property’s physical condition.

Step # 4: Verify the income and expenses that are listed on the income and expense statement of the property under consideration.

Step # 5: Analyze the property’s income and expenses for the past twelve months to estimate its net operating income potential.

Step # 6: Calculate the property’s capitalization rate by dividing its potential operating income by the estimated value that you derived from analyzing recent sales of comparable properties in step number three.

Step #7: Estimate the property’s value by multiplying its net operating income by the capitalization rate you came up with for the property.

Step # 8: Calculate the cost of replacing the improvements on the property using the same building materials and method of construction.