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US Housing Flipper Make 50% Gross Returns

Property investors were bullish on the U.S. housing market in 2017, flipping more homes than in any year since 2006, when the real estate bubble that helped upend the global economy was still inflating.

Investors flipped more than 207,000 single-family houses and condos in the U.S. last year, Attom Data Solutions said in a report, which defines flips as sales that occur within 12 months of the last time the property changed hands. More than 138,000 investors flipped a home last year, the most since 2007.

“The long up-cycle that we’re in is giving more and more people confidence to try their hand at home-flipping,” said Daren Blomquist, senior vice president at Attom. Rising home prices are “pulling more people onto the bandwagon.”

Buy, Sell
Investors flipped more than 207,000 homes in the U.S. last year, the most since 2006.


Source: Attom Data Solutions

Today’s home flippers appear to be more conservative than bubble-era investors. The average flip generated gross returns of 50 percent in 2017, compared to 28 percent in 2006. Thirty-five percent of flippers financed their acquisitions last year, the highest share since 2008 but far lower than the 63 percent who used loans in 2006.

Still, red flags show up in local markets. Flippers in Austin, Texas; Santa Barbara, California; and Boulder, Colorado, earned gross returns of less than 25 percent (which don’t include the cost of renovating the homes), suggesting that investors in some markets are depending on slim margins. Flips represented almost 13 percent of home sales in Memphis, Tennessee, in 2017, more than twice the national average, a sign that some flippers are becoming overconfident, Blomquist said.

Source: bloomberg.com

Position Realty
Office: 480-213-5251

Should You Buy A Home For Your College Kid?

If you’re about to send your child to college, you’re undoubtedly suffering from sticker shock. And it’s not just from the cost of tuition and mandatory fees and books and a meal plan and parking, but also from housing. Maybe, especially, from housing. The mouse – hole your dorm – bound child will live in for at least the next year come August or so might as well be the Taj Mahal for what it costs to shelter them in much less extravagant environs.

The high cost of student housing – not just in the first year when they are typically living in on – campus housing – is just one of the reasons people are increasingly looking to purchase property for their college kids to live in. Is this a consideration for your family? We’re breaking down the particulars.

Financial savings

Yes, it may be that buying a property for your college kid to live in is a smart financial decision. “Average prices per year for housing are more than $9,000 in college towns,” said U.S. News & World Report. “In highly desirable college towns outside major cities, housing costs can be much higher. Monthly housing prices in Berkeley, California, home of the flagship of the University of California system, can reach more than $3,000, making the price tag for the academic year more than $27,000. In Cambridge, Massachusetts, outside of university – rich Boston, the four – year price for housing can exceed $100,000 as well.”

If that has you getting ready to search for homes for sale RIGHT THIS SECOND, “Don’t forget to factor in the additional costs of homeownership besides the mortgage, like maintenance expenses, homeowners’ association fees, insurance and taxes,” they said. You may find that buying a home doesn’t make as much financial sense as you think.”

Tax savings

You can enjoy a tax write – off on a second home, which could make a college town purchase much more affordable in the long run, but you have to be careful about how the property is used and the way it is reported on your taxes. “Many homeowners look forward to purchasing a second home that can be used for vacations, rental income, investment purposes or as a primary residence during retirement. Current tax laws offer several tax breaks that can help make second – home ownership more affordable,” said Investopedia. “If you already own, or are thinking about purchasing a second home, it will be in your best interest to understand the tax breaks and how they work. Different tax rules apply depending on how you use the property, for either personal or rental use, or a combination of the two.

As long as you use the property as a second home – and not as a rental – you can deduct mortgage interest the same way you would for your primary home. You can deduct up to 100% of the interest you pay on up to $1.1 million of debt that is secured by your first and second homes (that’s the total amount – – it’s not $1.1 million for each home).”

That would mean adding rent – paying tenants/roommates to the mix would be off the table. Keep in mind also that you can deduct property taxes on a second home. You will want to talk to your tax advisor about the tax situation in the state in which you are considering making a purchase.

Appreciation

Is your child attending college in an area that is appreciating nicely? It might be a good investment to purchase a property that you can sell after graduation for a nice profit, or hold onto for passive income by turning it into a rental for future college students.

Depreciation

Then again, there is the chance that entrusting your child, and your child’s future roommates and friends, with a property you own could spell financial disaster if the home is not maintained. Worried about college parties that trash the place and/or illegal activities like drug – taking in the home, which could endanger your child’s future? If you’re thinking about buying a property for your child (and possibly other people’s children as well) to live in, you need to have an honest conversation with him or her, and with yourself, about the responsibilities involved. Is your offspring responsible enough to make smart decisions and properly care for a home?

To roommate or not to roommate

There are additional questions and potential concerns around the roommate issue. Yes, allowing your child to live with friends will provide companionship that is important for college students and will cut down on your monthly costs – and perhaps even provide some monthly income. But consider these questions from Bader Martin:

“If your child will have roommates, how much do you plan to charge them and can they be depended upon to pay their share of the rent on time each month? What will you do if a roommate – renter moves out and how long are you willing to carry the mortgage without replacing the roommate? And will your child and roommates occupy the property all twelve months of the year or only during the school year? What are your potential liabilities if a roommate is hurt on the property or loses personal possessions in a robbery or fire? Are you adequately insured?”

Retirement strategies

Individual real estate markets differ widely, and what seems like a good investment in one city may be totally undoable in another. Having an alternate or future use for the property in question can tip the scales. In some cases, parents purchase a condo or townhome in the city for their college student child to live in, with the intention of keeping it in the family for the child post – graduation, for another child intending to attend the same college, or even as a place for themselves. Another growing real estate trend has parents following their child to the city in question as part of their retirement plan.

“Increasingly, parents are also considering the move as part of a long – term plan in which they also participate,” said U.S. News & World Report. “If your child goes to school in a city whose lifestyle and cultural offerings are pleasant to you as well, why not retire there? Schools from Berkeley and Cambridge to Chapel Hill, North Carolina, and Bellingham, Washington, can be pleasant places to retire. The property you purchase could thus be part of your long – term retirement strategy.”

Stability

Having to find a new place and move every year, find storage, and put down new deposits is a drag for anyone. Buying a home that your child can live in for his or her entire college experience provides stability as well as a fixed expense they (and you!) can count on.

In – state tuition

If your child is attending college out of state, you’re being hit with even higher expenses. “About 17 percent of students attend college out – of – state, and they pay dearly for it,” said Parenting. “The typical out – of – state tuition rate at a four – year public university is three to four times more than the in – state rate.”

For this reason, parents often explore options for in – state tuition, like purchasing a property – but with varying success. “Most states have established residency requirements designed to prevent out – of – state students who become residents incidental to their education from qualifying,” said FinAid. Buying a home in the state is a good start, but likely won’t be the only commitment that needs to be made in order to get that elusive in – state tuition. It’s a good idea to learn all you can about the requirements for the school and state in question before making a purchase for this sole reason.

Position Realty
Office: 480-213-5251

What You Should Know About Home Inspections

For many first-time buyers, buying a home can be a scary experience. They know they’ll be maintaining or improving a home with little to no maintenance experience, so the solution is to buy a home in perfect condition. So they hire a home inspector to point out all the flaws.

The problem is — no perfect home exists. Air conditioners break, plumbing pipes leak, and roof tiles blow off in the wind.

If you’re buying a home, start with a reasonable expectation of what home inspectors can do. Their job is to inform you about the integrity and condition of what you’re buying, good and bad.

A home inspection should take several hours, long enough to cover all built-in appliances, all mechanical, electrical, gas and plumbing systems, the roof, foundation, gutters, exterior skins, windows and doors.

An inspector doesn’t test for pests or sample the septic tank. For those, you need industry-specific inspectors.

Here’s what else you need to do.

1. Make sure the inspector you hire is licensed. The responsibilities of home inspectors vary according to state law and their areas of expertise.

2. Ask what the inspection covers. Some inspection companies have extensive divisions that can provide environmental for radon and lead paint. Be prepared to hire and schedule several inspectors according to your lender’s requirements and to pay several hundred dollars for each type of inspection.

3. Some inspection reports only cover the main house, not other buildings on the property. For specialty inspections such as termites, make sure the inspection covers all buildings on the property including guest houses, detached garages, storage buildings, etc.

4. Attend the inspection and follow along with the inspectors. Seeing problems for yourself will help you understand what’s serious, what needs replacement now or later, and what’s not important.

5. Don’t expect the seller to repair or replace every negative found on the report. If you’re getting a VA or FHA-guaranteed loan, some items aren’t negotiable. The seller must address them, but otherwise, pick your battles with the seller carefully.

A home inspection points out problems, they also point out what’s working well. It can help you make your final decision about the home – to ask the seller to make repairs or to offer a little less, to buy as is or not to buy at all.

Position Realty
Office: 480-213-5251

Phoenix Real Estate Market Report ~ February 2018

Back in February 2017 (same time last year), the number of new listings on the market was 10,016 listing as compared to 9,940 listing in February 2018 which is a decrease of only 76 listings or -0.8%. More concerning is the number of active listings was 22,307 listing in February 2017 as compared to 19,278 listings in February 2018 which is a decrease of 3,029 listings or -13.6%. In February 2016 there were 24,916 listing, in February 2015 there were 26,174 listings and in February 2014 there were 28,778 listing. Every year since February 2014 the number of active listings has decreased approximately 2,500 listings. As for the number of sold transactions, we had a record high of 7,073 sold transactions in February 2018 as compared to 5,519 transactions in February 2014. As more new listing come on the market the number of sold transactions also increases but if the number of new listings decreases in 2018 there will be fewer transactions which will increase the appreciation rate for the Phoenix market.

The Phoenix Housing Market ended 2017 with an overall annual appreciation rate of approximately +9.0%. If inventory remain low throughout 2018 and a strong demand for housing continues we can expect the market to continue to appreciation above the national average. From December 2017 to January 2018, the average sold price increased from $309,327 to $315,070 but we saw a decrease from January 2018 to February 2018 to $308,715 which is a -2.0% decrease. Historically, the real estate prices don’t start to increase until February or March as the buying season begins and with the low inventory of homes we can expect to continue to see the market appreciate. Another sign we are in a healthy market is the current percentage of foreclosures and short sales sold remains at only 1% of the total market. Since March 2017 (12 months ago), the average days on market has decreased approximately -2.6% (down from last month) and the number of sold transaction has decreased approximately -24.5% (up from last month).

Since March 2017 (12 months ago), the number of homes for sale on the market have decrease approximately -13.3% or 22,246 homes for sale on the market to a gradual decrease of 19,278 homes (Down 2,968 homes). Historically, 19,278 homes for sale represent the lowest number of homes this market has seen for over a decade. Property owners are not putting their homes on the market because the overall macro economy remains strong and they are holding off to accumulate additional appreciation from the market. This low number of homes for sale indicates we are in a seller’s market (low supply and increased demand).

Real estate prices will continue to increase and interest rates are planned to increase in 2018 so if you are thinking about buyer a home this year will be the time to buy before you get priced out of the market. Give us a call to discuss your best buying or selling strategy, TODAY!!

Position Realty
Office: 480-213-5251

How Much Home Can You Really Afford?

So, you’re getting ready to buy your first home, and you feel like you’re at the mercy of the market. And your mortgage lender. In some ways, it might even feel like they’re working against each other – especially if you’re in a really hot market in which you can’t qualify for the amount you’d need to buy what you want.

When it comes to providing pre-approvals for would-be homebuyers, lenders today are more careful than they were in the years leading up to the market crash, and that means your financial picture will be more rigorously scrutinized to determine your credit-worthiness and develop your max approval amount. Trust us, that’s a good thing. The last thing you want is to be house poor. Having a great place to live that you can’t enjoy or furnish or even leave because you have no money left won’t be fun.

“Just because a lender says you can afford a certain mortgage doesn’t mean you should,” said TIME: Money. “Consider your take-home pay – what actually goes into the bank after taxes, health insurance, and savings for retirement and college. Then add up all your monthly bills, not just debt but also things like utilities, phone, and groceries. You want to feel comfortable that you can cover all your household obligations while still meeting your other financial goals and keeping six months of expenses in an emergency fund.”

That’s why it’s so important to consider all of your monthly expenses related to buying a home. Beyond the principal, interest, taxes, and insurance that the lender, there are other line items to weave in that will help you determine your purchasing power and also help you to be comfortable from month to month.

Increased commuter costs

Are you moving out to the ‘burbs? That hour-long commute each way is going to add to your bottom line. Of course you’ll be using more gas. Will you also incur tolls? Then there is the wear and tear on your car, which could mean additional costs. You can estimate your commuter costs here.

Higher utility bills

A larger place could mean higher utility bills. Then again, more energy-efficient appliances, windows and doors, and HVAC could potentially result in lower bills, which could be a reason to look for a newer home over something older. It’s not out of line to inquire about utility bill costs from the existing owner (through your Realtor is probably best). This information could be critical in helping to make the best decision when buying a new home.

Homeowner’s association

Your pre-approval amount is an all-in number, but that number only includes principal, interest, taxes, and insurance. If you are buying in a community that has a Homeowner’s Association, your fee will be a separate cost that needs to be considered. An HOA fee can range greatly depending on your location, the number of homes in the community, and the amenities and services included.

Home improvements

You’re likely going to have a mailbox full of credit card pre-approvals and offers from places like Home Depot and Lowe’s after you close escrow – and they can be tempting. Reeeaaallly tempting, especially if you need new appliances or countertops or flooring (or all of the above). Ditto for furniture stores, because, like Lowe’s and Home Depot, those offers are often zero-interest deals. It may make sense to take advantage of one (or more) of them to make some necessary or wanted updates to your home – if you can swing the payments. They obviously add to your monthly obligations, even at no interest. And keep in mind that if you miss, or are late on, a payment, that zero interest is replaced with a much larger number, and that means you’ll face a much larger balance to pay.

Landscaping

If you’re coming from an apartment or a rental where the outside maintenance is taken care of by someone else, get ready to either: buy a lawnmower and an edger and spend your Saturday mornings in the yard, or pay someone else to take care of it.

Warranty

If you’re buying a brand-new home, you’ll typically have a warranty provided by the builder or developer, often for one year. You have the option of extending that, or buying/extending an existing warranty on an older home, and all of those options will cost you.

Creative Ways To Save For A Down Payment

You’d love to buy a house, and if it weren’t for that pesky down payment, you’d be sitting pretty in a place of your own, right? You’re not alone. Not surprisingly, the “top challenge for would-be homebuyers is the down payment requirement,” said The Mortgage Reports. In a recent study, “Over half of potential buyers claimed saving a down payment was a bigger issue than credit scores, income needed or housing prices.”

There are some creative ways to get there.

Look for down payment assistance

Many homebuyers don’t realize that these programs even exist. “Down payment grants are designed to help eligible buyers bridge the gap between their savings and the required down payment for a mortgage,” said The Mortgage Reports. “This money doesn’t usually have to be repaid.”

Grants are available through the Department of Housing and Urban Development (HUD) and typically have eligibility requirements that are tied to income. In addition, “You must be a first-time buyer purchasing a primary residence,” they said. You can check for available grants here.

Save your pennies

Every little bit helps! Get used to paying for things with cash, which is another tip financial analysts recommend to keep track of spending. At the end of the day or week, put aside any change. You’ll be surprised how it can add up over a few months.

Shop for a better savings account

Some banks offer special rates or even kick in money if you open a new account and maintain a certain balance. If you already have a good head start on your down payment, this could be a great way to get a bump. Also pay attention to any fees you are currently paying at your bank just to have your savings and checking accounts. If you can’t negotiate to get them removed, it might make sense to open fee-free accounts elsewhere.

Among the best out there: “Discover Online Savings has no minimum deposit requirement and offers a competitive APY of 1.40%. In addition, there’s no monthly fee and no minimum balance requirement,” said NerdWallet in their review of the best savings accounts of 2018. “Discover is a decent choice for simple, stress-free savings.” Discover also offers bonuses that are tied to a $15,000 minimum deposit.

Do automatic transfers

Setting up an auto transfer from your checking to your savings on payday is a relatively painless way to pump up your down payment. You’ll want to keep track of what’s coming out, and when. This is no time to get hit with an overdraft fee.

Get a gift

For many types of loans, the down payment can come via a gift. Just make sure you know the rules so you don’t run into trouble. “Even though lenders do allow gift funds, they also require mortgage applicants to disclose the source of these funds,” said Cherry Creek Mortgage. “There are specific rules for using gift funds as a down payment. For starters, your lender will need information about the donor. Donor requirements vary by lender and mortgage program. Some programs only allow gifts from a blood relative, or in some cases, a godparent. Other programs, however, will also allow gifts from a charitable organization or a non-blood relative. Speak with your lender for information on acceptable donors.”

Save all raises and bonuses

If you get a raise or a bonus during your saving period, don’t celebrate by blowing it on a new living room set. Pretending it didn’t happen and socking the money away will pay off in the end. “For a set period of time, consider saving all extra income you receive from work,” said Quick and Dirty Tips. “For instance, if you get a 3% raise, increase your down payment savings percentage by at least that amount. Or if you get quarterly or annual bonuses, transfer the full amounts to savings.”

Shift some money toward repairing your credit

That might seem counterintuitive if you’re trying to get together as much cash as possible to buy your house, but it might just be that doing a little credit repair can improve your buying position, which could lower your interest rate and lower the amount of money required by the bank for your down payment. A conversation with your lender or broker and a detailed look at your credit history may yield some surprising suggestions.

Pare down

This is a great time to take a good look at your stuff and decide what’s going with you, and what’s not making the trip to your new place. “You likely have some used furniture you no longer use or old clothes that are no longer in style. Sell it to make a few more bucks to use for your down payment,” said Bankrate. “You can sell your items on sites like Craigslist, eBay, Facebook and Amazon to turn your trash into someone else’s treasure.”

Call your cable, Internet, and phone providers

There may be lost money floating around out there. Bundling your services with one provider can create dramatic savings. It might also be time to look at new providers – just make sure you won’t incur a penalty or cost when you move and have to have your services set up again.

Make your coffee – and your lunch – at home

“If there are two people buying one coffee each at $4 every day, or $8 total, that adds up to $240 per month! So by getting a good coffee maker and putting it in a TO GO cup, you can potentially save more than $2,880 over the course of a year,” said Blue Water Credit. “If you think coffee was expensive, add up all of those $12, $20, and $25 lunches at restaurants when you step out from work. Even if you only buy lunch three times a week, that could easily end up with $50 a week in savings per person, or about $400 a month, or $4,800 per year!”

Phoenix Real Estate Market Report ~ January 2018

From December 2017 to January 2018, the number of new listings increased to approximately 10,587 (up 4,324 listings from last month) listings which is an increased of 69% from 6,263 listings in December. The number of sold transactions was approximately 6,212 sold transactions (down 992 transactions from last month). The decrease in number of transaction and the sharp increase in number of new listings has caused the months of inventory to increase from 2.73 months in December to 3.90 months which is an increase of +38.8%. This is normal to see a sharp increase in the number of new listings coming on the market after the holidays and it will take several months to see an increase in the number of sold transactions due to the time it takes to close a transaction. Overall, the inventory of homes on the market is still very low where in January 2018 there were 19,185 homes (down 503 listing from last month) on the market as compared to 27,050 listings on the market in January 2014.

The Phoenix Housing Market ended 2017 with an overall annual appreciation rate of approximately +9.0%. If inventory remain low throughout 2018 and a strong demand for housing continues we can expect the market to continue to appreciation above the national average. From December 2017 to January 2018, the average sold price increased from $309,327 to $315,070 in which is a +1.9% increase. Historically, the real estate prices don’t start to increase until February or March but this year price appreciation has started early. Since July 2017, the number of sold transactions has been decreasing from 8,024 sold transaction to 6,212 sold transactions in February 2017. Although the overall number of sold transaction have been decreasing the current percentage of foreclosures and short sales sold remains at only 1% of the market which indicates a healthy market. Since February 2017 (12 months ago), the average days on market has decreased approximately -7.4% (up from last month) and the number of sold transaction has decreased approximately -5.0% (up from last month).

Since February 2017 (12 months ago), the number of homes for sale on the market have decrease approximately -15.2% or 22,612 homes for sale on the market to a gradual decrease of 19,185 homes (Down 3,427 homes). Historically, 19,185 homes for sale represent the lowest number of homes this market has seen for over a decade. Property owners are not putting their homes on the market because the overall macro economy remains strong and they are holding off to accumulate additional appreciation from the market. This low number of homes for sale indicates we are in a seller’s market (low supply and increased demand).

Real estate prices will continue to increase and interest rates are planned to increase in 2018 so if you are thinking about buyer a home this year will be the time to buy before you get priced out of the market. Give us a call to discuss your best buying or selling strategy, TODAY!!

Position Realty
Office: 480-213-5251

How to Avoid the Common Pitfalls of Real Estate Investing

Learning to invest in real estate is just like any other business or career: It takes time to get good at it. Too many people get frustrated very easily and give up, and this is not only the case with real estate.

Study and learn as much as you can about the process, the industry and the areas in which you’re interested in investing. As I’ve watched clients create, as well as lose, rental real estate fortunes, I’ve learned common strategies that have helped more succeed with fewer mistakes. Here are six concepts I encourage you to consider when investing in rental properties:

1. Have a master rental property analysis spreadsheet.
Create an Excel spreadsheet to analyze any and all possible deals. That’s right — you’re not going to buy the first rental property you see this year. Start with the Fair Market Value (FMV), money down, improvements and mortgage/carrying cost — then move it through rental income, expenses and wrap it up with a cash-on-cash ROI figure. Run every property through the gauntlet of your spread­sheet. If, after putting the numbers into all the columns, the ROI isn’t good or it’s not in your favor, move on to the next property. Base your decision on the key factors generated by your spreadsheet. This is why you took fifth-grade math — embrace it.

2. Remember, you are buying “numbers.”
Too many investors get emotional about their purchase and even envision themselves living in the rental property they’re ana­lyzing. This is a terrible mistake. In these situations, the investor often over-improves the property, investing far too much time or capital and blowing their ROI out of the water. Don’t think your rental property needs granite counter­tops; instead, realize you aren’t buying a property, you’re buying numbers. What do your dollars get you in “dollars and cents?” Remember, it’s not about your personal wants and needs; it’s about how much you can make off the property. Pouring a lot more money into the property to get a higher rental rate can backfire.

3. Do your research.
Let me say that again: Do your research, then do it again. I see so many new investorsbuy the first rental they see. Take your time. Also, don’t look at a property as to “Why shouldn’t I get this?” Look at it as to “Why should I get this property?” Make the numbers prove it to you. Don’t assume you’re going to buy it unless you find something wrong with it.

4. Buy local if you can.
The words “if you can” are the key. Don’t get hyperfocused on buying local so you can check on the property. It’s far more important to buy quality rental properties (good bones, reputable location, ease of upkeep, etc.) rather than local. But, if you’re living in an area where there’s a strong rental market with legitimate returns on investment (that aren’t dependent on putting down a fortune), consider yourself lucky.

5. Learn to manage your property manager.
Unless you’re a full-time real estate investor and one tough SOB, get a property manager. If you don’t have the temperament to be tough and start eviction proceedings three days after a tenant is late, have a personal intervention with yourself. You may not be cut out to be a property manager even if the property is local. You may not have the time, skills or system to be your own property manager. Be a realist. Your time could be better spent looking for other rentals, doing the books or running your business. With that said, always — and I mean always — have a budget in your rental property analysis for a property manager (approx­imately 10 percent of gross rents). Even if you have visions of grandeur and start managing, you want the budget to stick in a property manager.

6. Bundle.
I recently met with a client who had five properties in four states. They were great properties, but look at the inefficiency (and headaches) of registering an LLC in four states, doing four state tax returns, having four different prop­erty managers, four different trips to at least occasionally check on your rentals and four different rental markets to understand and follow. Perhaps when you have 25-plus rentals and can afford to make your full-time job managing your rentals and property managers, then you can tackle four or more markets. For now, purchase rental properties in just one or two markets, or “bundle” as it’s called. Using this type of bun­dling, your property managers can handle a few properties at the same time. You’ll also save travel time and expenses. Plus, you can familiarize yourself with a few good locations rath­er than having properties scattered all over the place. You can also be more efficient with your tax and legal planning and save a lot of time and money by bundling.

Position Realty
Office: 480-213-5251

Diversify Your Portfolio And Invest In Real Estate

The Chartered Financial Analyst (CFA) Institute categorizes real estate as an alternative investment that includes residential and commercial properties as well as mortgage-based securities and real estate investment trusts. For most real estate investors, these investments are characterized as income-generating properties that see revenue from rent earned and capital appreciation from the increase in market value. Since this investment vehicle depends on the net operating income (NOI), maximizing cash flow is key to a successful real estate investment.

Property Valuation

To fully understand the importance of cash flow to real estate investment, it is necessary to know that the value of the property is directly linked to the NOI. Unlike residential homes that get their value from comparable sales, income-generating real estate value is calculated as the annual NOI multiplied by an industry standard rate of return, called the capitalization rate. For instance, if the property has an annual NOI of $100,000 and a 10 percent capitalization rate, then the property would be valued at one million dollars. Since NOI is calculated after expenses and both property value and return on investment are depended on NOI, it is important to maximize income and minimize expense.

The Risk/Return Profile

Commercial real estate increases in value based on two components. The first is capital appreciation from the increase in the surrounding market. As a neighborhood becomes nicer and properties sell at higher prices, the value of the commercial asset increases. There is very little that an investor can do to mitigate the risk of market increase or decrease.

The other component to value is the cash flow from income. Revenue is something the property owner has a large amount of control over and which the risk and return balance can be finely tuned. To lower risk, the operating pro forma should have both estimated market rate returns and lowest logical returns.

REOs and Arbitrage Opportunities

Of course, getting a good deal is the foundation of any real estate investment. A low investment amount and high revenue make for a good return on investment. Bank-owned and government-owned homes often offer properties at amounts under market value. These properties are generally in disrepair, so rehabilitation costs should be factored into the price equations.

The website Equator handles bank-owned properties, and HomePath has extensive databases of distressed properties owned by the government. A knowledgeable real estate agent with expertise in this form of alternative investment makes it easier to identify opportunities for high returns. For active investors, a real estate analysis seminar helps maximize their investment.

Important Correlations

As an alternative investment, real estate is historically poorly correlated to the stock market, making it a good investment to diversify a portfolio. During times of stock market loss, real estate continues to offer returns. Real estate is positively correlated to inflation, meaning that it generally increases in value as inflation increases. This makes real estate a good inflation hedge.

Position Realty
Office: 480-213-5251

How to Keep Your Mortgage Approval Approved

You know how tough it is to qualify for a mortgage.

Proof you’ve got a long-term job with ample income. A credit score to the moon. Your life’s savings as a down payment. More cash stashed away. A debt-to-income ratio to die for. For some, tax returns for the last two years.

You’ve been there, done that. For weeks now. Maybe a month or more.

You’ve fought the good fight, you’ve run the gauntlet of mortgage qualifications and you have your signature-tired hands on that coveted home loan approval.

Now, all you have to do is not blow it.

For goodness sake, don’t make any surprise financial moves that could cost you your home loan.

Your mortgage approval is primarily based on documenting your income and assets, your equity stake or down payment, your credit and the cash you’ll have left over after the deal is done.

Once you have a mortgage approval, if you change the profile of any one of those qualifiers, you could have to kiss your mortgage goodbye.

Lenders today don’t just check your qualifying information once or even twice. Three, four or more checks, of one document or another, aren’t out of the question in today’s tight lending market.

Avoid big purchases – If you buy a new car, change the lease, or acquire another large possession, it could show up on your credit report or bank statement.

The lender could think you’ve gone beyond the risk the lender is willing to accept on your mortgage – especially if you qualified by a hair.

If the new loan or purchase amount upsets the debt-to-income ratio the lender used to approve your home loan, your mortgage could go “poof.”

No new credit – Likewise, don’t open new credit cards, even for a zero interest rate. Those credit card offers will come streaming in after you close your mortgage. Just wait. The lender didn’t approve you based on the additional card or extra loan.

Pay your bills – Also, pay your bills on time, even if there’s a dispute. Stop paying a bill and the blotch on your credit report can block your mortgage.

Keep your job – Be kind to your boss and don’t get fired. Also, don’t go looking for new work right now, unless it’s a second job to make more money.

Certain job changes also can affect how the lender rates your creditworthiness.

That includes a job change between industries, a job change to start a new company and changing from a job with a salary to a job that pays by commission.

On the other hand, get a promotion and a raise and you should be fine.

Don’t cash out – Leave your stashes of cash alone. Don’t transfer large sums of money between bank accounts. Don’t make random, undocumented deposits to or withdrawals from your bank account.

Don’t be stupid – It should go without saying, but criminal activity, trying to buy a second home and trying to add a co-signer or name to the loan, after approval, could all also get your mortgage canned.

Remember, stuff happens. There are events beyond your control that could cost you your mortgage. A pink slip. A divorce. Hospitalization. The co-signer bails.

However, once your mortgage is approved, do keep tight reigns on what you can control.

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