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What to Know About Tax Lien Investing

Tax lien investing is a way to expand your portfolio and add a unique element to your investments. When property owners don’t pay their property taxes, you may be able to invest in subsequent tax lien certificates. Investing in tax liens is an indirect way to get into real estate investing.

You’re buying tax lien certificates instead of properties, and the hope is that you’ll eventually get a return.

Below, we dive into some of what you should know about this alternative approach to investing in real estate.

What Is a Tax Lien?

A tax lien is created when a local government puts a lien on the property because of unpaid property taxes. Twenty-eight states currently allow the sale of tax lien certificates. There are tens of billions of dollars in delinquent property taxes every year, so opportunities are there for savvy investors.

A tax lien isn’t the same as a mortgage lien. If a property has a mortgage lien, the lender has a claim to the property in question until the borrower pays the loan back. With a tax lien, the government or owner of the tax lien certificate has a claim to the property.

A tax lien is usually something that comes before harsher penalties, like a tax levy. When there’s a tax levy, the IRS or a local government can seize property.

When a local government or municipality issues a tax lien, they create a tax lien certificate. That certificate indicates how much is owed in taxes and any penalties and interest.

Then, the municipality may be able to sell that certificate to private investors. Private investors cover the tax bill, and for that, they get the right to collect that money plus interest when the property owners pay the balance.

Investors Bid In An Auction

An investor in tax liens will have to bid for the certificates in an auction process, and the specifics of how that works depends on the municipality. There is an organization, the National Tax Lien Association, that provides information on what you should know.

They recommend that if you’re interested in investing in liens, you get familiar with the local area. You can contact tax officials in your area to determine how they collect delinquent property taxes.

Bids may be based on a cash amount that someone is willing to pay for a certificate. Bids can also be based on an interest rate they’ll accept. If it’s a cash offer, a certificate goes to the highest bidder. If it’s an interest rate, it goes to the lowest bidder.

The lower the interest rate you bid, the lower your profit.

What If You’re the Winning Bidder?

If you’re the winning bidder, you then take ownership of the lien certificate. You don’t own the property at this point, but you do have the right of ownership through a foreclosure, or you have the right to be paid back if the homeowner covers their tax bill.

You are immediately responsible for paying the tax bill if you win in an auction. You have to pay any owed interest or fees as well. Then, a homeowner has a period of time before what’s called the redemption deadline. They have to pay the investor, or they’re at risk of foreclosure.

Those are the two outcomes—essentially, the homeowner pays their property taxes, or they don’t.

If they do, you get your initial investment back and the interest rate you bid during the auction. If the homeowner doesn’t pay the property taxes, you can start the process of foreclosure.

Most homeowners do end up paying their property tax before it gets to that point.

What Are the Downsides?

There are certainly upsides to investing in tax liens. Namely, you can see significantly better returns than you would on other investments, and it can be a passive investment at least initially.

There are downsides to weigh, too, though.

This is a very risky investment, and you should work with a professional before taking it on.

It can be time-consuming once you purchase a tax lien certificate because there are a lot of deadlines and expiration dates.

Tax lien investing can be lucrative but not something for a person with no experience to dive into without preparing.

Position Realty
Office: 480-213-5251

Could Your Garage Get Your Home Sold?

You’ve made updates to your kitchen. Made sure your bathrooms look fresh and clean. Decluttered EVERYTHING. Even dropped your price. But your house still isn’t selling. Could your garage make the difference?

It just might.

“When prospective buyers visit your for-sale home, they’re going to inspect every room in the house—even the garage,” said Sara Reese of Berkshire Hathaway HomeServices Beach Properties of Florida on RISMedia. “It’s not exactly a glamorous space, but if your garage is a mess, it’s going to send a bad signal and turn off visitors. Therefore, it’s helpful to spend a little time in your garage and make it look its best.”

Here are a few tips to get your garage in great shape.

Replacing your garage door

If your garage door works perfectly fine, replacing it may not be a high priority. But consider it curb appeal. Garage doors are large items, and they take up a lot of eye space. Especially if your garage faces the street, a dented, chipped, or dingy door could be stealing focus from the rest of your otherwise-put-together house.

“Remodeling Magazine found in its 2019 Cost vs. Value study that an upscale garage door replacement can actually net you a return of 97.5%,” said HomeLight. “A new garage door will run you between $300 to $1,500, depending upon the size and style, while installation typically costs between $500 and $800.”

If the garage makes a loud or creaky sound when it opens, spending a few hundred dollars to replace the garage door opener is a no-brainer.

Finishing out the garage

Finishing out your garage isn’t recommended if you’re looking for the best return on investment (ROI). While this type of upgrade may appeal to a niche buyer, most aren’t going to pay extra for it, and you likely won’t recoup your costs.

Just adding epoxy to the floor can cost between $1,400 and $3,000. You could do it yourself for about $100, but the process can be tricky and the results may reflect your novice status.

If you don’t want to go to the trouble and expense of epoxying the floors, make sure you get them nice and clean. “If your garage floors are cracked and covered in oil stains from cars gone by, it’s a good idea to give the floor a good pressure washing and repair those cracks (depending on how big or noticeable they are),” said Nexx. According to homewyse, power washing the garage floor will cost around $200.

Adding storage

After giving the garage a good cleaning, this is the No. 1 must-do to get the space in good shape. According to Kiplinger, 85% of buyers said they want garage storage.

You can easily spend thousands on dedicated garage storage systems that make the space look pristine, but creating spaces to neatly stash your stuff doesn’t have to be costly. A few large metal shelving units placed side by side will only cost you a few hundred dollars. These freestanding units are popular with buyers because the doors hide messes. And, when you put a few of them together, you can turn the top into a work surface.

Adding a garage

If you don’t have a garage and you’re in an area where most homes do, adding one might be on your mind. Your real estate agent should be able to advise you on whether or not this is a smart move, especially given the expense and expected ROI. “At a national level, home sellers can expect to recover close to 64.8% of their initial garage addition costs,” said Clever. “Let’s say that you invest $27,000 in adding a garage to your home, you may recover about $17,496 when you sell your home.”

Doing a garage conversion

Perhaps you’re thinking of converting your garage to living space. It is less expensive than adding on; According to Realtor.com, a garage renovation “comes in at $11,000 on average.”

While a conversion isn’t necessarily a recommended strategy if you’re looking to get your home sold right away because of the expense and the time involved, there are some instances where this might be a good move.

“Nearly 30% of shoppers rate a garage as one of the most important home features, just ahead of an updated kitchen and open floor plan. But “a ‘well-done’ garage conversion to living space can give you up to an 80% ROI.”

The decision of whether to go this route largely hinges on that expense, but also on the specific area in which your home is located. It’s best to talk with your real estate agent before dropping the hammer on your garage conversion. It could be that homes without garage in your area just don’t sell. Or, perhaps there is a growing trend toward multi-generational living locally that could inform your renovation and make your home especially desirable.

3 Things to Know About Investing In Real Estate During A Pandemic

Covid-19 has ambushed economies all over the world, with leaders and businesses desperately trying to find a healthy balance between protecting people and protecting the economy. So many industries have been left in an unpredictable state, including the real estate market. Let’s have a look at 3 important things you should know before taking the leap and investing in real estate.

1. Compared To Other Industries, Real Estate Is a Relatively Safe Investment
Historically, real estate has been a reliable investment. Whilst the pandemic has created a sense of instability, residential real estate continues to function in a relatively normal manner. In the worst case scenario that the value of the property you invest in depreciates, you still have a physical asset to your name. If you’re looking to get into commercial property, that’s a whole other story. The market has been shaken dramatically with people working from home and e-commerce developing exponentially, leaving many commercial real estate owners in a difficult position. Of course there are exceptions, for example companies who have benefitted from the pandemic as they were hit with a huge demand for their products. Many of these companies are now looking for industrial space to stabilise their supply chain. This would be an option for investment and you can get great value for money through commercial property auctions, yet overall, it seems residential real estate is the safest investment in the industry.

2. Select The Best Possible Location
When investing in a property, whether that be to renovate and sell or to rent out, choosing a location with sustainable demand is essential in order to make a reasonable return on your investment. With the financial uncertainty that comes with a pandemic of this scale, people are looking for the best possible value for money and they want to be sure that if they are taking a substantial financial risk, it will fulfil all of their needs. If you’re looking at investing in a flat, the younger generation are looking for amenities when they are renting, so there are a few things you should look out for. Local bars and restaurants, gyms and proximity to public transport, to name a few. If you’re looking for a suburban property with the hopes of targeting a family, aim for areas close to large parks, countryside public footpaths, good schools and supermarkets. Consider who you are wanting to target and what they will be looking for before making the important decision of where to invest.

3. Prepare For Substantial Upfront Costs
For the first time in a long time, many mortgage lenders are demanding 15-20% deposits as a result of Covid-19. If you are a cash buyer, this won’t be a concern, but if you are relying on taking out a mortgage for your investment, then this could be important. The economic fallout that has loomed as a result of the pandemic led low-deposit mortgage deals to crumble, leaving people who had saved a 10% deposit extremely disgruntled. The current financial uncertainty in the UK also led lenders to be even more selective on who they offer mortgages to. If you are in a position to offer a high deposit straight away, then you will be in a strong position. These substantial upfront costs could be a deal breaker for some investors, so this is something to consider before starting the process, and definitely something to research in depth.

Summary
To summarise, residential real estate seems to be the safest investment at the minute. With the financial difficulties facing many potential buyers and renters, make sure you select a property in a great location that people can’t refuse. Finally, if you’re relying on a mortgage for your investment, consider the substantial upfront costs involved.

Position Realty
Office: 480-213-5251

Hot Real Estate Alert: Home Flipping Hits 14-Year High

While the real estate market in general experiences a bit of chaos related to the Coronavirus pandemic and employment challenges, there is one segment of the market that is going strong. Home flipping is boasting its best numbers in 14 years.

The newly released first-quarter 2020 U.S. Home Flipping Report from ATTOM Data Solutions shows that “53,705 single-family homes and condominiums in the United States were flipped in the first quarter. That number represented 7.5 percent of all home sales in the nation during the quarter, up from 6.3 percent in the fourth quarter of 2019 and from 7.3 percent in the first quarter of last year.” Those are the highest numbers since the second quarter of 2006.

The gross profit for home flips across the country also rose over the same time period, to $62,300. “That was up slightly from $62,000 in the fourth quarter of 2019 and from $60,675 in the first quarter of last year,” they said.

That $62,300 translated to a 36.7 percent return on investment, which is down from 39.5 percent in Q4 2019 and marks the lowest profit margin since the Q3 2011.

“Home flipping has gradually taken up a larger portion of the housing market over the last couple of years,” said Todd Teta, chief product officer at ATTOM Data Solutions. “But profits are down and are lower than they’ve been since the dark days following the Great Recession, which is a sign that investors aren’t keeping up with price increases in the broader market,”

Impact on local markets
Home flips as a percentage of real estate sales “increased from the fourth quarter of 2019 to the first quarter of 2020 in 122 of the 140 metropolitan statistical areas analyzed in the report (87.1 percent),” they said. The largest quarterly increases in home flipping rates came in Boston, MA (up 80.2 percent); Springfield, MA (up 76 percent); Olympia, WA (up 73 percent); York, PA (up 71.4 percent) and Minneapolis, MN (up 69.3 percent).

Interestingly, there were only four metros with a population of 1 million+ that experienced a decrease in annual flipping rates, and three of them were in Texas: San Antonio (-12.9 percent); Austin (-11.8 percent), and Houston (down -0.6 percent). ); Oklahoma City was the fourth city, down 6.1 percent.

If you’re looking to get in on the flipping trend, here are a few key pieces of info to consider:

You don’t need to buy a million-dollar fixer. “Homes flipped in the first quarter of 2020 were sold for a median price of $232,000.”

Your profits will be larger where the home prices are higher. “The highest first-quarter 2020 profits, measured in dollars, were concentrated in the West and Northeast. Among metro areas with enough data to analyze, 13 of the top 15 were in the those regions, led by San Francisco, CA (gross profit of $171,000); San Jose, CA ($165,000); Los Angeles, CA ($145,000); New York, NY ($141,899) and Honolulu, HI ($140,190).”

The lowest profits were generally in southern metro areas, such as “Fort Collins, CO ($14,000 profit); Springfield, MO ($20,203); Daphne, AL ($20,650); Raleigh, NC ($21,250) and Durham, NC ($25,000).”

Don’t think you have to turn the home around and sell it in 30 days. “The average time to flip nationwide is 174 days.”

You don’t need to pay cash upfront for the home. “Nationally, the percentage of flipped homes purchased with financing dipped in the first quarter of 2020 to 40.5 percent, from 44 percent in the fourth quarter of 2019 and 46.4 percent in the first quarter of 2019, to the lowest point since the fourth quarter of 2016. Meanwhile, 59.5 percent of homes flipped in the first quarter of 2020 were bought with all-cash, up from 56 percent in the prior quarter and 53.6 percent a year earlier.”

Be a Smart Investor… Do the Math

Should I use cash or credit? ARM loan or fixed rate? Ten percent down or twenty percent? Should I pay down debt or keep a cash reserve? These are all good questions, and here’s some of the answers.

Cash vs. Credit: The Concept of Leverage

In order to understand real estate financing, it is important that you understand the time value of money. Because of inflation, a dollar today is generally worth less in the future. Thus, while real estate values may increase, an all-cash purchase may not be economically feasible, since the investor’s cash may be utilized in more effective ways. Leverage is the concept of using borrowed money to make a return on an investment. Let’s say you bought a house using all of your cash for $100,000. If the property were to increase in value 10% over 12 months, it would now be worth $110,000. Your return on investment would 10% annually (of course, you would actually net less, since you would incur costs in selling the property).

If you purchased a property using $10,000 of your own cash and $90,000 in borrowed money, a 10% increase in value would still result in $10,000 of increased equity, but your return on cash is 100% ($10,000 investment yielding $20,000 in equity). Of course, the borrowed money isn’t free; you would have to incur loan costs and interest payments in borrowing money. However, you could also rent the property in the meantime, which would offset the interest expense of the loan.

Taking leverage a step further, you could purchase ten properties with 10% down and 90% financing. If you could rent these properties for breakeven cash flow, you would have a very large nest egg in 20 years when the properties are paid off. Balance that with what you could make by investing the cash flow on one free and clear property for 20 years. And, of course, look at the potential risk of negative cash flow from repairs and vacancies on ten properties. Finally, consider the tax implications – if you have cash flow, you have taxable income; if you have increase in equity, there’s no tax until you sell.

Cash Flow vs. Cash Reserve

On a similar note, the size of your down payment will affect your cash flow on rental properties. Let’s consider two examples.

Example 1: $100,000 property with $20,000 down. $80,000 loan @ 6% interest, including taxes and insurance is about $600/month. Assuming you could rent the property for $800/month, you have $200/month cash flow or $2,400/year. Not bad.

Example 2: $100,000 with no money down. $100,000 loan @ 8% (higher rate is generally common for zero-down loans) would make your payments closer to $900/month. With zero down, you have $100/month negative cash flow.

Which is better? Well, it depends on what your goals are and what the rest of your financial picture looks like. Let’s say your goal was to hold the property for 10 years. In the first example, you have $200/month cash flow, but no cash reserve. In the second example, you would have $100/month negative cash flow, but you have $20,000 in reserve. The knee-jerk reaction of some people is that example #1 is safer. But is it really?

Think about it… in the first example, if your property becomes vacant for one month, you’d be out of pocket $600. It would take three months to make that up. In the second example, you have $20,000 in cash cushion to make up the deficit. With $20,000 in the bank, you could handle $1200/year negative cash flow for 16 years. If the property were in an appreciating market, you’d come out fine, even with negative cash flow. Another factor is the choice of loan. You could buy a property with nothing down and an interest-only loan fixed at 5% for three years. If your exit strategy is a lease/option that should cash you out within 36 months, why do a fixed-rate loan?

The point here is that you should not automatically go with a fixed-rate loan. Nor should you seek positive cash flow as the only goal. Likewise, you should not buy properties with nothing down and negative cash flow and assume that short-term market appreciation will be the only source of your profit.

Paying Down Debt

For years, our parent’s generation discouraged debt as a “bad” thing. For some investors, the goal is to own properties “free and clear,” that is, with no mortgage debt. While this is a worthy goal, it does not always make financial sense. If you have free and clear properties, you will make certain amount of cash flow and pay a certain amount of income tax. If you need more cash, you are forced to sell the asset, creating a taxable gain.

If you refinance a property, there’s no taxable event. And, since mortgage interest is a deductible expense, the investor does better tax wise by saving his cash. Think about it… the higher the monthly mortgage payment, the less cash flow, the less taxable income each year. While positive cash flow is desirable, it does not necessarily mean that a property is more profitable because it has more cash flow. More equity will obviously increase monthly cash flow, but it is not always the best use of your money. On the other hand, paying down debt may make sense if you can’t get a higher return elsewhere in the market. Also, if paying down debt can have other rewards, such as bringing a loan below 80% LTV, you may be able to cancel private mortgage insurance and save additional money.

In Short, Don’t Rely on Assumptions… Do the Math!

The 9 Best Tips on How to Find a Property for Profitable Investing

Over the years real estate has proven to be one of the most profitable investing strategies. Unfortunately, this doesn’t mean that just any investment property will bring high return and success to its owner. The secret to making money in real estate is finding profitable rental properties. If you are a new real estate investor with no experience in the business, don’t worry because you’ve come to the right place. In this article we will provide you with the best tips on how to find a property for profitable investing.

Tip #1: Buy a Property in a Top Real Estate Market
Anyone in the real estate industry will tell you that location is the first and foremost factor for a profitable investment. Where your rental property is located will determine the price you have to pay for it, the rental demand, the best rental strategy, the type of tenants you can expect, the rental rate, the occupancy rate and vacancy rate, and ultimately the return on investment. Thus, the first thing which any investor preparing to buy a property should do is to read about and research the best places for real estate investing in the US housing market. Don’t make the mistake of many beginners who focus on large cities only. Sometimes small towns and even villages offer a much higher return than major cities. For example, according to data from Mashvisor, a real estate data analytics company, the census-designated area with a population of about 7,000 people, Joshua Tree, has been one of the top locations for Airbnb rentals in the past few years.

Tip #2: Don’t Spend More Than What You Can Afford
As a beginner investor, you should always start with a small, cheap, easy-to-manage property. After all, the best investment property is the one which you can afford and which you can manage. To find such a property, you should prepare a budget. On the one hand, factor in your savings, the income from your full-time job and other sources, and the money you expect to make from your rental property. On the other hand, make a list of all the one-time and recurrent costs associated with buying, owning, and managing an investment property such as the property price, appraisal cost, home inspection fee, closing fees, fixes and repairs, monthly mortgage payments, property tax, insurance, property management, maintenance, and others. In this way you will be able to figure out exactly how much you can afford to spend on a property without risking a foreclosure.

Tip #3: Find the Best Financing Method
One of the great things about real estate investing is that you have many financing options to choose from. You can go for a conventional mortgage, a hard money loan, a private money loan, a syndication, or a partnership, to mention a few possible choices. You should study each option carefully and decide on the best one for your particular case, based on their pros and cons and your specific situation.

Most probably, as a first-time investor, you will end up taking a mortgage loan. In this case, it is advisable to make the down payment as big as possible, without overspending on it of course. The higher your down payment is, the faster you will be able to repay your loan and the less money you will end up spending on repayment. Figuring out the best financing method is crucially important for profitable real estate investing.

Tip #4: Use Different Sources for Your Property Search
To find a property for profitable investing, you should put efforts into searching for properties for sale far and wide. Now that you know where you want to buy an investment property and how much you can afford to spend on it, start checking out local newspapers and real estate websites with both MLS listings and off market properties, talk to your friends and acquaintances, network with other investors in the area who might be selling a property, and connect with a local real estate agent. Each one of these sources will have access to a different kind of properties, and you should check them all out before deciding on the best type of investment property for you and narrowing down your choice.

Tip #5: Consider Investing in a Foreclosure
The most lucrative investments in real estate are those properties which you can buy below market value. Thus, you should consider investing in a foreclosed property. Forget the popular myth that foreclosures are always houses in a dire situation which makes them bad real estate investments. To the contrary, it is feasible to find a foreclosed property in a good shape which will bring you high return on investment. The reason is that you will most likely pay only a fraction of the fair market value of the property as the bank or other financial institution is trying to get rid of it quickly, while you can still charge full market value rental rate.

To find foreclosed properties to invest in, talk to the banks in the area, search for specialized real estate websites with foreclosed property listings (including government agencies’ websites), and look for agents who work with foreclosures.

Tip #6: Hire a Real Estate Agent
Avoid the mistake of many first-time real estate investors who think they can manage the whole process of finding and buying a property on their own. It is recommended to look for an agent who works mostly with property investors and hire him/her to help you along. Your agent will be able to help you find lucrative properties for sale, connect you with lenders, prepare the offer, negotiate the best price, and close the deal quickly and smoothly. Moreover, you don’t have to worry about inflating your budget as agent fees are usually covered by the property seller and not the property buyer.

Tip #7: Conduct Thorough Property Analysis
An indispensable step in the process of making the most profitable real estate investments is performing an investment property analysis. Once you have narrowed down your choice to a few top properties, you should study them in detail to calculate exactly how much return on investment you can expect from them, based on your preferred rental strategy. Find out the cash flow, the cash on cash return, and the capitalization rate which you can expect. To beat the competition in the local real estate market and find the best property for profitable investing, make sure to use real estate investment tools such as a rental property calculator. This will save you a lot of time in analyzing properties and allow you to make an offer before the other investors in the area.

Tip #8: Choose the Best Rental Strategy
You can rent out your investment property on short-term basis as an Airbnb rental or long-term basis as a traditional rental. The optimal strategy in each case depends on the location, the demand, the rental rates, and other factors. So, in your investment property analysis you should see which rental strategy will bring you a higher return on investment. If you decide to go for a short-term rental, don’t forget to study the local regulations carefully as many places have adopted major restrictions on this type of rentals in recent years. Ideally, you should look for a location where both owner-occupied and non-owner occupied properties can be rented out on short-term basis in all residential neighborhoods. For example, the Dallas real estate market is one of the major cities with the least Airbnb legal issues in the US at the moment.

Tip #9: Select the Best Property Management Strategy
Profitable investing in real estate doesn’t end with finding and buying a property with a high potential for return. Afterwards, you have to manage your rental property in the best possible way. If you invest in your local housing market, have some free time, and exhibit the right personality (welcoming and kind but also assertive), you can become a landlord and deal with a rental property and tenants on your own. However, before you decide to manage your property by yourself, you should know that this can take a lot of time and efforts and can turn into a real headache.

If, on the other hand, you invest out of state, have a busy job and a family to take care of, and/or are simply not fit to be a landlord, you can hire a property management company to deal with your investment property. You should be prepared to pay them a monthly rate, but it will be worth it as they will be able to maximize your profit while you can enjoy the positive cash flow in your free time.

How to find a profitable investment property is the first thing you have to learn as a real estate investor in order to make money. The good news is that it is absolutely feasible and doable if you follow our 9 tips above.

Position Realty
Office: 480-213-5251

4 Real Estate Investor Tips For Buying Your First Property

By a virtual show of hands, how many of you are hunting and searching for your for investing deal this weekend? For those of you that raised your virtual hand as a “yes” to deal-hunting, do you feel anxiety about buying an investment property? Do you feel like you might not be able to keep up the payments, or afford the rehab necessary to get the property ready for resale, or afraid of any problems that might come up with inspection?

“Most people only buy a couple homes in their lifetime. This lack of experience leads many investor buyers to feel woefully unprepared. You’re not getting married. You don’t have to make a lifelong commitment to a property, and that you can always sell later. If you fall out of love with your long term investment, as long as you buy right.

There are a set of rules that to rely upon when buying an investment property, and that these same rules can be used by anyone buying a house. Here are some great tips:

Tip #1. Get the Facts:

The number one rule is “do not overpay for a property”, and says that he never buys on future value (and refers to that as an illusion that got many of us in trouble). Being realistic if estimating the cost of repairs the property will need. Conversely, we cautions you not to let a home inspection “scare you away from a good deal”, and here’s an example of someone who had the opportunity to purchase a $650,000 home at a short sale for just $520,000, but walked away after the inspector “found a laundry list of items that needed repairs”. Albeit a “scary” looking list, as he called it, it was about $20,000 of work, leaving the remainder as over $100,000 in equity. Remember: “Get the Facts!”

Tip #2. Don’t Fall Completely in Love:

“When remodeling a home for a resale flip and being faced with a decision to either improve the home’s insulation or make the home more beautiful, I’m almost always forced to beautify.” People who lack experience will rely on their emotions. Real Estate agents are well aware of this, and this is why they try to “decorate and stage a home so that people fall in love and forget the facts”. If you fall prey to your emotions, you can get into “bidding wars and overlook discrepancies that need more attention”. The final point to be made on this tip is that “It’s much easier to replace kitchen cabinets some time down the road than it is to reinsulate a home. But people aren’t concerned or willing to pay for what’s behind the walls. They should be.

Tip #3. Get Professional Help

Real Estate Agents, Home Inspectors, Appraisers, Lawyers, Surveyors and Contractors are all valuable resources but they’re no good if you disregard their advice., and the key here is “to trust but verify. In terms of a Real Estate Agent, speak with many different agents and ask for references, until you find one that you are comfortable with. Once you are working with an agent, ask your agent to go over comparable sales with you, and “not just spit out a value”, since this will “help you feel confident about your offer and reduce the risk of complications from a low appraisal.”

Tip #4. Don’t Be Afraid to Pull the Trigger or Walk Away:

OK, so you have all of the facts about an investing deal or property that you are incredibly fond of, and if the price is fair and affordable then don’t be afraid to seal the deal. On the flip side, if the price is above the market value or the price does not take into account the amount of work it needs, you remind yourself that there are plenty of other houses to choose from.

Certainly some great tips here, but sometimes, when in the heat of battle and bidding for a home; it’s easy to lose perspective. What your mindset should be during the process; Remember a house is just sticks and stones and there are plenty of them out there.

Position Realty
Office: 480-213-5251

Four Different Ways To Flip A Property

Flipping real estate is a buzz term that has come screaming into mainstream media in the last few years. Its growing popularity is evident by the magazine articles, TV shows, and Average Joe teams trying to break into the business. Is it easy? What is it? How does it work?

Flipping real estate simply means purchasing or acquiring a property then reselling it quickly while attempting to turn a profit on the sale. Flipping can be handled several different ways and when done properly, each of them can be very profitable for a real estate investor.

Buy it, Fix it, Flip it

Likely the most common form is the tried and true “fix and flip”. This involves a real estate investor picking up a property at a discounted rate, doing the necessary work to get the property up to acceptable standards, and then selling the home on the market – generally to someone who will live in the property. This type of fix and flip can get you anywhere from $15k to $50k on a closure depending on the market and of course how good the bargain was on the home when you bought it. You can set yourself up for failure if you underestimate the cost for remodeling and repairs or do not consider the cost of a real estate agent when listing the property for sale.

The Wholesale Flip

The fix and flip is a very popular method of doing business, and that means there are a large number of real estate investors looking for remodel properties. If you can get a property at a relatively good bargain, you can turn around and immediately sell the home to a real estate investor who is willing to put all the work in and take the project the rest of the way. You can make several thousand in this manner on each sale. While the number is small, you can quickly see how it would add up after quickly reselling multiple houses in this manner.

Buy it & Flip it “As Is”

Fix up work is not for everyone, and some real estate investors want to quickly move a house without sinking money into a professional contractor. If a house is in sellable condition and requires little immediate maintenance work then you can consider just selling it as is. Even if a home is in poor condition, you can make a quick sale if the real estate market is in good shape and the property is in a transitioning neighborhood.

Buy It, Refinance & Lease

Instead of tossing the property for all cash right away, you can try and sell for terms. Once the remodel and refinishing is completed, refinance the property. Provided you were able to punch the math up right, you should not have any money tied up in the deal (or very little at least). You can turn around and sell the real estate investment on a lease, with option to buy. Any rent payment that you make from your renter (buyer, hopefully) can be used to handle the mortgage payments. This way, when the tenant goes for the option to purchase you’ll end up reaping a larger profit – mainly because you don’t have to pay a broker fee.

There Is More Than One Way to Flip a House

I’ve identified the ways to flip a property for virtually every real estate investing scenario. These methods all work extremely well, so it is only a matter of determining what works best for your real estate investment strategy and your overall goal.

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Position Realty
Office: 480-213-5251

How Much Does It Cost To Flip A House?

It’s impossible to put an exact figure on the cost of flipping a house. House flipping comes with so many variables so it’s hard to tell how much it would cost. It can cost you anything from hundreds of dollars to thousands of dollars depending on your market, rehab costs and plenty more factors.

If you are interested in flipping houses, CLICK HERE to gain access to our deeply discounted list of investment properties.

The ARV

First, you need to know how much the property will be worth when you are done rehabbing. Once you know the value, all other costs that come with the rehab will start to make sense. This is what is known as the ARV or the After Repair Value.

The best way to get an estimate of the ARV is to compare prices of similar properties in the same area of your target market in the past three months. Get a local realtor to help you determine the ARV faster or alternatively, you can do the research yourself by visiting websites such as Realtor.com.

Keep in mind the following things when determining ARV:

Only look at sold houses and not those still on sale
Only look for recently sold houses. They should have been sold within the last three to six months.
If there are no recent sales then this could be a sign that perhaps properties in the area are not on demand.

You can square footage to determine ARV. All you have to do is divide the sales price of property in the area by the square footage of the house. From there, use the square footage in your house and multiply it by the price of per square foot. Although this is effective, it’s not as great as doing a price comparison of the homes in the area.

You can adjust the price accordingly depending on the number of bedrooms and bathrooms in the property.

Factor in water views and look at other properties that have similar size lots

Factor in updated features such as new baths or new roofs, heating systems, kitchens, etc then adjust your price accordingly.

A List Of Things That Determine How Much A House Flip Costs

Rehab Costs

The amount of money you will spend on rehab will depend on how much work needs to be done. If you do not have extensive experience in rehabbing, I would advise you to first start with projects that do not require extensive repairs. Here’s a formula that you can easily follow:

Set A Budget

First, you have to get a budget repair form. It’s not a complicated document and is basically an Excel document that itemizes all the repairs that need to be done within the property. From there, request your contractor to fill out the form before you begin the rehab process.

If you plan on using a general contractor, ask them to get an estimate from other subcontractors like painters, finish carpenters, roofers, framers, plumbers and electricians.

Set A Time Line

Once you have a budget, you must do everything with your contractor to ensure that your subcontractors are held accountable for the cost estimates they gave you. If issues that you had not anticipated come up, (and they do so a lot) get a second estimate as soon as possible to ensure that you do not go over and beyond your budget.

The idea here is to ensure that you avoid running into unexpected issues by having a solid budget that can accommodate them whenever they arise.

Use A Scope Of Work

To ensure that your project goes as smoothly as possible, organize a meeting with all your subcontractors and the contractor and discuss the entire project. Your discussion should mention which is the best logical order for doing the work.

Everyone should agree to a certain timeline that they expect to get the work done on time. all your subcontractors should have each other’s cell phone numbers so that they can communicate with each other. Ensure that everyone in your team is updated of any delays or changes in the project. All changes should be pre-approved by your contractor before they are implemented.

House Flipping Financing Costs

To avoid incurring extra costs, try as much as possible to ensure that your rehab goes as smoothly as possible. This will reduce the amount of time that you hold the property. To get an estimate of how much your financing costs will be, just look at the average number of days other properties in the area have been in the market.

The best way to sell a house quickly is to set the price slightly below market price. Your financing costs will also depend on your lender.

Banks

If you have excellent credit and you finance your flip through a bank, your financing cost will be much less than if you sourced for funds from a hard or private lender. You might just pay with 4-6% on the money you borrowed if you get financing through a bank.

Private Money

Most hard money lenders ask for a 14-20% and four to six points on top of the money you borrow from them. Hard money lenders are great sources of financing for beginners but there are many risks to be aware of.

For instance, if it takes you six months from close to close on a $100k loan at 18% and five points, your interest would be $9k to $5k for five points. That is over $14, 000 in financing costs. It will also cost you an extra $1500 for every month you hold the property above 6 months.

This may seem like a lot of money but if you factor in these costs into your house flipping formula, you will still make a profit.

Carrying Costs

You may need to figure out other costs such as:

Association fees and condo fees
Insurance
Water, gas, electricity
Property tax
The longer you hold on to this property, the higher your costs will be.

Realtor Fees

You will have to pay realtor fees once the property provides the market. This is about 5-6% of the income from the purchase of the house. So if you flip your house for $250,000 at a 5% commission, you will pay the realtor $12,500. Although this seems like a large amount of money to pay a realtor, you should not cheap out. Find a good realtor who will help you sell your flips much faster.

How To Determine Your House Flipping Financing Costs Summary

All the costs in this post will account for 95% of your financing costs but bear in mind that they may vary from one project to another. But provided you can factor in all the costs into your formulas and stick to the 70% rule, you shouldn’t have a problem making a profit.

Position Realty
Office: 480-213-5251

How Pros Choose A Fix-And-Flip Property

How To Flip homes For Profit

  • Shoot for 70 percent of the after-repair value (ARV) minus cost of repairs.
  • Look for homes with good bones (i.e., a solid structure)
  • Choose newer homes for faster, less thorough flips
  • Get all proper permits for repairs or additions
  • When starting out, get a mentor to teach you the ropes

If you’re looking to invest in real estate, one way is with a rehab project, also known as a fix and flip. The process entails buying a fixer-upper, remodeling and/or renovating it and then selling it at a profit. With home prices rising across the country, however, flipping homes can be tricky. It’s important to know what you’re doing when taking on a fix-and-flip project. If you make a mistake, your profitable investment could turn into a costly money pit.

How do you separate the winning properties from the losers? Fix-and-flip investors look at a number of factors to help determine whether a property is a good investment.

After-repair value
One of the most important things that investors searching for properties to flip must consider is the property’s after-repair value, or ARV, according to Nancy Wallace-Laabs, of KBN Homes, LLC.

“Typically, if you’re investing, you want to buy a house that’s 70 percent of the ARV minus the cost of the repairs,” she said.

For example, if you determine a house’s value after you make repairs will be $200,000, and you estimate the repair costs to be $20,000, you shouldn’t pay more than 70 percent of $180,000 (the ARV minus cost of repairs), or $126,000 for the property.

Wallace-Laabs said she evaluates each property she comes across and asks herself whether it’s better suited as a rehab project or a buy-and-hold (that is, a rental property). “On flipping, you really need to analyze and know your formula to know how much money are you going to make on that property?” she said.

Lucas Machado, president of house-flipping company House Heroes LLC in Sunny Isles Beach, Florida, near Miami, agrees that the flipping game is all about the numbers.

“What do you think the thing is going to be worth once you’re done fixing it up?” he asked. “What are you paying for it right now? What are you paying to buy it, and how much is it going to cost to get it to being worth that? It’s really about nailing those numbers.”

It’s important to analyze comparable sales in the area to get a good idea how much the property could sell for, he said. You need to make sure you’re comparing “apples to apples,” he added: If a property in the area sold for $300,000, but it had a pool and your property doesn’t, for example, the two properties aren’t comparable and you can’t expect to sell yours for that much money.

“Good bones”

Doug DeShields, president of the National Real Estate Investors Association, and an active rehabber himself, said he typically looks for homes that were built between 1950 and 1975.

“They have good bones, good structure,” he said. “They’re typically brick and we can tend to do well in those houses.”

Part of knowing whether a house has “good bones” or not is having some familiarity with what it takes to make necessary repairs, according to DeShields.

“You do not have to be the world’s best carpenter,” he said. “You don’t have to swing the hammer one time. But what you need to do is have a good feel for the various aspects. You need to know a little bit about construction, whether you can physically do it or not. You need to know what makes a good property.”

Thorough inspections
On the other hand, if you’re looking to do a less extensive flip, you should look beyond a property’s “good bones,” according to Travis Moore, owner of Fargo Home Solutions.

Moore said he sometimes prefers less extensive flips — the carpet-and-paint-fix-ups, as he called them — that require less expensive remodeling. According to Moore, for that style of flip, the age of the house can make a huge difference.

“If I’m doing a project like that, I really like to stick to homes that are built in 2000 and after, because you’re not going to find as many surprises,” he said. “When you get into older homes, you may think it looks OK — it’s got good bones, it’s got good structure — so this is probably a good candidate for just kind of cleaning it up. (But) on older homes, expect to have a few surprises.”

To get it right on older homes, according to Moore, it’s important to do a thorough inspection.

“Before you purchase it, really do a deep dive inspection on it … really beyond just looking at what’s visible,” he said. “Any home that old that I’m considering a lighter renovation, I really dig deep into its condition for everything, (such as) plumbing and electrical.”

Proper permits
When you buy a property, know that not every addition or feature may be permitted — and if that’s the case, it could cost you. Flippers should be cognizant of the permitting requirements for their specific location, according to Wallace-Laabs.

“If you end up doing work on a property and then (are) trying to sell it on the retail market … you have to provide proof that you pulled permits on that work,” she said.

This is not a requirement that investors should try to skirt, because it could end up costing a lot of money, she said. Wallace-Laabs mentioned that she knows an investor who bought a house and didn’t do proper due diligence before finalizing the purchase. It turned out that a previous addition to the property had never been properly permitted.

“So now my investor friends have to tear out all the sheetrock so the city can inspect the plumbing, behind the walls, the electrical, and even (check) that they put in the right size of window to call it a bedroom,” she said. “So instead of them thinking it was going to cost them $30,000 to fix this house, now it’s going to cost them $60,000.”

Get a mentor
Then, there are the big things you should look for when evaluating a fix-and-flip property — avoid foundation issues or termites for example, but there’s only so much a newbie can know. That’s why every fix-and-flip expert we spoke to recommended turning to an experienced mentor for help.

The investment advisers at Position Realty can help you with finding the perfect investment property (we have a list of wholesale properties), help you analysis the property to make sure it’s a profitable investment and help you inspect the property for issue you may over look. Give us a call today!

Position Realty
Office: 480-213-5251

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