Image by hownowdesign via Flickr

The Allure of Getting An Investment Loan, Property

The glut of real estate available, thanks to the avalanche of foreclosures, short sales, REOs and hard-pressed homeowners, have significantly pushed prices of investment properties further down. This is making a lot of real estate investors salivate as experts declare that now is the right time to invest in real estate. You may be among the scores of first-time investors raring to invest in real estate and become a landlord, intending to use rental income to cover for the costs of acquiring and maintaining a property, and hope to have the property’s value go up in the years to come. But is it really a great time to obtain an investment loan and property to rent out? If you are determined to do so, make sure to bulk up your landlord muscle to help you tackle the following hurdles.

The Snags of Obtaining Investment Loan, Property to Become a Landlord in 2011

1. Rising Vacancy Rates

Because of the boatload of people losing their homes and those who cannot afford to buy a home, you may expect more people to be seeking out homes for rent. Think again! Across the country, landlords are hounded by vacancies. This has prodded them to come up with incentives – usually a discount such as a 3-bedroom apartment for the price of a 2-bedroom unit, cheaper security deposit, a month of free rent, just so tenants would sign the lease contract.

The foremost reason why landlords lose tenants in the years between 2002 and 2006 was because these tenants were purchasing their own homes. Fast-forward 2011, the primary reason for losing tenants is defaults leading to skips and evictions. As a result, vacancy rates have shot up egging landlords to compromise, including their criteria for tenants.

2. Lenient Tenant Application Criteria

Owing to the discouraging occupancy rates, landlords are now willing to take in tenants whose qualifications would normally not pass the standards of years ago. Landlords used to turn down would-be tenants who have gone through a bankruptcy, foreclosure, or previous evictions. But now, with so many people having gone through such economic difficulties, they have become a whole new market segment in the rental industry. If you are planning to take in these people, make sure that you require them to at least have a job and bear a decent credit rating. Some landlords are ready to look past the credit score and some even consider prospective tenants who are jobless, but enjoy unemployment benefits.

3. Longer and More Challenging Evictions

The mounting number of foreclosures on rental properties and the increasing number of people losing their jobs have significantly contributed to the increase in the incidence of evictions, leaving the courts and the local law enforcement with a mountain of legal paperwork and evictions to carry out on their respective plates. As a result, evictions are taking longer than before, not to mention that there are a number of sheriffs departments that decline to serve eviction notices.

4. “No Pets Policy” Are Out

Would you rather take in a jobless tenant with no pet or a tenant with a good job and rental history with one or two pets living with him? Most landlords, nowadays, are willing to take in the latter. Besides, this type of tenants are inclined to pay additional fees just to have their pets live with them. They have become another segment in the market and some property managers have already taken action in luring this niche by providing areas for walking dogs and scoopers and bags for tenants to clean up after their pets. However, a wise landlord knows that he is boosting occupancy rates at the expense of the risk of flea infestations, noise and disturbance, and damage due to untoward toileting incidents.

These are some of the setbacks of taking the landlord role these days. It is up to you to weigh these against the benefits of generating rental income and possible property appreciation down the road.

While many are saying that now is the best time to obtain an investment loan and property, you have to acknowledge that there are also new challenges that a landlord could be facing due to the current conditions in the real estate market.

Rental Income Property Taxes Image by alancleaver_2000 via Flickr

Give To The IRS What is Due To The IRS – Paying Taxes for Your Rental Income Property

Letting go of 25 to 35 percent of your income to tax is often a painful but compulsory thing to do. You would think of the things you could have bought with the said amount: renovate your multi-door apartment, go on a family vacation, finance another investment, or whatever it is that you want to spend on. However, the tough reality remains that we have to pay the IRS their share but there are many ways to minimize that tax burden. Check back soon for info on how to minimize your rental income tax burden.  So to deal with reality, let us abide by the law and file our income taxes so that our friends from the IRS will not haunt us. If you are a landlord, here are some tips in filing your income tax for your rental income property.

Points To Consider When Paying For Rental Income Property

What To Include in Filing Tax. As a general rule, any amount that you have received as rent or as payment for the use or occupation of property should be included in filing for taxes.

When To Report Income. A cash basis taxpayer is someone who declares income gained from rental income property on the year that he actually or constructively received it, irrespective of when it was gained. Income is received constructively when it becomes obtainable to you, such as when it has already been wired to your bank account.

When To Report An Advance Rent. Any amount that you have received before the period of use or occupancy of the property has arrived is considered advance rent. However, you count it in your rental account on the year you received it without consideration of the period it encompasses or the accounting method that your business employs. For instance, let’s say that you inked a contract for a 5-year lease to rent out your property. In the initial year, your tenant pays you $1,000 as rent for year one, and another $1,000 as rent for year five. The last payment is considered as advance payment, and thus, must be reported on the year that you have received it, which is year one, and not on the year that it covers, which is year five.

Should You Report Security Deposits? Any amount paid to you as security deposit that you plan to reimburse to your tenant at the close of the lease must not be counted in as part of rental income. However, in the event that your tenant breaches contract during any year, you are entitled to keep possession of part or all of it. When this happens, you must include that particular amount in your income in that year. Sometimes a security deposit is employed as final rental; in this case, it is considered as advance rent, and thus, must be counted in as part of your rental income on the year that you receive it.

Should You Count in Rental Payments in Kind? Yes you must, using the fair market value of the property or services used as form of payment in your rental income. You can use as fair market value the agreed or specified price of the services, except if there is proof that it is otherwise. Let’s say that you accept a proposal from your tenant, who happens to be a plumber, that he do the necessary plumbing job in your rental property for a month in exchange for a month of rent. When reporting your rental income for filing taxes, add that one-month rental to your rental income, and add that same amount as maintenance expense for plumbing job for your rental property.

It is every landlord’s obligation to pay taxes for the income he earns from his rental income property, whether from monthly rental payments, advance payments, and other possible forms of income related to the property. You should, thus, get to know what are to be included and when they must be included.

Related articles

• Choosing The Appropriate Legal Entity To Own Your Investment Property
• Best Kept Secrets on How to Make Money Through Tax Lien Investing Revealed
• 7 Awesome Benefits of Lease Options For Landlords
  
• Make Money with Mobile Home Investments

Landlord Insurance Image via Wikipedia

Landlord Insurance – An Expense Worth It

Every shrewd landlord knows that a landlord insurance is vital to his rental property business. Although it is not a legal requirement, it can save you from several heartaches. It may be an expense on the one hand, but on the other hand, it provides peace of mind and security against any unforeseen damage to your investment property. The trick here is to know how to obtain a substantial coverage at a more affordable rate. This way, you can protect your property investment while protecting your profitability. If you are on the verge of buying a new coverage or renew an old one, consider these three tips to help you get a more affordable policy.

How To Get A More Affordable Landlord Insurance

1. As with purchasing any other big-ticket commodity, you need to shop around to get to know features and get quotes of different landlord insurance products. Expect varied rates from different insurance providers, and the differences can be substantial. You can also conveniently do your window shopping online. Websites of various insurance companies and insurance brokerages can provide you instant quotes online. When comparing various insurance products, make certain that they are offering similar features. You do not want to compare a brand new Mercedes Benz type of insurance to an old rickety Chevy kind.

2. Buy landlord insurance through a broker instead of through an agent of a certain insurance firm. A broker can offer you a wider array of landlord insurance products from various companies from which you can match your specific needs. On the other hand, an agent can offer nothing but the products of his or her company, limiting your choices and making his or her advice more subjective. Ask other investors about insurance brokers they can recommend.

3. Ask for discounts from your insurance broker or agent. These rebates also vary from one insurance company to another. Get to know discounts which you are eligible for. For instance, an insurance carrier may be selling home, car and landlord insurance. If you purchase two or more of these policies, you could be entitled to a multi-policy discount. This will allow you to make as much as 15 percent savings on your premium.

4. Install security features on your investment property you are insuring. Dead-bolt locks, smoke detectors, burglar alarms, CCTV, and the like, are also sort of a form of ‘insurance’ in their own right since they also provide protection against a potential eventuality. They do not just help protect your investment property, they can also help bring down your insurance rate because they reduce the risk for untoward events. Also, the pull of gravity for your insurance rates would even be stronger, bringing them down further, if your property is near a fire hydrant or fire station.

5. Instead of the market value of your property, make its cost of rebuilding the basis for your premiums as they are usually lower than the appraised worth of your rental property. As a result, you can enjoy lower premiums.

Landlord insurance can be considered as an essential expense that no landlord can afford to disregard as it provides protection against untoward events. Although it can reduce your revenue, there are ways to bring down its cost.

Related articles

• Is Your Landlord Insurance Policy Eating Away at your Profits?
• Investor Profits $41K While Tenant Cries – Landlord Insurance and Renter’s Insurance are Must Haves!
• 8 Things Every Real Estate Investor Must Know About Landlord Insurance

Tax Lien Investing Image by John C Abell via Flickr

Don’t Be Alien to Tax Lien Investing

If you think you can make money in real estate investing only by buying, selling, fixing and renting houses, think again. Take the time to explore the vast field of real estate investing and you will discover other earning opportunities that involve minimal risk and require little capital since you do not actually pay for a piece of the real estate. One of which is through tax lien investing.

What is Tax Lien Investing?

The local government, the state or the county collects various forms of taxes so that it can provide services and benefits to its citizens. One kind of tax it collects is property tax, which is typically paid to the county where the property is located. In the event that the property owner misses a tax payment, the government imposes a tax lien against the property. Despite this move, the county still did not receive the amount of the tax, and thus cannot be used to add to the funding for the delivery of services and benefits of the county. So to solve this problem, the local government sells at public auction either a Tax Lien Certificate or Tax Deed.

2 Ways to Make Money Through Tax Lien Investing

1. When the homeowner repays his taxes. As a tax lien investor, you temporarily shoulder the tax owed by the owner to the government so that the government can use it to fund its obligations to the people. The owner has to repay the taxes within a set period. Once the owner makes his payment, the government will give you a check to pay back your investment including interests and penalties mounted up within the repayment period. Here, you can gain between 16 to 30 percent depending on the state the property is located in. The actual amount earned may not be as substantial as when buying and selling houses, but the beauty of it is it is virtually risk-free, unlike other investment vehicles.

2. When the homeowner cannot settle his taxes. When this happens, you gain first position on the deed to the property through the tax lien. With this, you are legally authorized to foreclose on the property even if there is a mortgage against it. This means that by just paying for the tax deficiency, which is just a few thousand dollars in most cases, you can obtain the property free and clear. Now compare that amount to the actual value of the property and you will see how much money you can make.

You must realize that the second scenario does not take place often since most homeowners who have liens against their properties are able to repay the county within the set time. But there is still the possibility that you can own a property for such a ridiculous price especially now with the ailing economy.

Not everyone knows about this investment vehicle as it does not receive much publicity. The government has not given banks and brokerage firms the impetus to inform people about it. Because it is lucrative and is relatively easy to do, most investors who are already into tax lien investing are not eagerly telling others about it for fear of competition. Lucky for you, you came come across this post.

Tax lien investing is another way real estate investors make money. Not many people know about it but now that you do, you need to do more research on how to get things done especially in the specific county or counties you intend to operate in before you buy your first tax lien certificate.

Mobile Home Investments Image via Wikipedia

Mobile Home Investing – A Profitable Niche

If you are looking for a niche in real estate investing, then mobile home investing could be it. Many real estate investors may be turning their backs on mobile home sellers because they may not know that they can make money from mobile homes using similar techniques applied for investing in other types of properties. Consider the following ways on how you can profit from it.

5 Ways To Make Money From Mobile Home Investing

Buy-Fix-Resell. The same formula applied for single-family homes, and other properties, can also be applied in mobile home investing. Owing to the simple structure of mobile homes, they are typically easy and less costly to fix as compared to traditional properties. You can buy undervalued used mobile homes at deep discounts, leaving generous room for profit, that is, if you are able to sell it. One of your markets would be well-sought tourist destinations where it is possible to sell it for cash. However, if you sell it to a buyer who need financing, this may be difficult. So be prepared to offer seller financing in order to profit from your deal; the ROI is outstanding.  Otherwise, you would be better off opting for newer mobiles attached to real property that can help to be eligible for a traditional loan.

Wholesaling. Just like wholesaling traditional properties, you can sell contracts for promising mobile home bargains you find. You look for mobile homes offered at great bargain, put a mobile home under contract from the seller, then you market it to an end buyer or another investor interested in it and assign the contract to that person for a higher price. In this way, you profit from the assignment fee.

Buy and Hold and Become A Landlord. You can also buy home mobiles at bargain prices, fix them up and rent them out. As with renting out traditional real estate, you need to choose your tenants well to ensure that the mobile home is maintained in good order and you will not have any problems in collecting rental fees each month.  Make sure to account for the park fees in your profit calculation.

Lease with the Option to Purchase. Another way to profit in mobile home investing is by offering your tenant an option to buy the mobile home the mobile home at an agreed amount of money in the near future, usually one to three years. Your tenant gains this option by paying consideration, option money, which needs to be based on the value of the mobile home. Here you earn from the consideration that the tenant/buyer pays you, the monthly rental you collect, plus the agreed purchase price for the property once the tenant decides to buy it. Another variation of this could be rent-to-own.

Although the lump sum profits may not be as substantial as when investing in single family home properties, you can still make a great ROI on your money in mobile home investing. Hence, the next time you receive a call from a mobile home seller, do not immediately dismiss it because it can potentially bring you profit.

Related articles

• Essential Investment Property Advice For Newbie Real Estate Investors
• Our Investment Property Portfolio

Lease options Image by Paragon Apartments via Flickr

What are Lease Options?

Lease options is short for “Lease with the Option to Purchase”. As the name suggests, two events are expected to take place – the lease and purchase of a property, where the latter action is at the discretion of the buyer/tenant. In this contract, you as the seller are bound to sell, but the buyer/tenant is not bound to buy.

How Do Lease Options Work?

By paying a valuable consideration upfront, the buyer/tenant gets an option to buy a property at an agreed price at the end of an established period of lease, typically one to three years for residential properties, but could get longer due to the present credit environment. The consideration, which is often nonrefundable, is usually at two to three percent of the market value of the home. This is preferable for buyers compared to paying a lump sum of five to 20 percent of the value of the property as down payment. In the event that the buyer defaults in his rental, he can be evicted from the property. However, if he makes good with his payments and finally decides to make use of his option, he can buy the property at the end of the set rental period.

Advantages of Lease Options For Landlords

1. Protects the Property from Vandalism. Your tenant will take care of your property like it is their own home already, after all, they are intending to buy it in the near future. Gone are the days when you wince at the sight of a clogged sink, stained carpets, vandalized walls, and other similar scenarios.

2. Highly Negotiable Terms. You can set your own terms when you offer lease options to suit both your tenant’s and your needs. You can raise the consideration a little if he negotiates for a slightly lower monthly rental fees. You can extend the period of the term, you can pass on the responsibility of maintenance and repairs to the tenant, and so on.

3. Gets Rid of the Hassles of Maintaining the Property. As mentioned earlier, you can make the tenant shoulder the cost of maintenance and repairs depending on what you agree on. Even without this agreement, maintenance may not be as costly since he will take care of the property, may even make improvements, since he is planning to be officially making it his home.

4. Motivates Tenants To Pay on Time. A default in payment can cost the tenant his future home, or at least, the consideration he put upfront. This is good reason enough to make him pay on time.

5. No More Periods of Vacancies. With your tenant intending to buy the property within one to three years, there is a lesser chance of vacancy.

6. Non-Refundable Deposit. The consideration that the buyer pays upfront is your protection in the event that he defaults and your property becomes vacant and you have to go back to marketing the property to other buyers.

7. Cushions Against Falling Home Values. Since you have locked in the selling price of your property to the agreed amount, you are protected in the event that values of properties fall within the given period. However, this could also work against you in the event that the value of your property goes up, you may incur an opportunity loss for having to sell it at the agreed price even if you could have sold it for more.  But this is the hook for the tenant in order to get them to agree to your proposal.  The tenants have potential upside depending of how the market appreciates.

Lease options are a great exit strategy for real estate investors: it protects their property from vandalism, vacancies, falling values of properties, saves them from the hassles of maintenance, and motivates tenants to pay on time and take care of the property.

Related articles

• Easy Guide For Renting Out Your Property To Section 8 Tenants
• Shhhh…Underground Advice: How to Claim the Homestead Exemption as a Landlord
• 6 Ways to Legally Avoid the EPA’s New Lead Based Paint Renovation Laws
• Tenant Screening: How to Choose a Tenant When All the Tenant Credit Reports Are BAD!

Investment Property Insurance Image by JelleS via Flickr

Sleep Well At Night By Getting The Right Investment Property Insurance

How would you respond to the catastrophic news that your multi-unit apartment has sustained severe damage due to a tumultuous windstorm or a fire? Will you say:

“Oh! That’s bad to hear, but everything will be okay since I got it covered.”

“Shucks! Is the insurance I got sufficient to cover against the damage?”

“Oh no! I have not yet gotten insurance. How am I gonna recover from this? ”

You do not want to be uttering the last two statements, right? Sleep well at night knowing that your investment property is appropriately covered for such losses due to unwanted events like fire, windstorm, lightning, explosion, riot, and unwanted business scenarios such as loss of rents, loss of money, and the like, by getting the most appropriate investment property insurance for your real estate. However, newbie real estate investors often have difficulty choosing the right insurance for their building from among the multiple choices. These are discussed below.

Investment Property Insurance Options

1. Basic Form Policy

You can get either a standard fire insurance written either as Basic or Special Form. The Basic Form protects your property from “named perils.” So if the peril is not specified, it is not covered. Fire, windstorm, lightning, riot, aircraft, hail, explosion, smoke and vehicles are the typical named perils.

2. Special Form Policy

The Special Form coverage protects your property against any loss, except when specifically excluded. Examples of losses ruled out in both Basic and Special Form Policies are clean-up for methamphetamine manufacture or mold and mildew. Losses covered must pass as “sudden and accidental”, while those that materialize over a length of time, like leaky pipes that result in dry rot, are not protected since they do not pass as “sudden and accidental.” You can also add extra coverage to your Basic or Special policy. The extras that are typically added are general liability coverage, loss of rents or income, or an extra umbrella insurance to augment the extent of coverage.

3. Business Owners Package

Your third option to protect your rental property is by obtaining a Business Owners Package or BOP. A BOP ties up all obtainable coverage, such as loss of rents, theft of money, fire coverage (for Special Form), or loss of business property owned by the insured, into a single policy. However, not all properties may qualify for a BOP. Majority of insurance providers will not furnish a BOP on a rental property which only has three units or less. Apartment buildings that are more than 30 years old often do not get a BOP. This bundled coverage is reasonably priced, but the coverage is more moderate and is often available only for buildings of good quality. Terrorism insurance can also be part of the package but protection is usually minimal. On the other hand, wrongful termination, employment practices liability, sexual harassment, discrimination and coverage for earthquakes are ruled out from BOP. If you want to be protected from these risks, you can obtain additional insurance.

4. Specialty Markets

Special Markets are also labelled as Specialty Admitted Market, Excess and Surplus Lines, and the London Insurance Market. You can obtain a Special Markets policy to protect property with risks that are usually excluded by standard insurers, like vacant properties, old buildings, chemical storage facilities, restaurants and bars, and high-risk manufacturing. Owing to their high-risk nature and the limited options available, Specialty Markets policy are typically more expensive. Vacant property insurance and builders risk liability insurance (obtained during the rehab phase) typically can be obtained through the mainstream insurers but needs to be paid for in full upfront generally and typically covers a 6 month term.  Look to pay about $600 – $900 on s single family home for builders risk during your rehab phase.

There can be a lot more options for your investment property insurance; the key is to match your needs with sufficient policy so that you can sleep soundly at night.

See our article

Related articles

• 8 Things Every Real Estate Investor Must Know About Landlord Insurance
• Real Estate Investor’s Guide To Investment Property Tax Deductions
• Is Your Landlord Insurance Policy Eating Away at your Profits?
• Investor Profits $41K While Tenant Cries – Landlord Insurance and Renter’s Insurance are Must Haves!

Investment Property Tax Deductions Image by Buyfixandprofit.com

Understanding The Scope of Investment Property Tax Deductions

One of the perks that attract investors to put their money in investment properties is tax incentives. No other investment vehicle offers this much tax advantage that rental property investment can offer. These deductions can significantly mean your profit or loss. However, those new to their role as landlords, and a few old-timers often unwittingly pass up on the opportunity to make tax savings from their property investments because they do not know the extent of the exemptions. Cash in on this exemptions by familiarizing yourself with what are covered in investment property tax deductions. If you own small residential rental property(s), then you can enjoy the following tax deductions:

Investment Property Tax Deductions For Owners of Small Residential Rental Properties

Depreciation. You, as a landlord, can recoup the cost of your property through depreciation. Depreciation counts the decrease of the value of your property over time. The accounting value of your property, as reflected on your financial statements, decreases because of depreciation. However, this does not make a dent to the market value of the property. By depreciating your property quickly, you can offset income and realize tax savings much sooner. At present, the depreciation for residential properties should be uniformly distributed within 27 and a half years, and no more than 39 years for commercial investment properties.

Interest. Interest is usually the most sizable deductible expense of a landlord. This includes interest on credit cards for expenses used in operations of your rental property, and mortgage interest payments on loans you used to fund the property acquisition or renovation. Mortgage loan interest can be deducted to cancel out an equivalent amount of income. This deduction is similar to the interest deduction for a home mortgage.

Maintenance Expenses. The cost of repairs to rental real estate are totally tax deductible as long as the repairs are really needed, standard, and reasonably priced. You can reduce your tax payable if you incur expenses in fixing gutters or floors, repainting, replacing rotten wood housing the water heater, replacing broken windows, fixing leaks and toilets, and many others. This deduction is especially beneficial for owners of old properties that need substantial fixing since the cost of doing these can be hefty. This is a privilege real estate investors can enjoy but mere homeowners cannot, so take advantage of this. However, this does not cover renovations that extend the life or boost the value of the property.

Insurance Premiums. Insurance premiums that cover rental property investments can be exempt from tax. In contrast, insurance premiums for homes are not tax deductible.

Local Travel. As a landlord, you can deduct the expenses you incur when traveling anywhere for your rental property operations, such as when you drive your SUV, van or pickup to your single-family rental property to handle a complaint of a tenant. You can also include here your hotel bills, airfare, meals, and other related expenses if you travel overnight while conducting business such as looking for more properties to add to your rental property protfoflio. Some investors take advantage of these tax breaks by incorporating other plans, such as taking a side trip vacation, with the said business trip. However, be careful and properly document your travel expenses if you plan on doing this since the IRS will examine overnight travels closely. You do not want to attract unnecessary attention of our friends from the bureau.

As a rental property investor, there are more items that you can deduct from your taxable income. However, we limit our discussion to these items to give way to a brief discussion of what could possibly forfeit your prerogative to tax savings.

Be Careful, You Can Forfeit Your Investment Property Tax Deductions

Be careful with the people you take in as tenants. You can possibly lose nearly all your tax deductions if you rent your property to a friend or family member.  There are also strict guidelines to follow when using funds from your self-directed IRA to purchase investment property. Finally make sure to keep a good record of how much time you spend on your real estate business.  If you can qualify as a Real Estate Professional per IRS guidelines this will allow you to deduct 100% of your paper losses against your income.  To qualify as a real estate professional per the IRS you must spend more than 75o hrs materially participating in your real estate business and must spend more than half your professional working hours materially involved in the your real estate business.

It pays for a landlord to know what is covered in investment property tax deductions since this could bring in substantial tax savings that can significantly impact returns.

Related articles

• Choosing The Appropriate Legal Entity To Own Your Investment Property
  
• 6 Essential Benefits You Get From Your Turnkey Real Estate Investment
  
• About Rental House Tax Deductions (turbotax.intuit.com)

Make Money from Real Estate Investing Image by AMagill via Flickr

There are numerous opportunities in real estate investing, but you have to have a skilled eye at identifying them. Inexperienced investors pass up on great opportunities because they lack the know-how to spot the gold from the seemingly uninteresting properties. Discussed below are five ways you can profit from real estate.

Retailing – Buy, Fix, and Profit

Retailing, in three words, is buy, fix, profit. Many newbie investors enter the real estate trade using this strategy. I’m sure you already know all about this strategy. You buy handyman specials at great prices, rehab them, and sell them for profit. One costly mistake a handful of fledglings commit is underestimating the cost of repairs. Savvy rehabbers already have a network of contractors and a checklist of repairs to watch out for and their estimated costs. They do not rely on the sellers saying that the repairs do not cost much. If they do not cost much, why don’t they do it themselves? To be on the safe side in retailing, you have to use the higher estimates to cushion you from errors, and then add another 10 percent to serve as contingency fund. Better safe than sorry.

Wholesaling – Find, Assign, and Profit

In this strategy, you look for a property offered at great deals, arrange this property under contract from the seller, then you look for an end buyer or another investor interested in the property and you assign your contract to him for a higher price. You earn from the assignment fee you get from the strategy. Ideally, assignment fees range between $3,000 to $20,000, contingent on the particular deal. If you are assigning the contract to another investor, do not forget to leave room for him or her to make a profit. This is a great strategy for newbie investors because it does not require much capital, thus entails less risk, and is easy to execute. For a more elaborate discussion, refer to our previous post, Kick Start Your Real Estate Investing Business Through the Assignment of Contract.

Subject To Investing – Buy and Sell In Many Ways

There are a number of advantages when buying a property that is subject to existing financing. First, you do not have to obtain a new financing from a bank or anywhere. This means that your credit standing does not count here, and is also not at risk. So if you have a failing score, don’t worry. You do not need to have a substantial amount of money to fund the deal. You can obtain financing for down payment from a private money lender. Through this strategy, you can speed up building your real estate portfolio without the need for your credit or your own money. Also, you do not have to sell the property entirely for cash.

If you know how to attract prospective deals, you get all sorts of deals including sellers who are more interested in relief from debt rather than profit. These are homeowners who are motivated to sell because they are having a hard time paying for mortgage. For this type of deals, experienced investors do not promise anything to homeowners when they take a property subject to. When you buy a property with this type of deal, you can sell it in many ways.

In this strategy, you acquire a property from a seller and allow the seller on title until you get to sell it at some time. With this acquisition, you can dispose and profit from it by selling it all cash, rent it out, or lease/option it to a tenant buyer. If you like, you can make it your personal residence.

Before you acquire and make money from the property though, you have to do your due diligence and ask about its current financing. If you locate a property subject to a fixed rate loan with low interest, you may be in for a good deal. However, if the mortgage is adjustable, you must have a clear exit strategy before you take the property. Find out how much are the monthly payments, ask if they are current, and how much equity is on the property. Get to know the estimated cost of repairs needed for the property. Look at your database of buyers and see if there is anyone interested to buy a property within the area where the property is.

You can delegate the paperwork needed for closing to an attorney. This includes a purchase and sales contract and an authorization to release the lending information. You also need to set insurance on the property and secure title insurance.

Lease Options – Buy, Lease, Get Cash and Cash Flow

An exit strategy for the property you have acquired through Subject To is via Lease to Own, where you get a non refundable deposit which ranges between $ 2,000 to $10,000 depending on the market. Tenant buyers who pay higher down payment tends to pay you till the end. However, beware of tenant buyers who pay little down payment. Since they are not risking anything here, they could afford to just abandon the property and cause you headache. So choose your tenant buyer well.

Lease To Own has several advantages: you receive a non refundable deposit in advance; tenant buyers tend to treat the property as their own so they do not vandalize it; and if they default, you can expel them from the property and you can start looking for another tenant or tenant buyer.

Options – Pay Option Fee, Sell And Profit

In this strategy, you have a seller who agrees to sell the property at a set price for a particular period of time. When you are not able to sell it within the set time, then you lose nothing save for the $10-Option deposit. With this minimal risk, options are great when dealing with upscale properties.

As an illustration, say, a seller who is relocating would like to sell a property that has $850,000.00 in mortgage, and the property is valued at $1,000,000. By just paying the Option deposit, you can option the property for the remaining $750,000 for 90 days. If you can sell it for more than this amount, you get to keep all the proceeds.

Knowing these five great ways of making money in real estate gives you an upper hand in evaluating deals, allows you to pick those with great potential, and protects you from opportunity losses.

Related articles

• Kick Start Your Real Estate Investing Business Through the Assignment of Contract
  
• 6 Essential Benefits You Get From Your Turnkey Real Estate Investment
  
• Choosing The Appropriate Legal Entity To Own Your Investment Property
  
• How To Buy Investment Property
  
• 8 Things Every Real Estate Investor Must Know About Landlord Insurance

Landlord Insurance Image by dvs via Flickr

Like any other insurance, a landlord insurance is a real estate investor’s way of managing risks against uncertain losses. Can you soundly sleep at night if you are unsure of whether or not your 8-plex is insured correctly? If your tenants are compelled to move out due to fire, does your insurance cover such loss-of-rent? Before any untoward event happens and regret shows up, take the time to understand what is (or is not) covered by your insurance policy. Insurance may add to your expenses and takes off some amount from your bottom line. However, it also helps you sleep soundly at night knowing that your property is protected from unforeseen losses.

Here are some points to help you grasp crucial factors to consider when arranging for insurance for your investment properties.

Knowing How Much Liability Protection To Carry

In general, protect your real estate with as much liability protection as you can pay for, or at least a $1,000,000 liability protection for each incident. Your liability protection must proportionally grow with the growth of your portfolio. You may not expect this, but typically, the premium charge to double your protection is just minimal. For a more cost effective approach in hedging for multiple kinds of liability exposure, carry an umbrella policy. This approach covers liability in excess of the customary $1,000,000 or $2,000,000 boundaries.

Distinguishing Actual Cash Value From Replacement Cost

An Actual Cash Value coverage, which costs more, repays you for the depreciated value of your property, while a Replacement Cost policy shoulders the cost for replacing your property and possessions with materials of the same sort and quality at prevailing prices. Besides distinguishing ACV from Replacement Cost, get a good grasp of coinsurance penalty and its relevance to your investments. There is no one ideal coverage; it varies from one property to another, from one investor to another. What is important is that you understand these options so that you can wisely choose the ones that would make you feel secure. After all, that is what insurance is for.

Protection From Loss-of-Rents

You can mitigate losses due to absence of rental income if for some reason your tenants are compelled to evacuate your units, such as when your property was razed by fire or other untoward occurrence covered by your policy, through a business income coverage. There are policies which may be bound by a 12-month time limit or other lengths of time, while some require a certain level of purchase in your coverage for this option to be in effect.

Protect Other Structures and Personal Property

Most policies may not include garages, sheds, barns, outbuildings, and other detached structures, while some do. Make sure that they are covered, as well as items like air conditioning systems, refrigerators, and stoves.

Protection From Changes in Building Code

When wrecked property is restored, you may need to add some amount to update features and satisfy certain regulations. Although old properties can be exempt from new regulations, repairs checked by the local government agencies may need to be updated. Examples of features that need updates are handicap accessibility and hard-wired smoke detectors. To protect your business from these additional expenses, make sure that your policy has the Ordinance and Law endorsement, especially if your multi-unit property is relatively old.

Hedging From Flood, Water Backup and Earthquake

Losses from these occurrences are typically not covered, although you can buy these through endorsements. Find out how you can claim each indemnity from your insurance provider of choice. This information can help you wisely decide on whether to take on any of these coverages.  Sewer back-up and sump pump failure is highly recommended for most areas.

Blanket Policy Versus Separate Policies

Your premium decreases as your deductibles increase. So if you own more than one property, consider taking on a blanket or package policy. In this policy, your deductible applies per occurrence rather than per location if your properties are under separate policies. Although premium rates for blanket policy may be higher than standard policies, it is a more cost effective way of protecting more than one property as compared to buying two separate policies.

Protecting The Property Entity

Besides your real estate, it is crucial that you hedge the property entity holding your properties. Do not skip appropriate coverage just to evade the “due-on-sale” clause. The first-named insured, or the main recipient of policy benefits, must be the entity holding the property(s). There are cases, though, when additional insured and loss-payee endorsements may be enough, but in general, make it a point to be the first-named on the insurance policy.

No matter the clause, endorsements and conditions you want in your insurance coverage, it is vital to arrange it with an insurance broker whom you can rely on and who is well-versed in real estate investing. Look for someone who is happy to help you understand the protection you need for your specific case. Some agents happily do that even if they are not selling the policy themselves because they are captive agents. Insurance can add to your expenses, but you need it to hedge your real estate from uncertain losses. So take the time to learn how it works, and purchase it before the need for it arises.

Related articles

• Is Your Landlord Insurance Policy Eating Away at your Profits?
• Investor Profits $41K While Tenant Cries – Landlord Insurance and Renter’s Insurance are Must Haves!
• Create Your Real Estate Investment Team
• Choosing The Appropriate Legal Entity To Own Your Investment Property