So you’ve seen your umpteenth infomercial with the guy in his neatly pressed button-upped white T-Shirt grinning ear to ear waving his rock-solid no-money-down rags-to-riches real estate investment course for 3 easy payments of a gazillion dollars (but only if you call now) and now you are thinking, "wow this looks like a great deal, I better get it fast before the special offer expires." You notice how there’s always a special offer? Anyway, I am not saying this guy isn’t telling the truth, however regardless of which course or school of thought you buy into there are several key areas that one must avoid when engaging in any real estate related transaction.
Pitfall Number 1: Don’t Overpay!
The whole point in investing is to find properties that are undervalued. How does one find out what is undervalued versus overvalued? Without getting into technical details, the bottom line is you need experience. Yes much like shopping for anything else, real estate is essentially one of the highest ticket items in the shopping center of life. It’s advisable to stick with one market, perhaps the one closest to you in proximity as a starting point. Through your experience and asking the right questions, you will eventually have a feel for the pulse of the market you are looking after, and of course identify what is considered a good buy. $100,000 will buy you a different sort of house in Lynchburg, VA compared to Brooklyn, NY for instance.
Pitfall Number 2: Know the Market
Yes, you are actually going to have to do more work! This part is really common sense though, but executing it is where the beauty and the payoff comes in. How do you make money in real estate? The most basic way is to buy low and sell high. So from the first step, you have identified general trends in the value of homes, and are pretty good at spotting undervalued homes. Assuming you acquire that home, you may want to profit from it by selling it off to someone else for a higher price. How can you do this? Well there are many ways. For one, most markets appreciate in value over time so if you want a longer term approach that will work. Making upgrades to the property will automatically raise the price of the home as well. Think in terms of what the market wants, not what you personally want. You aren’t the one buying it; you are trying to sell it to someone else for a higher price than you bought it.
Pitfall Number 3: Know Your Budget
It may be a fine philosophy to go through life on a whim, but real estate is serious business, and thus diligent financial planning and budgeting is critical to your success. Don’t worry, you don’t need to be a finance geek, however you need to be disciplined and know your budget from the onset, or you may find you are learning that you need to make certain renovations or upgrades and didn’t anticipate it going over to certain cost. You also need to plan and budget for the mortgage, insurance and tax expenses incurred while holding the real estate before you sell it. Think ahead as to what is needed before actually going forth with investing in real estate.
It’s commonplace to try on suits, dresses, trousers or shoes before buying them. People instinctively know they need to try on clothes to be sure they fit, feel comfortable and are attractive on them. What about a home? It’s probably the most expensive purchase you’ll ever make. Isn’t it even more important to “try on” a home before you purchase it?
What on earth do I mean? Well, it’s usual to look for a home in places that are convenient to work and schools. Most folks take the daily commute into consideration when shopping for a home. Why not take the daily, weekly, and even monthly activities of family members consciously into account, too?
I once helped a young, single woman named Wendy find and buy her first home. She worked for Geico, was rising very nicely in the company and wanted a home of her own and the tax break home ownership affords. She asked my advice about choosing, and we had a conversation in which I mentioned many of the sorts of things I’ve said here. We made a list of what mattered to her. Then we went shopping. We looked at a lot of houses. After we came out of each one, we had a talk about how it measured up to Wendy’s list.
One of the houses we looked at belonged to the young woman who later became my daughter-in-law. It was brick, all on one level, had a fireplace in the living room, and had patio doors from the master bedroom and dining rooms to an enormous deck with a hot tub. It was beautifully decorated in a sort of “pared down Victorian” style. There was a brass bed, some wicker, lots of healthy house plants, and a few Victorian pieces of furniture that were actually old, family pieces. Silver framed family photos were clustered on top of the piano.
After we emerged from the house, Wendy started down the two steps to the car and then froze in place. She had the oddest expression on her face. I asked what was wrong, and she began to look sheepish and confessed, “That house is so pretty and so nicely decorated, I just enjoyed looking at it and didn’t give any thought to how I’d live in it. I just wanted it.”
We went back inside. Wendy still admired what had been done with the house, but decided it wasn’t right for her.
Knowing what’s important to you can save costly mistakes. The process of “trying on” a house helps you evaluate what’s important. I think you’ll find it’s worth the effort.
Becoming a successful real estate investor Becoming a successful real estate investor requires being able to find good real estate investment deals and put them together. Your job is not to become a closing attorney, a management expert, or a repair person. Use professionals!
You must learn how to appraise and find the true value of real estate. This information will help you make better investment decisions. Realtors, appraisers, and banks determine what a property is worth by looking at comparable sales, usually three to five sales of similar property that has recently sold in the same neighborhood. You must be able to do the same.
Getting a list of comparable prices of properties bought or sold (and when they sold) for the neighborhood you need information about, and asking active real estate investors in your area what the market is like, will be helpful and make for a better investment decision.
What is the ideal market for investing? There is no such thing as an ideal real estate market for investing. It tends to be more difficult to find bargains in rising markets. If the market keeps rising, the probability of selling the property quickly for a large profit increases. In contrast, when property values are falling more bargains become available.
You need to be able to assess the true value of properties based on when you expect to sell. Your purchase must be made at a good enough discount to allow for a profitable sale at a later date.
Leverage Leverage is very important for investors because the less cash you put down on each property the more properties you can buy. If the properties go up in value, your rate of return goes up. However if the properties go down in value and you have a lot of debt on the property this can result in negative cash flow.
Since real estate is generally cyclical, negative cash flow is only a short-term problem and can be handled if you have other income or cash reserves. This makes "Nothing down" investing very helpful to protect against negative cash flow for a high leverage investor.
If you are a long term real estate investor, leverage will work in your favor if the markets in which you invest appreciate in the long run and your income from the properties can pay for most of your monthly debt.
Strategies to limit risk To limit risk, become educated in your local real estate market first by understanding the large scale trends from global down to national, regional, and specific neighborhoods. Learn about target neighborhoods with the help of successful real estate investors in your area along the way.
Real estate investors can help you interpret market indicators such as the average length of time houses have been on the market this month versus last month or last year. With this information it will help you make better investment decisions.
Exit strategies It is important not to guess the future of a local real estate market. You need to have a clear plan in mind when purchasing property. As a real estate investor you must know exactly how you will exit the property before you buy. And have a backup plan or two in case the first course of action doesn't work. You must know your market and your plan before you begin to invest. For more information about how we can help you begin your real estate investment journey, see our real estate investment page.
Sometimes it’s helpful to sell your home before you really want to move. This often happens when you are having a new home built, but aren’t sure of the completion date. Is there any way you can sell your home so you’re sure of the funds available for the new purchase, but continue to live in your old home until construction of the new one is complete. Yes, there is with the renting back strategy.
Enter the Lease-Back or Rent-Back Agreement
The particulars of this strategy vary from state to state, but in the strong seller’s market we’re experiencing, buyers will often agree to let the seller stay in the home for a period of time as long as rent is paid. In a competitive situation, the buyer willing to do this will often have the winning bid even though there is another offer as high as his.
The agreement covering the situation states the length of time the seller will remain. It can be done with a specific date named or wording that allows the seller to remain up to a specific date with the possibility of her moving sooner. The amount can be a fixed figure paid out of the proceeds of settlement or a monthly amount, or a daily amount. It is usually, but not always, tied to the amount of the mortgage payment under the buyer’s new loan. Sometimes there is a deposit against damage, sometimes not. There is usually a clause saying the seller will hold the buyer harmless for any damage to himself or his property which occurs after the sale is consummated and before the seller moves.
The attorney who draws up your contract offer can create such an agreement. If you’re using online forms, you should be able to find one for this situation. If you are working with The Lynchburg Team, we can assist you with this type of contract.
I’ve recently seen a very pleasant example of this idea in action. An elderly widow contracted to have a one level condo unit built in a new community which provides all exterior maintenance. She had had hip replacement surgery and wanted to get away from the drawbacks of the home in which she’d reared her children. The home was large, had stairs and was located on a large, partially wooded lot with many mature perennials and shrubs. Both the home and garden were beautiful, but high maintenance.
Her contract to purchase required a series of deposits and a firm indication as to her source of funds well before settlement on her new condo. The widow put her home on the market. A young couple with two sons was very anxious to buy it. The situation was competitive. They made the widow an offer. She countered their original offer. She did not raise their offer price, which was slightly below her asking price. She did not believe the young couple would qualify for a larger loan. Instead, she did something rather creative.
The widow countered with a proposal that she “rent back” for a period of “up to” a certain date (a date beyond her scheduled completion date on the condo) in exchange for a modest flat sum to be paid to the buyer at settlement. The total rent back period was less than two months. The flat fee was less than the amount of the new mortgage payment for the buyers. However, since they made no payment on their new mortgage the first month, it wasn’t too far out of line. The couple really wanted the home, so they accepted the counter offer.
Another win-win situation was created. The widow only had to move one time and the young couple got a house they probably wouldn’t have had in a straight bidding war. If you find yourself in a situation similar to either the widow or the young couple, perhaps you can work out a similar solution.
For most people, the prospect of selling their home can be positively daunting. First of all, there are usually plenty of things to do just to get it ready for the market. Besides the traditional clean-up, painting, fix-up chores that invariably wind up costing more than you planned, there are always the overriding concerns about how much the market will bear and how much you will eventually wind up selling it for.
Will you get your asking price, or will you have to drop your price to make the deal? After all, your home is a major investment, no doubt a rather large one, so when it comes to selling it you want to get your highest possible return. Yet in spite of everyone's desire to get the top dollar for their property, most people are extremely unsure as to how to go about getting it. However, some savvy sellers have long known a little financial technique that has helped them to get top dollar for their property. In fact, on some rare occasions, they have even sold their properties for more than they were worth using this powerful financing tool. Although that might be the exception rather than the rule, you can certainly use this technique to get the most money possible when selling your property.
Seller carry-back, or take-back financing (also referred to as seller financing and self financing), has proven to be a surefire technique for closing deals. Even though most people do not think about this when it comes to selling a property, they really should consider using it. According to the Federal Reserve, there are currently over 100 Billion dollars of seller carry-back (seller take-back) loans in existence. By any standard, that is a lot of money. But most importantly, it is also a very clear indication that more people are starting to use seller take-back financing techniques because it offers many financial benefits to both sellers and buyers. Basically, seller take-back financing is a relatively simple concept. A seller-take back loan is created when a property is sold and the seller performs like a lender by assisting in financing all or part of the total transaction. In effect, the seller is actually lending the buyer a certain amount of money toward the purchase price, while a traditional mortgage company usually funds the balance of the purchase price. A seller take-back loan is secured with the property. The loan then becomes the primary mortgage and is fully secured by the property. In most seller take-back financing transactions, the buyer repays the seller with interest in accordance to mutually agreed terms over a period of time. Usually, the terms call for the buyer to send the payments, consisting of principal and interest, on a monthly basis. This is advantageous because it creates a steady monthly cash flow for the note holder. And if the note holder decides to cash out, he or she can always sell the note for a lump sum cash payment.
Regardless of market conditions, seller take-back financing makes sound financial sense; whereas, it provides both buyer and seller with flexible financing options, makes the property easier to sell at higher price and shortens the sales cycle. It also has the added advantage of being an excellent investment that generates a steady cash flow and high return. If you ever need immediate cash, you can always sell the note through our office. If you are planning to sell a property, consider the many benefits of seller take-back financing.
With oil and natural gas prices rocketing, stoking terror of long, cold and and expensive winters, a renewed interest in keeping heating costs under control has has been sparked. Homeowner's have an ignited passion in understanding energy saving methods. If you're in this boat, stuck in cold waters, here are some tips for energy saving tricks of the trade.
If you're living in a home with a furnace that's more than 20 years old, you may have already attempted the "buy a sweater" method of keeping warm. This is certainly one approach, but these days upgrading your home's conditioning system is a much better option, and will bode well for you in the here and now, and in the long term, should you decide sell your home. More and more, home buyers are looking for homes with energy efficient systems already in place. So, think of these upgrades as a long term investment in the resale value of your home, as well a cost efficient and green alternative to your current conditioning system.
Now, with that old choker of a furnace huffin' and puffin' away, guaranteed it's not as efficient as it could be, no matter what fuel type it uses. The newer gas furnaces are mid-efficiency (78-82%) or high efficiency (89-96%). Although the higher efficiency products can cost up to $1000 more than the mid-efficiency products, extra costs will be recouped in a couple years, as they will burn less fuel. And, you'll be the greenest frog on the block, sending less harmful emissions out into the atmosphere. "It's so easy being green", murmured Kermit, once he upgraded his furnace.
With oil furnaces, there are again, much more efficient products on the market as of late. But, a oil furnace does need to partner with a good chimney, and so this may be an additional cost to keep in mind
Take note, it's still the case that electric heat is more expensive than oil and gas, although a smart combination of central wood stove heat, supplemented by electric heat can be cost efficient.
Let it Flow: Change Your Filters!
Whether disposable or washable, all forced-air heating/cooling systems use filters. And, these filters need to be maintained and changed. Some filters require monthly changes while other last up to three months, and much depends on the conditions within your home. A dirty filter will restrict air flow and with clogged filters you're blocking heat that would otherwise be keeping you toasty warm. Do yourself a favor and keep on top of the regular changing of your heat filters. This is a pretty easy way to boost your energy efficiency and cut costs.
Pump it up: Install a Heat Pump
Air source heat pumps are the most common and they are generally used with a back-up heating system. In terms of function a heat pump works by extracting heat from the outside and bringing it in, (in heat mode), and by removing heat from the inside of the house and releasing it outside. ( in cooling mode).
The king of heat pumps, though, are ground and water source, or geothermal. And while the initial investment may be great, the saving will be substantial in the long run. These pumps will use 25-50% less energy than conventional conditioning systems.
At the end of the day, another simple method to help with soaring heat bills, is to keep an eye on the set temperature levels in your house, What is normally described as room temperature is around 68 Fahrenheit (20 degrees Celsius). Of course, only you can decide where to set the dial. But, if you'd rather avoid the " put on a sweater" method of winter energy conservation, you might consider investing in an improved conditioning system that will bring you warmth today, and will be a smart investment in the re-sale value of your home.
The Realty Group ·
1179 Vista Park Drive,Suite A,Forest,Virginia,24551 ·
My name is Teresa Grant. I am the co-founder of the Keller Williams Franchise with over 100 Realtors serving Central Virginia. My personal team, The Realty Group Team of KW consist of 6 well seasoned and trained Realtors serving Lynchburg Metro/Forest, Roanoke/Daleville and Smith Mountain Lake. I am a Certified Keller Williams Luxury agent and will work diligently to market your property through my network of agent consultants who have unsurpassed skills, education, values and technology. My team and I work with buyers as well as sellers, which sets us apart from agents who focus on only one field of expertise. I feel you have to understand a buyer's needs and desires to properly prepare a home for today's market. I would be honored to help your family find their perfect home. I have great listening skills and my specialty is finding the right home to meet your family's needs. I bring over 20 years sales experience as a leading sales representative, sales educator & vice president of a national corporation. My knowledge of the communities, market trends, and home values of Central Virginia set my team apart from the rest with a special touch for buyers and sellers alike!
I have partnered with like-minded REALTORS to work together as, The Realty Group Team, to provide exceptional leading real estate service to Central VA! As a high energy, enthusiastic team, The Realty Group Team provides individualized customer service to their clients. Proud to represent award winning builders, new ground breaking communities in Forest, Lynchburg, Smith Mountain Lake, Roanoke, Daleville, Amherst, and the surrounding counties of Central Virginia. The Realty Group is everywhere you want to be!