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Archive for February, 2012

Small commercial real estate investing

When you think about commercial real estate investing you may automatically think that this type of investment is for those with a lot of money to dabble in large complexes, shopping centers and buildings.  This is not the case.  Small commercial real estate investing has become a premier way to make money in the real estate market, especially since the residential market has bottomed out. 

Small commercial real estate investing has different facets.  It can range from purchasing an old building and turning it into a restaurant or a store front property.   Small commercial real estate investing is the ideal way for you to get started in real estate investing. 

Prior to investing in any property, get to know the market as well as the locality of the property you wish to buy.  When venturing into small commercial real estate investing, know your market and stay away from blighted areas.  The best way to begin in small commercial real estate investing is building a small office development.  Some office developments are similar to strip malls but instead of renting storefronts, they are used for professionals and others who need office space.   

A small office development can be rehashed from an old building or built on vacant property.  If you choose to develop an office development on vacant property, be sure to do a market study to make sure that there is a need for your development within the area. 

Another way to invest in a small office development is to turn an old house into office space.  This can also be done with “white elephant” retail property.  White elephant retail property is all over the country.  You know a place near you.  It is a usually a restaurant or bar that keeps changing hands because it is in a poor area.  People will continue to purchase the property and insist on making it into a restaurant, each time thinking that their restaurant will be “the successful one.”  White elephants make poor investments unless you completely turn the business around and make it into something totally different.  Office space is always in demand.  Taking a white elephant property and turning it into an office rental is one way to go about small commercial real estate investing.   

Small commercial real estate investing can also refer to the amount of money you are investing in the venture.  If you decide to go into your commercial real estate investment with partners, you obviously will not need as much capital to invest into the property.  You will have to split any profits or revenue with your partners, but you incur less of a risk.  This can be a good way to get started in small commercial real estate investing.   

When considering small commercial real estate investing, the most important thing to know is the market and the location of the property.  Location is always the primary consideration when investing in any real estate and this is no different when it comes to commercial real estate investment.  Whether you decide to embark on a small property investment yourself or go in with others, choose a good location in which to invest.

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Good Home Buying Tips

Welcome to the home buying market! This is an exciting time to be purchasing a home, with an array of new homes coming onto the market these is some excellent value to be found. All it takes is a little time and effort in looking and you can find your dream home for a dream price. But you should always be a smart buyer. There are those out there that will take advantage of someone who is eager to buy so, if you do your homework; the deals will follow.

The first thing you should do is get your finances in order. This involves finding out your credit score, fixing any outstanding issues affecting your credit, ensuring that these are properly released from your report, and finally securing your mortgage before you start looking. When I say secure your finances I do mean being pre-approved fully, this is different from a pre-qualification in that a pre-qualification does not “secure” you any amount of money, it is simply a judgment of whether or not you qualify to receive a mortgage.

Next, start working with a realtor that knows the area you are looking to buy in. This is a huge step so be prepared to move from merely wanting a home, to actively looking for one. Sit down with your realtor and make a list of things you require in a home. This is a list of those things that you can absolutely not be without. Once this is compiled, then list the things that you would like. With these lists ready, its time to start looking at homes. Your realtor should be able to provide you with a complete list of homes that fit your criteria, and some that come close. Also, they will be able to guide you to properties that fit your pre-approved mortgage amount.

After finding a home or homes that suit you make sure to have a certified inspector take a thorough look through the home. Have them check all questionable areas of the home. Don’t forget to have the inspector check for mold as this is something that is often overlooked. If the home passes the inspection than carry on with the offer if you are so inclined. If it doesn’t then either continue shopping, or utilize the necessary repairs as a bargaining point. Usually you should be able to have the cost of these repairs deducted from the cost of the home. It’s a good idea to bring in your own contractor or expert to get these estimates. By doing this you know that everything is above-board.

Buying a home is a huge process and one that you must be careful to handle with all due care and attention. Such an important investment can benefit you financially for years to come as well as providing safety and financial security. Don’t sell yourself short on what you buy as your home. After all, your family deserves the best don’t they?

FSBO Tip – Don’t Do It

My Number one FSBO Tip? Don’t sell it yourself! A “FSBO,” or house “for sale by owner” can sell fast, and for as much as it would have if listed with a real estate agent. Sometimes – but not normally. Consider the following ten points.

 1. Buyers work with agents. Most look at MLS listings. Sell it yourself, and they won’t see or hear about your home. How do you find that “right” buyer or get top dollar when you’re invisible to most of the market?

 2. Your FSBO will get lower offers. Naturally, the buyer thinks you’ll take less because you’re saving the commission! Save a $10,000 commission, get $10,000 less – where’s the advantage in that?

 3. Advertising is expensive. The costs the real estate office normally pays are yours if you sell it yourself. How much could you spend on ads if it takes a year to sell?    4. They have the resources. And you don’t. Agents have books of sold properties to look at, for example, to determine the best price for your home. You can dig through county records, but you do have to value your time too, right?

 5. They know the market. What’s the target market for your house? Young couples, retirees? What features do they want? You should know these things before you write your ads. An experienced real estate salesperson will know.

 6. They know the laws. What about written disclosures, and who pays for the real estate transfer tax? When you sell it yourself you don’t get to ignore the laws.

 7. Are you a good salesperson? Can you develop rapport and properly answer objections? Could your defensiveness scare off a buyer who criticizes your home? Think back on your own purchases, and you’ll realize that a good salesperson makes a difference.

 8. Paperwork. Will you help the buyer properly fill out an offer to purchase? An agent would. Do you have the other closing documents ready?

 9. Agents negotiate for you. When did you last learn a new negotiating technique? Can you counter-offer without scaring off a buyer? A good salesperson is trained in these skills.

 10. You may not save anything. The documents, newspaper advertising, signs for the yard – it’s all your expense when you sell it yourself. After your hard work, you may get low offers and negotiate poorly. Honestly, sellers often net less money from the sale when they try to save the commission.

Most “FSBO” sellers eventually turn to a real estate agent for help. You could learn the things an agent does, but is it worth it to spend all that time and maybe not even save any money? Don’t sell it yourself unless you really know what you’re doing. That’s my number one FSBO tip.

Four Real Estate Investment Tips, that you can learn from Warren Buffet, and other Stock Investors

Some of the most successful stock investors ever have based their investing principles on value investing. Investors such as Benjamin Graham, Irving Kahn, and Warren Buffet, have used value investing to build vast empires of wealth.

Value investing was conceived by Benjamin Graham, and David Dodd, in their classic book, “Security Analysis”, written in 1934. Although they were talking about stocks, there is still a lot to be learnt from value investing that can be applied to other investment vehicles. This article will show four things that real-estate investors can learn from value investing…

1: Investing vs Speculating – In value investing, it’s important to make the distinction between being an investor, and being a speculator. In “Security Analysis”, it is defined as this:

“An investment operation is one which, upon thorough analysis promises safety of principle and an adequate return. Operations not meeting these requirements are speculative”.

So, there are 3 things needed for something to be an investment: – You need to have done thorough analysis. – You need to be reasonably sure that you won’t lose your money. – You need to be reasonably sure that you will make some money.

In terms of real-estate, this means that just buying and selling real-estate, does NOT make you an investor. If you’re buying properties at random, just because there is a boom and all property is going up in value, you are not investing. You are speculating.

There is nothing wrong with speculating, you just need to be aware when you are speculating, versus when you are investing.

2: Value vs Quality – Value Investing doesn’t really have any formulas, or rules. It is more of a theory, with some general principles. Because of this, there are many ways to do value investing, and different ways to apply it.

Benjamin Graham focused on buying stocks significantly below value, with little emphasis in the quality of the stock, in regards to their long term prospects.

This can be a useful strategy for a real estate investor, particularly when they are first starting out, and need to build up equity fast.

Warren Buffet still looks at the value of a stock, but puts a lot more emphasis on the quality of the stock. He only buys stocks that he thinks have good long-term prospects, with a bright future in front of them.

This is generally a good strategy for real-estate investors to move to later on, when they have built up their portfolio. Long term, well-chosen property will make significantly more capital growth than poorly chosen property, and may be worth buying even if it can only be bought at market value.

And with commercial real estate investment, it may be worth getting a lower rental yield, if this means you can have a high quality tenant, who will pay the rent reliably. This is a strategy that famous New Zealand commercial real estate investor Bob Jones has applied, with great success.

3: Margin Of Safety -“One of the most important principles in value investing is a margin of safety”.

Margin of Safety is the idea of making sure that you only invest if your calculations show that there is a significant profit to be made. There is no way your analysis can be 100% accurate, so the margin of safety gives you a buffer, to use when your calculations are slightly off, or you get worse than average luck, or any number of unexpected problems occur.

So when estimating the value of a stock, you use conservative estimates for earnings etc, to come up with the value. If your estimated value comes in at $10, then you don’t buy the stock if it’s currently selling for $9.75, because it’s too risky, and if your calculations are off, you wont be buying a bargain. If the price is currently $6 though, you might buy it, because you have a $4 margin of safety to use if you estimated incorrectly.

The same principle applies to real-estate.

Suppose you are looking at a deal, and you find you can buy some land for $100,000 and you can build a 4-bedroom house on it for $150,000.

If new 4-bedroom houses in the area are selling for $270,000 then should you do the deal? Theoretically, it will only cost you $250,000 to buy/build with a sale at $270,000 so you should make $20,000 profit.

But that isn’t much margin of safety. What if building costs blow out, and it cost more than $150,000 to build? What if you can’t sell it straight away so you have some holding costs? What if the other 4-bedroom houses in the area have much better kitchens than you realized, and you can actually only sell for $245,000?

There are a lot of unknowns here, and because your margin of safety is so small, unless everything goes right, you can quickly find yourself making a loss.

If on the other hand, 4-bedroom houses in the area are selling for $350,000 then you have a projected profit of $100,000. You can afford for a lot of things to go wrong, and you can still make a profit.

In the first case, if building costs go up by $50,000, the deal will cost you $30,000.

In the second case, because you have a much larger margin of safety, if building costs go up by $50,000 then you will still make a profit of $50,000.

Margin of Safety is a very important concept to all investors, and all real estate investors should think about it if they want to be around for the long-term.

4: The myth of Risk vs reward – Conventual wisdom says that to increase your reward in investing, you must increase your risk. This is often true, but the Magen of Safety principle can turn this around.

When margin of safety is used, a higher reward actually means a lower risk!

You can see this is the example above. The deal that is projected to make $20,000 is quite risky, whereas the deal with a projected profit of $100,000 is much safer, because a lot more can go wrong before a loss is made.

This doesn’t mean than high reward always means lower risk though. The conventual Risk vs Reward wisdom is still correct in general. So if you borrow more to buy a property, your risk and reward have increased. If you buy in a small town to get a higher rental yield, your risk and reward have increased.

This Risk vs Reward theory is only incorrect when directly applied to the Margin Of Safety concept. So if you buy something for $100,000 that all your analysis shows is worth $200,000, then your reward has gone up, while your risk has gone down.

Foreclosure Homes for Sale

Are you on a small budget, but you want to purchase a home? If you are on a small budget, and you want to get a home, to start living as a family in an area that you love, look towards homes that have recently been foreclosed. A foreclosure is one that someone else has lost. The homeowner may not have been able to keep up on their mortgage payments, and the bank has taken over the property. Banks and financial companies don’t like to hold onto these properties for long, because of the interest, the payments and the money that is being lost over all.

To find a home that has been through foreclosure you can begin your search online or offline. Many links to foreclosure companies and banks are going to offer listings of where foreclosure homes have been located. A foreclosure company is going to offer great rates, and will offer great prices on homes that they want to sell.

While nothing can be done for those who have been through the foreclosure process, and for those who have lost their homes, you can take advantage of the situation. You can purchase home, at a reasonable cost, and create a home for your family.

To purchase a home that has been through foreclosure, the process is going to be very similar to that of any other mortgage. You will have to apply for a mortgage, you will have to pass the background check, and you will be subject to interest costs, and closing costs of the mortgage. A foreclosure home may require some additional legal background work, so you will need to hire an attorney to look out for your best interests.

A foreclosure home is one that has been abandoned because the previous owners could no longer pay for the home. You will find that many types, sizes, and styles of homes are often included on the foreclosure listings by banks. You will find one bedroom homes, two bedrooms homes, rental units, retail and commercial buildings and you will find luxury homes, vacation homes, even mansions included on foreclosure listings.

The home of your dreams could be very affordable if you take the time to look at the foreclosure listings. The foreclosure listings will give you an idea of the city and the state where the home is located, and from there you are often required to contact the bank, the financial company or perhaps a real estate agent as listed, to find out more about the property. The only limitations you will have in purchasing foreclosure homes is going to be your credit limit and where you want to live. Homes from across the nation, from Vegas, California, to Virginia, Florida and in Washington are available for purchase.

Picture Perfect: the Profit is in the Plan

As far as home improvements go, landscaping is a solid investment – in fact, a well designed outdoor project can offer a better return than most of those inside the house. Good landscaping can add between seven and 15 per cent value to your home and has a recovery value of 100 to 200 percent, so shell out now and get it back when you sell.

Many realtors will tell you that a well designed landscape will help you sell your house faster. With today’s explosion of subdivisions, where many of the homes look similar from the outside, landscaping can set your home apart from a neighborhood of clones.

But the key to a profitable landscape is the design, so start with a plan. A poorly designed layout could end up costing you more time and money: without proper planning, that lovely deck you’ve laid may crack in next winter’s frost. So before you go running into the yard with your pick and shovel, get out your paper and pencil.

First consider what you want to use the area for. If you want to have an outdoor kitchen area or pool then your design will look quite different from someone looking for a vegetable garden or a private refuge. There are plenty of garden magazines on the market; study them to get a good idea of what you like and don’t like. Even if you aren’t planning on doing the whole yard now, plan what you’d like to see eventually. Otherwise you may find yourself ripping up this year’s hard work because it interferes with next year’s project.

Plan for your level of maintenance. Think about whether you want a garden that requires a lot of work or something a little easier to deal with. After you put all this work into the design you don’t want to watch it go to waste. If you don’t have time to maintain it yourself you might want to hire someone to take care of it for you, but look into those costs before you start planting.

Which brings us to the ever popular topic of budgets – it’s important to start out with an idea of how much you have to spend, because it’s easy to get carried away out there and there’s no shortage of lovely plants, features and furniture to sink your hard-earned cash into. Be realistic: you might not be able to put in both the pool and the outdoor kitchen this year, but you’ve got your plan. You know it’s coming.

The next step is to sketch out your yard. Divide it into sections and map out what you would like where. Call your utility company and map areas with underground wires and pipes. Identify areas that have special needs (drainage issues, acidic soil, shade and full sun). Next, add the feature that need to “landscaped”, like patios, fences, fountains, pools and walkways. Depending on the complexity of your design you may want to consider involving a professional, at least to look at your design. If you are undertaking any structural projects it might be wise to have the plans vetted by an engineer. In any case, consult local building codes and do your research. You want to ensure that your landscaping is appropriate for your particular location and climate concerns.

When deciding on plants, refer back to your sketch to match your greenery with its preferred light and soil conditions. Use marking paint or chalk to mark out planned features and bedding areas in your yard. This will give you a basic idea of whether your design works spatially. You may need to play with the width of the beds or paths to make the plan more visually appealing.

Before you plant, lay your plants out in their place and take a good look. Does the layout look crowded? Try to visualize the final size of the plant. Make sure you leave them enough room, even if your garden feels a little sparse to begin with. It’s better to have a little room between them now rather than ending up with some plants being overpowered by others when they are full-grown.

And now you’re ready to go! It may seem like a lot of work to get started, but a well planned design will ensure that you maximize your investment and create a beautiful space that you (or the next owners) will enjoy for years to come.

Pre-Approval Letter – How To Use It To Get Your Dream Home

When house hunting, many buyers make the mistake of waiting to contact a lender until after they have located their dream home. As a buyer, you will be in a much stronger position with a seller if you are pre-approved.

Pre-Approval Letter

To effectively house hunt, you must know the amount you can borrow from a lender. There is nothing worse than find your dream home, but failing to qualify for the amount you need for a loan. Avoid this by asking your lender to pull your credit information and to let you know what needs to be done to get a pre-approval letter. If you are going to have problems with getting a loan, it is better to know about it as early as possible.

Sometimes buyers resist contacting lenders because it’s not the enjoyable part of home buying and they’re afraid an extra credit check will reduce their credit score. This resistance is penny wise and pound foolish. Buyers who get their loan arrangements lined up at the beginning of the house buying process are really doing themselves a favor.

Much of the country is experiencing a hot, sellers’ market. It is not unusual for a seller to get more than one offer on the same day. If that happens to you, your pre-approved status can give you an edge over the competition. In fact, it can make a seller choose you over another bidder.

Presenting Your Letter to a Seller

When you tell the seller you want to buy their property, give them a copy of your pre-approval letter. They will probably recognize the value of the letter, but don’t depend on this assumption. Make sure the seller realizes the loan is already approved.

As you give the seller the letter, explain to them that you are serious about making the transaction go smoothly and, for that reason, you have already been through most of the loan application process. Point out that the lender has pulled your credit info and you’ve provided copies of W-2s, pay stubs, and all the other things the lender needed to decide that you do qualify for a loan. Tell the seller that the only remaining thing to do is to give the lender a copy of the contract that you and the seller sign, and the property needs to appraise for an appropriate amount.

Taking this approach puts you in a very strong position. The seller knows you are not just wishing; you are capable of buying his property. One of a seller’s worst nightmares is signing a contract with someone, taking his property off the market, wasting time and then finding out that the would-be buyer cannot get a loan. On the other hand, you and your pre-approval letter are dreams come true.

Put on your shining armor and get pre-approved by a lender. Once you have the letter in hand, get out there and find your dream home.