My Real Estate Tips

Owner financing is often attractive because it doesn’t appear to have the hassle involved with endless credit checks and personal employment and resource verifications.  It’s difficult to qualify for a home or commercial property loan if you are self employed or if you don’t have a verifiable employment history of at least 24 months.  If your credit score (FICO) is below 620 and you have a few glitches on your credit history it will be difficult to qualify for a property loan these days without doing some credit repair work.  So, owner financing becomes an attractive option.

If you are interested in owner financed real estate, you should be aware that there could be some pitfalls when securing owner financing.  Owner financing is often offered on properties that would be difficult to market with conventional financing, therefore as an incentive to buy they are offered with owner financing.  It doesn’t mean that the property is automatically no good, just that you should be cautiously aware of the reason owner financing is being offered and should check out the property carefully. 

There are some positive reason why owner financing can be a good alternative for both sellers and buyers.  For sellers who own their property outright, it may be much more profitable to carry the mortgage on the property they sell than to take cash from third party financing.  With the stock market still unstable, with limited and risky returns on investment and savings accounts, and certificate of deposit interest rates very low, a real estate backed mortgage with a decent rate of return of 6 or 7 % (and even higher on some owner financed transactions) looks pretty good. 

So, the owners get a return that’s often better than placing their money in stocks or savings accounts.   For buyers it should be easier to qualify for owner financing and loan process should be less time consuming. 

If you are offered owner financing, insist on receiving a title policy on the property involved, it can be paid for by the seller or buyer, but more often than not it is furnished by the seller to guarantee his title.  Be sure the financing offered contains a mortgage and deed of trust, with favorable terms on the note.  Get a fixed rate of interest and a term (length of loan) long enough to have affordable payments. 

I don’t recommend a transaction known as “contract for deed”.  These transactions are full of problems and are even illegal in some states.  This transaction is where the deed is not transferred to the buyer until he completely pays off the loan (contract).  Too many things can happen that are harmful to the buyer on these property transactions.  An example would be, the property could already have a loan to the seller attached to it.  That loan may be foreclosed on and the property claimed by the seller’s lender.  This could be the seller’s original purchase loan or even an equity loan for home improvement.  The property also could be taken by the IRS for the seller’s tax debt.  In other words, with a “contract for deed” you could make payments on a property for years and still lose it through no fault of your own. 

So be very careful when you consider owner financing.  Owner financing may be the perfect solution for you or it could be a real nightmare if you are not careful.  Proceed with caution.

Tweet This Post 

A bird dog is a hunter’s best friend.  I had a friend in my youth, Jerry Don, whose daddy owned a squirrel dog, Boots.  Jerry Don with his .22 and I with an old .410 would often visit the woods across the road from our family’s weekend farm house to hunt. 

One day the preacher’s wife from the local church offered to make squirrel gumbo the next weekend if we two boys would provide the squirrels.  We were both concerned about being good enough hunters to provide squirrels for a gumbo that would feed a whole church congregation, but Jerry Don’s dad said “take old Boots and you’ll do fine.”  Well, we need not have worried, as soon as we entered the woods Boots set to work.

Round and round the old trees he ran, dodging in and out of sight, as we hurried along trying to keep up.  All a sudden, he began to bark and circle a single tree.  High up in the branches Jerry Don spotted the swish of a tail just as our prey moved to the backside of the tree trunk.  Well, that scene played out over and over that day and it wasn’t long at all before we had a bag full to take to the preacher’s house. 

With old Boots along, we were able to do in several hours what would have taken us several days to accomplish.  We were good weekend hunters, but were no match for Boots, who spent his life in those woods, learning and understanding all the secrets within.

If you want to save a lot of time and expense when looking for great real estate properties to invest in, you’ve got to get yourself a good bird dog.  In real estate that would be, and no disrespect intended, an experienced, licensed real estate agent or broker.  

These people are trained professionals who spend all day, every day, looking at and thinking about real estate properties.  They have tools in their offices that allow them to complete market comparable property studies in minutes, that would take you days to accomplish, and many have software programs that will help you analyze investment income properties.  They often can help you make contact with craftsmen for building repairs, improvements and inspections.

You will also find them knowledgable on financial issues, and they often know of resources you might not be exposed to.  Their knowledge, training and expertise, if used just once, can save you from making mistakes that could cost you thousands of dollars.  Their service to you is often free, as they make a living from commissions, which means they have strong incentives to help you become a successful investor.  

However, even old Boots got a treat now and then for helping us that day long ago.  Be sure and reward your “Bird Dogs” for their help and loyalty to you by making your investment purchases through them.  Then they know that if they can help you make money by finding you good investments, you will be back and maybe even tell your friends that they helped you. 

Well, that’s my tip of the day, use it and you will save both time and money investing in real estate.

Tweet This Post 

According to CNN and Freddie Mac, recently residential mortgage loan rates have fallen to a 38 year low.  That’s really great, now that property values have fallen to a more realistic level it finally looks like a good time to buy property.  These rates don’t directly apply to all types of Real Estate of course, commercial, land (both rural and city), and multifamily rates will be different, but generally speaking all the rates seem to be coming down. 

Those of you who are interested in getting into a home for the first time, there are wonderful new programs that will assist you with your down payment and allow up to 6% of your closing cost to be paid by the seller (which many are happy to do).  6% should cover almost all your cost of closing including some prepaid items like taxes and insurance.  Check out these new programs.

For those of you who took a beating and bruising in the stock market, you can use principals you learned there and make some, if not all, of those losses back using leverage (see my articles “Investing in Income Producting Properties, Part One and Part Two” in the Archives).  I think there is an excellent opportunity these days for the person who is looking for an investment and who wants to get a place to live at the same time.  FHA has a program where you can buy up to four rental units (total loan can’t exceed $289,000).  As long as you plan to occupy one of the units yourself your down payment can be as low as 3-1/2%.  On $289,000 that’s only about ten thousand dollars.  It gets even better; the seller is allowed to pay your closing costs up to 6% on this one too.  Even better, you can use the income on the other three units, assuming you buy a fourplex, to be part of your qualifying income for the loan.

Buying properties that need repair and fixing them up is not only fun and can get your creative juices flowing, it’s a better than ever business to look at today.  If you have basic handyman or woman skills you can get some real buys in these properties.  Whether you buy them out of foreclosure or from people who don’t have the time, knowledge, or inclination to see a property restored through completion, those skills of yours are worth big bucks today.  There is more of this type of property on the market now than ever before.  For guidance in this kind of investing activity look at Fast fixer-upper profits. 

There are good opportunities to build income in Real Estate today more than ever before, because of this economic crisis.  Don’t sit on the sidelines and be caught ten years from now looking back and saying I wish I had gotten into Real Estate ten years ago when every thing was cheaper and available.  Get out there and find one of these opportunities that will work for you.  Be cautious and examine these programs before you get involved, we are not making guarantees here, just encouraging you to see if there is a Real Estate opportunity that can bring success to you in what looks like an environment full of opportunity.

Tweet This Post 

                    (Subtitle:  You May Be a Veteran! )

…under starry skies above, the answer to your dream of owning property could be just around the corner.  Would you believe, there are Veterans who don’t even know they are Veterans.  Yes, in Texas and a few other states (Alaska, California, Oregon, and Wisconsin) there are Veteran’s programs that have less restrictive requirements to qualifying as a Veteran, and there are many qualified ex-Reservists and Guardsmen/women who are not aware that they are qualified for state Veteran’s programs. 

In Texas, for example, as long as you have reasonably good credit, all you need to qualify for Land loans or Home mortgages and even Home Improvement Loans under the Veteran’s programs is having spent at least 90 days active duty, and even that can be cumulative.  So all those summers you spent training instead of vacationing with your family and friends, well they count, too.  You can just add them together and if they total 90 days, you are in!  As far as I know, Texas is the only state that has a Land loan program, but the other states I mentioned above do have extended Veteran’s programs of their own.  Check it out, there may be a program that will help you.

I’m sure that if you’ve considered buying land, you’ve encountered some difficulty finding financing.  The Texas Veteran’s Land loan program offers 95% financing and a 30-year fixed rate of 7.25% interest, plus you can make your application on-line.  There is a 1 acre minimum in size and $80,000 maximum loan.  If you check around you will find that this is great!!  Consider the possibilities.  Let’s say you find a city property, a commercial lot, or a group of smaller lots zoned multifamily that in size add up to 43,560 square feet (an acre) — you can buy it with a Texas land loan.  That wonderful 1 acre lake view lot at your favorite recreation lake — it is within reach.  Or you can buy a few acres in the country, it’s left to your imagination.

If you qualify for a Texas Veteran’s Land loan you are also eligible for other programs as well.  Other state programs you probably don’t know about include Home Improvement loans.  You can borrow up to $25,000 to make improvements to your home, there are some restrictions on the type of projects that are accepted but the financing is FHA insured and for 20 years at a reasonable fixed rate.  There is another loan type that fills a niche where no funds are usually available from lenders, and that’s loans for homes under $50,000.  The Texas Veteran’s Land Bank will make direct home loans to those who qualify for homes up to $45,000.  There are still many small rural towns in Texas where you can find a home for sale under $45,000 and now financing is available under the Texas Veteran’s program.  They also underwrite loans for 1 to 4 family residential properties up to $325,000.  You could buy a duplex or even a fourplex as long as you occupied one of the units, and pay up to $325,000 with only 5% down under this program. 

So you can see, if you were in the Reserves or National Guard, you may, if you live in Texas, be considered a Veteran and be qualified for a great loan.  It’s worth your time to check it out.  In Texas go to:  http://www.glo.state.tx.us/vlb/ – and if you’re in other states, check your state’s veterans sites for their programs.

Tweet This Post 

And I don’t mean the world’s going down in flames, many of the real estate investors I know have a gleam in their eyes that I haven’t seen in years.  These guys are swimming in optimism and believe there are opportunities of a lifetime out there, on the market NOW.  

Texas, where I reside, was not hit with an escalation in real estate values that roared like in some states, Arizona, California, and a few others I could name and most of the East Coast .  Yes, we did experience strong appreciation in the 90’s and early 2000’s, but not runaway appreciation  Prices are dropping now, but haven’t dropped nearly as much as in those areas.  Even here there are Commercial, Industrial, Retail, and Residential properties being sold today at bargain prices. 

I am NOT in any way suggesting you or anyone else take advantage of people facing foreclosure.  What is happening in the economy is affecting real people’s lives, too often we see investing as just numbers.  You don’t need to do that to make money.  If you are a regular reader and have read my pieces “Facing Foreclosure” and ” Avoiding Foreclosure” you will understand I want to help these people save their homes and investments.  However, the real estate market IS cyclical and I can’t do anything about that. 

There is a market “correction” in progress now, much like a stock market correction.  The rules of investing haven’t changed, “buy low and sell high” is still an important principal, and market conditions RIGHT NOW allow you to buy very good real estate properties at reasonable prices and make money. 

CASH FLOW is possible again with rent rolls exploding.  EQUITY building is possible and APPRECIATION is on the horizon with inflation just around the corner.  All of these things indicate it’s time to invest in real estate right NOW.

So get off your duff and get out there, if you were not aware of what is happening WAKE UP!  What you have dreamed of for years is happening now.  All this does not mean you can’t make mistakes and lose money, that hasn’t changed either.  You still have to do your homework and run the numbers.  There are some great software programs on the web now that make income property number crunching a breeze,  take advantage of them.

Real Estate financing has tightened up some, but there are still lenders willing to help you finance a good project if you have good credit and a good track record.  Fannie Mae has loosened their rules regarding the number of properties (residential) an investor can finance, it has been changed to 10 maximum from 4.  You still need to invest about 20% down and have reserves, but you can now handle more properties.  If you are just starting out, see my article titled “Live Rent Free”, It’s a great way to get started investing in real estate.

Find yourself one or more good realtors and tell them what you are looking for, let them be your scouts, they do this for a living.  If you look around you can find some really good realtors, especially now that the market downturns have weeded out the loafers.  They can save you hours, days and months in time and money by doing research for you.  Another good thing about working with realtors is YOU NEED OTHER VIEWPOINTS.  It’s easy to overlook hidden problems, and most real estate professionals will help you uncover problems so you can resolve them going in and not let them surprise you when it’s too late. 

If you find a good realtor they will work overtime for you without you paying them a dime, as long as you are loyal to them.  If they can help you make money,  they will make money, too, that’s the way it works.  So — get out there and find yourself some good deals and help yourself, the market and in the long run your country.  Good Hunting!

Tweet This Post 

You want to buy a foreclosure, but after looking at many you’ve found that there are severe condition issues.  By the time a home is foreclosed on, more often then not, the property is in less than poor condition.  Many of these homes were left abandoned after receiving the final foreclosure notice and thieves arrived shortly there after and stripped the home of any valuable items which usually include any accessible copper piping or wiring, all kitchen appliances and often cabinets, bathroom fixtures and all lighting fixtures.  Plus the heating unit and air conditioner compressor are always targets. 

Often a foreclosed home hasn’t been maintained because the owners were in dire straights financially for sometime before they lost their home and didn’t take good care of it.  So, the roof probably leaks, and if the home has been through a winter or at least one hard freeze unoccupied, some of the pipes froze and broke.  Now that winter is over and the pipes have  thawed, you turn the water on and find the breaks, or if you are not there the water running down the sidewalk from under the front door will let the neighbors know.  As you can see, buying a foreclosure because it’s a good price is risky, especially if you don’t have a lot of cash reserves.

Well, worry not, Uncle Sam can help you out.  He can even make buying a run down property kind of fun.  FHA has a program called a streamlined loan.  It’s an FHA (k) residential loan.  Right now there is a loan limit of $289,000 for the cost of the home and any repairs or improvements.

So here’s what you do if you have been or are considering any foreclosed homes, or any home that needs improvement before you close and move in.  Contact your mortgage loan officer or broker and tell him you are considering purchasing a home that may need some improvement and you would like to get the improvements included in your loan.  Tell him that you would like to get pre-qualified for the FHA Streamlined (k) loan program.  He will be able to take your application (often you can do this over the phone).  After checking your credit, FICA scores, and income qualification he will be able to tell you the maximum loan under that program that you can qualify for.  You will then be able to buy (contract for) your home and get the improvements done before you close the loan. 

The maximum amount of repairs is $35,000 and you only have 30 days to get the work done.  Your loan officer or broker can give you the details on disbursement of funds for payment to your contractor.  Once you are qualified you are ready to go and look at all the properties you want.  You can now buy the home, put down a normal down payment, usually 3-½% on an FHA loan.

Now this program is NOT designed for those of you who want to REBUILD the house, requiring architects and/or engineers, this program is there to help you do repairs, rehabilitation and/or improvements.  Just remember there is a limit of $35,000 and that the cost is added to your loan.  You can upgrade kitchens and baths, refurbish the floors and walls, even install a patio cover AND they will loan you the money to do it.   

Tweet This Post 

Getting a new mortgage loan today can be confusing.  Contrary to what you often see on the news lately, there are plenty of mortgage loans available.  In fact, there are too many to completely cover here.  My aim is to pull back the curtain and give you information on the programs I think are some of the best available.

VA — Still a great program, designed for the veteran.  It’s the one place a veteran can get a home loan up to $729,000 at a reasonable interest rate and 0% that’s ZERO PER CENT down payment.  There are no PMI charges required as there are on FHA and Conventional loans of more than 80%.  There are less strict credit qualification standards for veterans and lower income requirements.  The loans have no prepayment penalties.  In Texas and a few other states, there are also veteran’s programs (that include National Guard and Army Reserve members) for purchases of land and homes with loans insured by the state. 

FHA — For the non-veteran, FHA is still the best, offering a 30 year fixed mortgage with a 3-½% down payment plus 1.75% PMI up front, or 5.25% total down.  They allow the seller to absorb 6% of your closing costs and some prepaid items, so if you are a good negotiator, it’s possible to get into a home for no more than 5.25% of the sale price.  FHA loan limits aren’t as high as VA but are still substantial at $289,000.  They are a little more relaxed on credit requirements than on conventional loans.  If you put a little more down, like 10%, you can avoid the up front 1.75% PMI charge.  They will also allow you to receive a gift of the cash involved from a blood relative, your employer and some charitable agencies.

FHA (k) — This is their new “streamlined” loan program.  It has all the same basics of a regular FHA loan plus you can add up to $35,000 in home rehabilitation or remodeling costs to your loan as long as the work is completed with in 30 days.  The maximum loan though is still $289,000 including the repairs and improvements.  This program is great for buying damaged foreclosed homes.

CONVENTIONAL — There are way too many conventional loan programs to cover here, but if you have the time and can find a good independent loan broker, he will take your qualifying information and comb through the many programs offered and give you a synopsis of the ones that best suit your needs.  I’ll be giving some tips on finding a good loan broker in a future article. 

INCENTIVES — Don’t forget about the tax credit.  This is a credit for new home buyers (someone who hasn’t owned a home in 3 years). The incentive under the Bush package was $7500 tax credit for buying a home and it had to be paid back in payments over 7 years.  Under the new stimulus program that was changed to $8,000 and you don’t have to pay it back.  That means whatever you normally pay in taxes for the next year after you buy a home you get the first $8,000 of it back. 

Don’t be discouraged by what you hear on the news, good loan programs are out there, and now is a very good time to buy a home. 

Tweet This Post 

This very nice lady had purchased a large vacant lot, about an acre as I recall.  She said that the prospectus described the property as being located next to the “Mall” in Ladonia.  She had bid a few thousand dollars for the property and had won her bid.  She asked if I could check it out and possibly list the property locally for sale.  She was sure she would be in for HUGE profits, AN ACRE LOT NEXT TO THE MALL!!!!   Well I reckon so!   From the prospective of someone living in Southern California a few thousand dollars was DIRT CHEAP. 

Ladonia is a wonderful small Texas town about 80 miles northeast of Dallas, according to Google, Ladonia’s population in 2000 was 677, and it’s probably not more than a thousand today.  I told the lady that I would be up that way in a few days showing some ranch land to an area cattleman and I would try to look at the property while I was there.  Several days later I was ready to start in that direction, so I pulled the basic information on the property off the Ladonia tax roll, which showed the tax value, I think it was probably somewhere near what she had paid for the property, but don’t hold me to it, it has been a year ago.  After driving around Ladonia, I finally found the lot.

The property was an overgrown lot on the north side of town a few blocks from the local bait (fish) shop and convenience store, which is the closest thing to a Ladonia Mall.  There was an old derelict mobile home on it, which I’m sure made it worth more in the tax evaluation because it was considered improved property.  Comparable property for sale had not sold, even for less than a thousand (ONE THOUSAND) dollars.  However, now that the property has a new owner, the city’s volunteer fire department will have someone to fine if the brush and weeds there are not maintained throughout the year.  Also the old unlocked trailer is an open invitation to druggies.  (Yes, we have them in Texas, too!)

 After I returned to the office I phoned the lady with the unexpected news.  This lady had become a victim and over paid for a real estate property in another state, she now owns it and is responsible for it.  She had a frame of property value reference, based on her knowledge of her own market location, where real estate values had been escalating for years.  I’m sure, even today, that a lot next to the Mall in most towns in Southern California was and would be worth a lot of money, but not in Ladonia, Texas (even if there WAS a Mall).  It’s a lovely little Texas town, but it’s a far different location, and a totally different market.

This story brings to mind all those old saying’s like “Don’t buy a pig in a poke” or “You can’t make a silk purse out of a sow’s ear.”  Here is mine — “ DON”T BUY REAL ESTATE WITHOUT CAREFULLY CHECKING IT OUT FIRST. “  There are many real estate professionals who will be glad to help you research for free.  Most are happy to help you research properties because they’re assuming, if you ever want to purchase or sell real estate, you will remember them as someone who helped you and will contact them again, and I hope you will.  “One good turn deserves another.” 

Tweet This Post 

How to Live Rent Free – If you have good credit, and that’s a credit score of 700 or above, there is a really neat program you need to know about.  The FHA has a program that allows you to buy rental property as long as you live in one of the rental units yourself.  If you work it right, you not only can live there rent free, it will pay you extra money to cover other expenses.  Here’s how it works — you can buy up to at least $289,000 in rental property with this program.  So, let’s say you find a really great four-plex (a building with 4 rental units) in good condition and not too old, with the plumbing and electrical in good shape.  It costs $289,000.

Building (4-plex) cost       $289,000     

Down Pmt approx. 3.5%   $ 10,200

Loan amount                    $278,800

@6% for 30 years Pmt is            $1671.55 per month

Closing costs Approx. 6% paid by seller (negotiated by you)

Three of the units are leased for $1000 per month each with a total income of $3000 per month.

NOW, after you close and own the property you collect $1000 per month from each tenant, a total of $3000 every month as long as all your units stay rented.  That gives you enough money to make the payment plus pay for your property taxes and property insurance, with maybe a little left over to spend on yourself or use in a maintenance fund for future repairs.  IT GETS EVEN BETTER!!!

Hidden Bonus – When qualifying to get your loan to buy this property, 75% of the Income on the leased units can be added to your income in figuring out if you qualify with enough income to buy the property, even though you don’t own the property yet.  That’s $27,000 that can be added to your real income per year to count as qualifying income.

Another Hidden Bonus  – If you are a first time home buyer (my understanding of the definition is, you haven’t owned a home in the last three years), you will qualify for a tax credit of $7500.  Now you need to confirm this with your lender and a CPA but this is what it means. You will be getting an interest free loan for fifteen years on $7500. Example:  If you owed and paid $7500 or more in income taxes the year you buy and it was deducted from your payroll check, it’s ALL REFUNDED TO YOU!!!.  What you do with it is up to you.  You do have to pay the money back in $500 payments added to your taxes each year for 15 years — so basically it’s an interest free loan to you for 15 years.  You could even give back 75% of the money your family or friends gave you for a down payment. 

Go to Annual Credit Report.com, the central site established by the three main credit bureaus where you can order one free credit report per year from each credit rating bureau, Equifax, Experian, and TransUnion.  We highly recommend that everyone take advantage of this free government-mandated program.  If your score is not as high as you’d like, The Attorney’s Guide to Credit Repair can help you with tips and legal methods to improve your score.    Click Here! 

Tweet This Post 

It gets even better, so let’s take a closer look.  Now that you have bought the property you have to pay for it, usually by the month, and there are expenses.  By choosing your property wisely in the beginning, the monthly income from rentals should pay the payments, taxes, insurance, and maintenance of the property and provide cash flow (additional profit).  If it doesn’t, you are paying too much for the property and with the downturn of real estate values it should be easer to negotiate a price that will allow you to meet your goals.  If your personal situation permits it you should, with Government programs like VA and FHA, be able to increase your returns far beyond 12%.  FHA financing is available for a four unit apartment building if the buyer is planning to live in one of the units.  This allows you to leverage up to $280,000 in real estate for less than $10,000 down and allows you to get the seller to pay the closing costs for you up to 6%.  It also allows the property to be financed up to 30 years, which gives you lower payments and more cash flow.  NOW let’s look at that return on investment.  3% of the $280,000 you control is $8,400 a year and an 84% return on your $10,000 investment.    

Tweet This Post