What Makes a Good Rental Property?

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What makes a good or great rental property is a personal decision. It depends on the types of tenants you want to deal with. The vacancy rate you’re willing to deal with (which can include vandalism and other property crimes). The amount of profit you want to earn on your investment. And a host of other questions or issues that you need to be knowledgeable about before making a long term investment.

Where to Find Neighborhood Information

As an investor, you’re best off doing your own research of neighborhoods before investing. The type of information you want to learn includes:

Property taxes – from your local tax assessment office.

School quality – state and local superintendent of schools

Crime – local police departments

Employment – U.S. Bureau of Labor Statistics

Amenities – visit the neighborhood and take notice of parks, malls, gyms, movie theaters, public transport hubs, and all the other amenities. Future developments and building permits – municipal planning department.

Real estate listings and vacancies – local real estate and property management companies.

Rents – property management companies, advertisements, door-to-door survey.

One very good source of information is visiting neighborhoods during evening hours and on weekends when people are home from work. Talk to people working in their yards and walking dogs. Try to find renters in the neighborhood. Renters are more likely to give you the most realistic opinion of the neighborhood because they don’t have a financial investment. Once you have a significant interest in a specific neighborhood, visit it on different days of the week and different times of the day to gain real knowledge of what goes on at different times.

Understanding Income Levels

In my personal opinion, I favor rentals in urban settings that have a dense population of working class people. Neighborhoods with a mix of rental properties and homeowners. These are often a short distance from inner city war zones where gangsters rule instead of the police, vandalism is high, and the unemployed can’t make the rent payment. Don’t get me wrong, I certainly don’t recommend investing in these war zones. However, adjacent or a short distant from them is where you often find neighborhoods that are a mix of rentals and homeowners where blue collar workers take care of homes and work with police to keep the crime level down.

Of course, income levels across the U.S. vary significantly from region to region and state to state but the most recent Census Bureau numbers show the national medium income at $51,324. Other statistics show that households earning above the income medium have a home ownership rate of 79.5% and those earning below the medium income have a home ownership rate of 49.8%. What this implies is that neighborhoods with average incomes slightly below the national average are going to be a good mix of rentals and homeowners.

Finding the Right Mix

Each city has good cities and towns. Each city and town has good neighborhoods. And many neighborhoods have good rental properties. The secret to a good rental investment is doing the research to make all three characteristics line up. Successful real estate investing doesn’t start with buying just any old property that is currently available. It begins with deep research to find the best rental neighborhood you can and then finding or waiting for the best property to come on the market.

Tax Lien Investing Pros and Cons

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Tax lien investing has long been a popular method of investing in real estate but it should not be taken lightly. Although potential returns are huge, so are the risks.

Approximately $425 billion in state and local real estate property taxes are owed across the U.S. each year. Of that, about $6 billion goes delinquent. In 28 states, Washington, D.C., Puerto Rico, and the U.S. Virgin Islands these delinquent taxes allowed to be sold to private investors. The reward to investors is the chance to collect the delinquent tax, a penalty, and interest. Depending on the state, the accumulative return on investment can range between 12% and 36%. If the taxes and penalties remain unpaid, the investor can potentially end up owning the property through foreclosure but regulations for this vary greatly from state to state.

Pros to Tax Lien Investing Tax lien laws vary greatly from state to state and you absolutely must understand the laws in the state and even the county before investing. Basically, a lien is placed against a property when the owner fails to pay the property tax. Counties are highly dependant on property taxes to deliver the services people depend on. To maintain a reliable income stream from property taxes, many counties sell these liens to investors. These liens carry a high interest rate that then becomes owed to the investor. That’s on the pro side of tax lien investing.

How long property owners have to pay the delinquent taxes varies across the county from six months to three years. Also, the final solution to collecting the taxes varies. Some states allow the lien holder to foreclose on the property. Taking ownership can be attractive to investors if the property is significantly more valuable that what was paid for the tax lien. Other states auction the property and repay the investor for the back taxes plus the interest owed.

But there can be serious cons to this…

Cons to Tax Lien Investing

The biggest risk when paying someone else’s property taxes is the property owner could very well be going into or already be in bankruptcy. You might think that’s no big deal since the property can be auctioned. However, people in bankruptcy typically also owe IRS taxes. The IRS will place its own lien on the property and IRS liens override all other liens. If the property doesn’t sell for more than what is owed to the IRS the investor ends up with nothing and a loss on the back taxes he or she paid.

Also, consider why an owner might not being paying the property taxes. The value of the property may be significantly less than it once was. The owner may have been trying to sell the property for months or even years. The property simply will not sell or is worth less than what is owed on the mortgage, so the owner stops paying taxes and allows the property to go into foreclosure. If this is the case, the probability of the investor recovering the tax lien is not realistic.

Tax liens are auctioned off. Reality is there is stiff competition for these liens. These auctions are handled differently in different states and counties. At some auctions, you bid the amount of taxes you’re willing to pay and at others you bid down the interest rate you’re willing to take. Any interest owed that you don’t get, the county receives instead.

Other risks include other liens on the property or a clouded title. While investing in tax liens can be very lucrative, be sure you fully understand the downside before handing over your investment money. Tax lien investing can be very lucrative but you absolutely must understand the local regulations. Successful investors tend to specialize in specific states and counties or at least in states and counties with similar regulations.

Confused By Interior Design? These Tips Can Help For Your Rented Homes!

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Have you ever visited a stunning home and wondered what their secret was? Here's the answer: good interior design. When you put extra effort into decorating your home, you can make a once drab property look absolutely fabulous. Read on to find out what you can do to make your home look better than ever.

Use lamps. Aside from simply looking nice around the house, lamps are a great way to create a relaxing atmosphere around your home. They are better at lending to a desirable ambiance than the harsh light of an overhead fixture. Lamps can also save you quite a bit on your electricity bill.

Use mirrors when decorating your home. Mirrors can be very handy, especially if you live in a small space. A mirror on one or two walls isn't just convenient for fixing your hair on the go. They can also give the illusion of more space. One strategically placed mirror can do wonders for opening up a room.

A great interior-design tip is to start checking out design magazines. There are many magazines out there that will teach you all about how to design your home and garden, and they'll even provide you lots of tips. They'll also keep you up to date on all the latest style trends.

Take the time to work out the amount of money you are able to put out on a interior design project. It feels awful to get halfway through a project and find out that your funds have dried up. A budget will help reduce stress throughout the process.

Once you've mastered the art of interior design, refreshing a room will be a breeze. Good interior design skills can even save you money. While some people may spend thousands on costly renovations, you can figure out how to fix the room up on a budget. Hopefully, these tips will help you become a great interior designer.

How to Find a Home You Can Afford

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Even in our post-recession world, purchasing their own home remains a dream for many people. Whether you are a young professional, part of a new family, or an empty-nester, the desire for permanence, peace of mind, and independence can be extremely motivating, in part because almost everyone considers these factors important for having a good quality of life.

When searching for a home, whether for the first time or not, many would-be homeowners finding themselves wondering: what kind of home can I afford and how do I find one that is affordable on my budget?

Determining Your Budget

This is a crucial step in the home buying process. You must take an objective look at your finances to understand how much you can afford to spend on creating your place of familial joy or solitary repose. For many people, this isn’t an easy question to answer. It requires serious consideration of debts, bills, and earnings that can be uncomfortable or even depressing, depending on circumstances. Because of this, people often choose to spend time with a financial adviser, loan officer, or other professional to get an accurate picture of their finances and potential budget for a new home purchase. In the end, however, you should have a figure in mind in terms of the monthly payment you can afford.

Remember that the payment includes more than just the principal and interest associated with the home loan. You will also be paying property taxes, homeowner’s insurance, and possibly mortgage insurance, making the payment higher than you may initially realize. But first your must find that special home and then find ways to take these additional expenditures into account.

Finding an Affordable Home

In recent years, some of the best real estate deals have been on foreclosures, which are homes that are sold by the bank that holds the mortgage, usually due to non-payment by the owner. Sometimes, homes may be sold at auction by the state/city due to non-payment of property or other taxes. Foreclosures are generally sold well below market value, primarily to prevent the bank or other interested parties from losing even more money on the property. Lists of foreclosures can be found online or sometimes in local newspapers.

Short sales are a similar phenomenon; however, the list price of the home may be higher than a foreclosure. Keep in mind that many of these homes are not necessarily in good condition and may need work, either cosmetic or structural, to make the home livable or nice inside. If you chose to purchase such   home, a property inspection beforehand can save you much potential heartache. Replacing a roof, for example, generally costs thousands. Mold remediation is likewise expensive, not to mention hazardous.

Homes for sale by-owner are likely to be affordable; however, the transaction itself can be much more difficult without having professional assistance working on behalf of both parties.

Streamlining Expenses

Closing costs can be one major expense. Ideally, the seller should pay the majority of these costs. To avoid surprises, be certain to understand fully what expenses are your responsibility and which ones should not be. High closing costs can represent a serious expense that could be unnecessary or at least negotiable.

The same goes for insurance. It is entirely possible to overpay for a policy that does not provide any additional benefits to the homeowner. You should get quotes from several insurance companies prior to choosing a policy. Do not skimp on coverage! Just make an attempt at getting what you need for an affordable rate through comparison shopping.

Conclusion

Remember, that a larger home isn’t always the better home. Budget for what you need, not your necessarily your dream home. That may come later. Consider foreclosures and short sales, but also try to get whatever savings you can at closing. You should definitely shop around for not just the loan, but for insurance products as well.

Mortgages for the Self Employed

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There are benefits to being self-employed. Not having to answer to a boss is a big one, as is being able to set your own work hours. However, when it comes to qualifying for a mortgage, being self-employed has drawbacks. The “stated income” loan application was originally intended to help the self-employed qualify for a traditional loan. However, leading up to the height of the real estate bubble, so many people abused this method that it has been discontinued by all traditional lenders and some private lenders.

Here’s How the Self Employed Qualify for a Mortgage

You need to prove your income using your tax returns. There are two typical problems this causes the self-employed. First, most self-employed maximize their expenses on their income tax returns to minimize the taxes they pay. That means they show the lowest amount of income possible. Second, the process requires that the two most recent tax years be averaged to determine your stable income. Due to the slow recovery of the economy, previous year incomes were likely low and will bring your income average down compared to what you are currently earning.

Stated income loans are making a small come back on the secondary private lending market but only for the most qualified borrowers. Those with a credit rating of 720 or higher. You’ll also likely need a 30% down payment and have to have six months of financial reserves available to cover all monthly obligations.

Showing Income From Your Tax Return

Your more likely option is showing income from your tax returns. Self employed loan applicants have to complete and submit Form 4506-T to the IRS. This form authorizes lenders to access your tax records. The lenders must receive the tax records directly from the IRS rather than a copy from you.

It’s not unusual for the self-employed to report $90,000 in income but have $80,000 in expenses (or something similar). Of course, at the bottom line, this means only $10,000 of adjusted income is being shown. You’re not at all likely to be given a mortgage if that’s what your tax return is showing.

However, all is not lost if you can show an unusual expense such as a one time purchase of equipment or something else that will help you earn more income going forward. You might also still qualify if you can show a one time loss that is unlikely to happen again.

Other Options

The bottom line is that in today’s economy, the self-employed need to decide if avoiding taxes is more important than qualifying for a larger mortgage. You also need to plan at least two years in advance so that you can qualify under the two year averaging requirement. Your best first step is speaking with a qualified loan officer who can help you understand your options based on your personal financial situation.

You may also want to contact a community lender that holds their loans in their own portfolio instead of selling them to Fannie Mae or Freddie Mac. These lenders have more flexibility in how they qualify borrowers. The last option is searching the internet for private lenders. There are more out there than you are probably aware of. Individuals that have given up making a decent return from the stock markets are using retirement accounts to make personal loans. However, these private lenders charge interest rates north of 10% to compensate for the perceived increased risk.