What Real Estate Investors Can Learn About Property Management, REOs, and Demographics

In this article, we want to consider three aspects connected with real estate investing that prudent real estate investors should be aware of and understand.Property ManagementHow involved will you become in managing your investment property?Many people make the mistake of not investing in real estate because they can’t stomach property management issues. It’s true. Some people do not engage in real estate investing because the idea of having to deal with tenants and property repairs seems too annoying.The good news for real estate investors, however, is that there are options that would allow real estate investors to become insulated from the day-to-day operations of a rental property. Here’s the key: Simply decide how involved you want to become in its operation before venturing into your real estate investment. Consider your options:a) You can handle everything yourself. You can deal with the tenants and repairs without relying upon others.b) You can hire a resident manager who lives in the building and takes care of all the minor, day-to-day problems that may arise. You are still in charge of renting apartments, collecting rents and paying bills.c) You can employ a professional property management company to handle the renting, bookkeeping, and management end of the property operation. You are then left with a management-free investment. This, of course, costs money and reduces your overall return but, depending on your individual situation, you can be as active or inactive in the day-to-day operation of your investment as you wish.Here’s the bottom line: Do not pass up real estate investing because you are too busy to take care of it yourself. There are property management options. Even after paying the cost of a full management team, your rewards from your real estate investment will still far exceed any of your other investments.How to Find Lender REOsIn desperate times, REO lenders often turn to mass marketing and highly advertised public auctions to unload their REOs, though no lender likes to publicize the fact that it’s “throwing down-on-their-luck families out of their homes.”Given the times we’re now in, you might be considering the purchase of an REO (Real Estate Owned) property and are not sure how to find them. You can find REOs in two ways:a) Follow Up on Foreclosure Sales – If you attend foreclosure auctions, make note of the lenders who cast a top bid for a property in which you’re interested. Afterward, contact the lender and express your interest in purchasing the REO property. Even if that particular property doesn’t work out, you at least open the door of communication with the lender and might be able to work out a deal on another REO.b) Locate Specialty Realtors – Many mortgage lenders often do not sell directly to REO investors because, as mentioned, they don’t like the unfavorable publicity, and they want to promote good relations with Realtors.As one part of your efforts to find REOs, cultivate relationships with Realtors who specialize in this market. In most cities, you can easily find REO specialists by looking through newspaper classified real estate ads. Once you identify several advertised foreclosure specialists, give each one a call and learn their backgrounds. For example, discover whether he or she only dabbles in the field of REOs and foreclosures, or do make this field their full-time business. The more skilled and experienced the real estate agent is with REO properties and foreclosures in general, the better.Real estate investors must remain proactive in this real estate market. There are good deals to be made, and interest rates are favorable. Be cautious; just don’t be lazy. Get out and beat the bushes so you can make a couple of good real estate investments while you can.A Word about DemographicsThe term demographics refers to population characteristics such as the income levels, occupations, education, ages, household size, household composition, and so on. This demographic data can be obtained from the U.S. Bureau of Census and commercial market research firms.On a local level, however, and even more important than current neighborhood demographics, real estate investors must learn who is moving into the area. For example, a good sign that there may be appreciation potential is when a historically lower-income area starts attracting middle or upper-middle-income younger residents, or when many residents in the area are moving from welfare to jobs.How do you learn about an area?First, get out of your car and talk with residents in the neighborhood. Talk with real estate agents, mortgage loan officers, retail merchants, schoolteachers, and others who might have firsthand knowledge about the area. Ask questions such as, whether they see the area changing, whether these changes are positive or negative, and what they like least and like most about the neighborhood. Then evaluate what you see and hear and form your own conclusions. If you researched the area correctly, you should be able to form an opinion about the area that helps you decide whether the people moving into the neighborhood are likely to push up home prices and rental rates, or causing it to deteriorate.

The Real Estate Home Buying Process

I am often asked by clients for a brief overview of the process of buying Real Estate so I figured it would be helpful to write a post outlining the steps of the Real Estate home buying process from beginning to end.Step 1: Find A Real Estate Agent – I firmly believe that smart, successful people surround themselves with smart, experienced experts that can help guide them to a well thought out decision. If you don’t buy and sell Real Estate every day all day for a living, how could you possibly understand the local Real Estate home buying process and all of the nuances and intricacies of the available inventory, purchase contract, title insurance and mortgage process? How could you possibly know what a good deal or a great deal looks like? You can’t! Get referrals from friends, use Google to search, go to open houses and keep looking until you find someone you feel has the experience, resume and personality to represent you and your interests. It costs the home buyer NOTHING and can save you a great deal of stress in the long run.Step 2: Get Preapproved – Getting a preapproval or prequalification should always be the very first step when preparing to purchase Real Estate, but not surprisingly most home buyers begin searching for homes before they really know what they can afford to spend. I made getting preapproved step 2 of the Real Estate home buying process only because many times the best lender recommendations will come from your real estate agent. The housing market crash has created an ever changing lending environment that is difficult for even full time real estate professionals to keep up with. Lending requirements change, PMI and MIP charges increase, loan limits increase and decrease, condos become unwarrantable and interest rates fluctuate every day. The only accurate way to have a realistic idea of your borrowing power is by getting preapproved by a reputable lender. Remember too that just because you can afford to spend a certain amount does not mean you have to spend that amount. Determine a monthly payment you are comfortable with and only look at homes with prices that fall into that monthly payment range.Step 3: Create A Hierarchy Of Needs and Wants – Most buyers of real estate are not sure what they ultimately want other than they know they want a great deal. Buyers should consider all of their needs and wants before looking at any homes. Items up for consideration are: price, monthly payment, beds/baths, square footage, outdoor space, school district, parking, location, walkability, floorplan and neighborhood. Be realistic about what you can afford and then determine what features are essential, and which would be nice but are not deal breakers. Be prepared to decide if you would rather have your dream home in your second or third favorite neighborhood or a nice home in your favorite neighborhood.Step 4: Searching For Real Estate – If you’re working with a local Real Estate agent he or she should be searching the MLS for new listings on a daily basis. You shouldn’t have to send properties to your agent; your agent should be emailing you properties. If you have a proactive, hands on personality and you want to be involved in the search process there are numerous local and national real estate websites that offer free access to the entire local MLS. Pay careful attention to all of the home’s details, not just the price. Variables like real estate taxes, condo fees, HOA fees, building maintenance fees (co-ops) and amenities like a pool, gym, and parking can affect affordability considerations and must be carefully compared between properties.Step 5: Submitting An Offer – Submitting an offer can seem intimidating, especially to first time home buyers, but if done correctly there is little risk involved. Most standard agreements of sale includes contingencies that allow the buyer to terminate a signed purchase contract without penalty under certain circumstances. The usual contingencies are for a mortgage, inspections, and an appraisal but there many others that can be included to protect the buyer if needed. If you need to sell a home before making a purchase let your agent know that you will need a home sale contingency. Be open and honest with your real estate agent so he or she can make sure you are 100% protected by the purchase agreement. Research relevant comparable home sales and try to determine a fair price range to pay for the home. Find out what the average asking price to sale price ratio in the home’s neighborhood has been for the past 3-6 months and make sure your initial offer makes sense. Finally, try to make your offer as appealing to the Seller as possible without compromising any of your interests or goals.Step 6: Accepted Offer – Time to celebrate right? Wrong!Getting your offer accepted is the beginning of the due diligence process, not the end. The contingency periods allow you to inspect the home, shop around for mortgages and perform all of your due diligence on the home. Make sure that the home and all of its systems are in the condition they appear to be. Talk to two or three reputable lenders and make sure you can obtain a loan with an interest rate and fees that you can afford. Contact an insurance company and get quotes for home owner’s insurance and a title insurance company to order title insurance. The lender you select will hire an appraiser to perform an appraisal of the property. Your real estate agent is responsible for overseeing the transaction, coordinating with the lender, the title insurance company, the homeowner’s insurance company and providing any recommendations you need along the way.Step 7: Settlement – If your Real Estate Agent has done his job well settlement will be a fun and relaxed atmosphere. Prior to settlement you should perform a pre-settlement walk through to make sure the home is in the same condition as when you signed the purchase contract. Make sure all agreed upon repairs were completed and that there is no new damage to the property. Prior to settlement you should also contact the utility companies that provide electric, gas, and cable/internet. The title company may handle the transfer of water and sewer. All you will need to bring to settlement is a check for the amount needed at closing and your state issued identification. Once all the paperwork is signed you can relax and celebrate. Now you are officially a home owner!