I’ve had numerous conversations with entrepreneurs lately who have come to the conclusion that they need to start diversifying their business profits into more than just a savings account. If this is you – pay close attention.
Being a real estate investor isn’t always glamorous but it is one of the best ways to build wealth over the long-haul, especially for the entrepreneurial-minded. Here are six reasons why you should consider investing in rental properties.
1. CASH FLOW.
Many people invest in rental properties simply because of the cash flow – the extra money that is left after all the bills have been paid. The cash flow can provide ongoing, monthly income that is mostly passive, allowing you to spend your time building a business, traveling or reinvesting in more real estate.
Cash flow from real estate is stable and far more predictable than most other businesses. That’s great for entrepreneurs enduring the ups and downs of start-up life. The cash flow can help float you through the bad times and live well during the good times.
2. TAX BENEFITS.
Let me ask you a quick question: if you earn $100,000 at your own business and I earn $100,000 through rental properties, who get’s to keep more?
That’s right: I do. Because the government rewards rental property owners.
Not only is the cash flow received from your rentals not subject to self-employment tax, the government offers tax benefits including depreciation and significantly lower tax-rates for long-term profits.
3. THE LOAN PAY DOWN.
When you buy a rental property using a mortgage, your tenant is actually the one paying the mortgage payment, thus increasing your net worth each month. Because of the loan pay down a rental property is essentially a savings account that grows automatically, without you depositing money each month.
Today you might owe $200,000 on a rental property, but next year you might only owe $195,000 because the tenant is making the payment for you, making you $5,000 richer. Thirty years down the road, or whatever the term of your loan, it’s paid down to $0. You own a significant asset that you can sell or continue renting, all thanks to your tenant paying the mortgage.
While the loan is being paid down the value of real estate, generally, goes up. Yes, I know, recessions do happen. Values do go up and down. People buy at the wrong time of the market. I get it.
Over time, values do climb higher and higher. That’s why I’m not in this real estate game just for a year or even a decade. I’m in this for life. I know my properties will continue to climb so that 30 years from now, everything will be worth far more than I’m paying for it today.
5. A HEDGE AGAINST INFLATION.
Can you imagine paying ten dollars for a gallon of milk? Or five dollars for a candy bar? While those prices seem exorbitant to you, this is the future because of inflation. Inflation is the process by which prices increase due to the value of money decreasing.
While most people fear inflation, as a rental property owner, I look forward to it!
When the price of a gallon of milk hits ten bucks a gallon, guess what else is going to shoot through the roof? Everything, including rents and property values! The one thing that won’t increase, however, is my fixed-rate mortgage payment. As inflation pushes the cost of living higher and higher, my cash flow will only increase. This is why real estate is often called “a hedge against inflation.” When inflation hits – I’m ready!
I don’t like my destiny tied to a boardroom on Wall Street or a nervous CEO in Silicon Valley.
This is why I choose to invest most of my income in real estate, knowing that I am the one who is responsible for my success or failure.
If I want a better deal, I need to hustle to find it.
If the rental market gets more competitive, I can compensate by increasing my advertising.
In other words, I get to control the situation, and my financial future, with my own two hands. And that suits me just fine.
Don’t think that just by owning some rentals you are instantly going to begin building wealth. Real estate is powerful – but only if you work it right.
You must learn how to find great deals, how to evaluate a real estate investment, and how to finance any properties you want to buy. Additionally, you must treat it like a business and nurture it as it matures. It’s likely not going to be totally passive up front, but as millions of individuals throughout history have discovered, the payoff is well worth the journey.
Blog Source: Entrepreneur | 6 Advantages of Real Estate Investing for Savvy Entrepreneurs
Purchasing a home is a big commitment. For most of us, it will be the biggest purchase we make in our lifetime. According to the National Association of Realtors, it also usually ties us to one place for about 12 years. Of course, the process is about more than finding a home you like. It’s about finding a home you can afford and enjoy for years to come. And the price tag you see isn’t the full story. It’s important to consider all of the financial factors of home ownership before you sign any dotted lines. Here are five costs to consider before buying a home this year (or any year!).
1. Down Payment
Home listings can be intimidating – even the ones you can afford! In reality, you only have to pay a portion of a home’s value to secure your purchase. This initial payment is known as a down payment. Generally this is the amount of money you provide the seller upfront and secure a mortgage to cover the rest. You then pay a mortgage lender back that loan. Typically, down payments range from 5% to 20%. The larger the down payment, the less you’ll owe on your mortgage each month and the less interest you’ll pay over time.
2. Monthly Mortgage Payment
A down payment is your first step, but you’ll also have to keep up with your mortgage. These monthly payments consist of a portion of your loan’s principal, which is the total amount borrowed, and interest, a percentage of the principal that goes to the lender. A mortgage calculator can help you determine what you should expect to pay. The exact amount will depend on the value of your home, the size of your down payment, the interest rate you qualify for and the length and terms of your loan. If you have a fixed-rate mortgage, your payments will be consistent through the length of your loan. But if you have a variable-rate mortgage, those payments may change. It’s good to build into your budget the highest that the payment could be in the future.
3. Property Taxes
When you own a home, you’re subject to taxes levied by local governments. This money is used to support public schools, community safety, infrastructure and general services. Property taxes vary widely from state to state, county to county and even school district to school district. They also depend on your home’s value. You can use a property tax calculator to see a home’s potential tax burden. Some people pay property taxes directly to the government monthly, quarterly or annually. Others include them in their monthly mortgage payments.
4. Closing Costs
Perhaps one of the most overlooked factors in the home buying process are closing costs. They are a collection of fees charged by a mortgage lender and third-party service providers to document, secure and complete the financial transaction on a home sale. It’s the last thing you pay before you get the keys. Think credit report, title search, home appraisal and pest inspection. Altogether, they can come in at up to 5% of your home’s purchase price. Your lender will provide a Loan Estimate (previously known as a Good Faith Estimate or GFE) detailing what your costs are likely to be. It’s good to know that you can shop around for certain services to pay less in closing costs.
5. Homeowners Insurance
Most mortgage lenders require that you purchase homeowner’s insurance before they move forward with your application. These policies protect you against theft, fire, storms and other dangers. The average homeowner purchasing the most common type of insurance spends around $1,173 each year, but the amount you pay will depend on the age and quality of your home, the size and layout of your home, the location of your home and the value of your personal possessions. You can choose to pay your premium once a year or monthly along with your mortgage payments.
Shopping for your first home should be exciting, but it’s important to keep all of the financial aspects of homeownership in mind before you even begin. Get an understanding for current interest rates, standard closing costs, homeowners insurance policies and property taxes in the area where you want to settle. Then, take a close look at your own finances. Being realistic – and holistic – about what you can afford will yield the best home buying experience immediately and years into the future.
If you need help with the financial implications of buying a home, or any of your financial goals, you might want to talk to a financial advisor. An advisor can help you set and reach your goals. You can even pick one with specialized knowledge of taxes or real estate investing.
Blog Source: Forbes | 5 Costs To Consider Before You Buy A Home In 2018
The real estate sector is a lucrative one. Great profits and success stories attract a lot of people to try their luck and make a mark in this sector. However, there is a lot of hard work and patience that is also required to grow and sustain in this field. With bigger profits also come equally bigger losses. It is understandably not an easy business to master. You need to have not only the skill but also the determination to make it big in this business.
Ensure that the properties that you represent are of good quality, value and legally verified. This is a tough one to follow, especially if you are starting out. But this is the also the biggest aspect of the business that you need to understand if you are going to survive and shine in this sector. The extra effort put on identifying and entering into representation contracts with such properties might directly translate into less effort in selling it. Consistency in doing this will ensure long-term credibility.
2. BE A CURATOR NOT A CRUSADER.
Don’t be tempted by high commissions offered by assets in distress. Don’t try to be the salesperson who believes that he can sell a refrigerator to an Eskimo. Listen to your gut. If you want cold hard facts then do a thorough market assessment. Find out the true picture from customers and industry leaders before taking a conscious call. But remember point 1? You are what you represent. If at any point in time your customer starts to think that you have pulled a fast one over them, your credibility will take a huge hit. It does not take long for word to get around. Even if it works now, it will not work in the long run. So, curate, curate, curate!
3. CREATE A BOUQUET IF YOU DO NOT WISH TO SPECIALISE IN A PARTICULAR SEGMENT.
Multiple properties, multiple locations, multiple price brackets, multiple formats will surely help in accelerating sales as one can reach out to a larger audience and also will help in increasing the conversion ratio. Once you identify what values your company represents and stands for … stick to it zealously. The customer should be able to identify your company, irrespective of the project, with a certain set of values. Be clear about this and expand your portfolio accordingly if they meet these criteria. It is always a safe bet to expand when you are starting out as you have a higher chance of finding more and varied customers.
4. HELP THE CUSTOMER FIND YOU.
It’s a lot more effective and easier for one to help the customer find you than you trying to find him. A serious buyer is always on the lookout through various mediums and channels. So ensure that you are present and visible and he will eventually find you. Understand where your customer is, identify the markets and how they research or decide on the property consultant. Be there. Be where your customer is and engage them with your company.
5. IN EVERY ADVERSITY, THERE IS AN EQUAL OR GREATER OPPORTUNITY
Innovate yourself to take advantage of bad times. Be a Bull be a Bear change your skin when you have to. If it’s a bad market, it’s obviously much harder to sell. No one knows this more than the property owner, use this to your advantage, negotiate better terms on a success fee, in most cases, they will be happy to pay you extra if one can deliver and deliver fast. But in every adversity is a hidden opportunity. Find it and use it to your advantage. Be the optimist.
Set it! Bend it! Break it if you must! Set your rules/plans based on your past experiences, bend it based upon your current feedback and observations as situation demands, and break rules based on what’s not working. But don’t break the law. Keep working on your business model. Keep improving and improvising it. The model needs to benefit your business and your customers. It needs to be flexible enough to be able to adapt to market changes.
7. PATIENCE PAYS BUT CASH BURNS.
If you have set yourself a goal, try and fast-track it, the longer you take to get there the more you will end up investing. So, if you have decided to be in this sector. Then go for it not tommorrow but today, infact now.
Blog Source: Entrepreneur | #6 Tips for Growing and Scaling a Real-estate Consulting Business
What does it really take to buy a home in the Seattle area? There are the skyrocketing prices, of course.
But nowadays, to compete in this feverish market, buyers have to deal with so much more: Pay for damage the seller doesn’t disclose. Decide whether to buy a house just a couple days after it hits the market. Have a six-figure cash nest egg saved up for a down payment and nonrefundable earnest money.
Will you let the old owners continue living in your new house for months after you buy it? Can you compete with a pool of buyers where 1 in 4 people are paying with all cash? Are you ready for heartbreak if you get outbid on your dream home even when stretching to make your highest possible offer?
Our reporting found the average buyer will tour dozens of houses, lose to higher bids about three to five times, and pursue a house for six months to a year before finally getting a home. Many buyers likened the process to a full-time job.
“It was just all-consuming,” said Michael McDermott, who bought a house with his wife in North Seattle last year. “You have to always be on guard and always be ready. It’s such a rabid market that it can get out of control really fast.”
We talked to dozens of people who know the market best — buyers, sellers, brokers and lenders from around the Puget Sound region — to put together a complete homebuying survival guide.
The first thing you need to do is have your finances lined up. The biggest obstacle is the down payment — the cash you need to have saved up and ready to spend today. You can get a mortgage loan for the rest of the purchase.
Technically, there are programs that allow you to put as little as 3 percent down. But the market today is so competitive that sellers are looking for buyers to put as much down as possible, and people who don’t put much down aren’t winning bidding wars in competitive neighborhoods. The typical King County homebuyer is now putting 18 percent down (excluding cash buyers — we’ll get to them in a minute).
Here is the cold, hard math: The median down payment on all homes (single-family and condos) in King County just topped $100,000 for the first time, up from about $50,000 just five years ago, according to mortgage tracking company Attom Data Solutions.
That’s an increase of $10,000 a year just for the down payment. Anyone who added less than that to their home-saving piggy bank in the last year is actually further away from being able to afford the median-priced home than they were when they started saving.
To save up a meaningful amount — let’s say $20,000 a year — requires the median local household to stash away about one-fourth of their income for a house. Because that’s not practical, most homebuyers are wealthier or have cash from their prior home sale to use on their next one; others rely on previous savings and gifts (even buyers in their 30s and 40s who thought the days of asking their parents for money were long over).
Getting a loan
OK, now you still need a loan for the rest of the purchase. Unfortunately, the instant you sign up for a mortgage, you’re already kicked toward the middle of the pack of buyers: 23 percent of all local homes are now purchased entirely with cash, according to Attom. Those offers are much more attractive to sellers and almost always win if they are near the highest overall bid.
Buyers that can’t go with all cash need to get preapproved for a mortgage home loan before they can go shopping for a home; it’s the bare essential qualification you need to be eligible as a buyer. But beware: While this is a certificate from a lender saying “we think this person can buy a home,” it’s not a commitment to lend because the mortgage company typically doesn’t verify a person’s financial information at this stage in the process.
To get a leg up, buyers are now going a step further — getting pre-underwritten at the start of home shopping — skipping to the end of the mortgage loan process and having their credit score checked, bank statements verified and assets combed over. This essentially guarantees the buyer is “solid gold” and will absolutely get a loan, removing a key doubt that could make a seller think twice about your bid.
Kyle Bergquist, a lender with Primary Residential Mortgage in Seattle, said about half his clients now get pre-underwritten — which is “as close to cash as you can get.”
“Getting preapproved is nowhere near adequate. We had to get pre-underwritten,” said A.J. Singh, who recently bought a home in Seattle’s Wedgwood area with his wife after having bought multiple properties in a less-competitive environment in Philadelphia. “I didn’t even know this was a thing until we got here.”
Picking a lender
You may think your lender doesn’t matter, but don’t zoom past this part: Buyers who went with big banks often regret it — it can require extra layers of bureaucracy that can slow down a deal, while some local lenders have relationships in the real estate community that can give you an advantage in a bidding war.
Picking your broker
You can find 500 Yelp reviews about your $4 cup of coffee, but there’s surprisingly little information on how to find someone who will help you with your biggest purchase and earn a commission that averages about $25,000 in Seattle and is paid by the seller.
A lot of buyers use referrals. Others simply click on buttons from Redfin and Zillow that appear next to home listings — but beware, those are generally just advertisements from realtors.
You can also test out realtors in the real world by going to open houses. Tobias Nitzsche and his wife were looking to buy a house here last year but found out they didn’t really like the first realtor they picked. Then they ran into Stephanie Spiro at an open house for a home she was listing, and found her to be so helpful and friendly that they hired her for their own home hunt.
Realtors are an extension of the “location, location, location” mantra in real estate: Most realtors have one neighborhood they know really well but things can get dicey if they start venturing into new territory. Look for people who have already done lots of deals in the neighborhood you want.
Blog Source: Seattle Times | How to buy a home in the Seattle area: a survival guide