Real Estate Investment Commentary REIC: closing costs

Showing posts with label closing costs. Show all posts

Monday, March 26, 2012

Real Estate Investors need to use an Action Plan.

There is a saying among Real Estate Investor's - "You Make Your Money when You Purchase the Property not When you Sell It."

There are so many things that can go wrong so it is important to make sure you buy the property right.

Smart Real Estate Investors need to develop an Action Plan before they are going to purchase an investment property. This plan should include the following:

Identify a possible property for investment.
- Make sure your SELLER is MOTIVATED to do the deal.
Perform a market analysis.
- What are going to be your carrying costs for the next 90 Days. Principal, Interest, Insurance, Taxes, Utilities, HOA fees....
- After Repair Value ARV - What is the property worth after repairs. Look at the COMPS! Yes, the comparables.
- Calculate your repair costs.
- Calculate your Fair Market Rent FMR. See if the property is going to cash flow.
  - See previous posting and video about calculating Fair Market Rent FMR
Secure Your funding for:
- Purchasing the Asset.
- Carrying Costs.
- Repairs.
Note: Don't forget to pay yourself for all this work you are doing!
Make an OFFER based on the Maximum Allowable Offer MAO Rule, using ARV, Carrying and Repair Costs.
- See previous MAO post at Using the MAO rule for determining your Investment Property Offer Price.
What are you going to do with the asset? Develop an EXIT Strategy:
- Flip the property for a profit or
- Hold the property for Cash Flow.

This is the basic action plan which needs to be very fluid. Things change and you need to adapt.

Turnkey Property!

One of the more successful Action Plans we have used is to bundle a Section 8 or Plan Ocho tenant within the property FOR SALE. The tenant is part of the BUYER's Turnkey Package.

TURNKEY means the BUYER simply needs to turn the key to the front door and start making MONEY.

All the hard work has been done for the BUYER:

Buying a Property that will Cash Flow.
Rehabbing the property and brought up to Code.
All utilities are functioning.
Finding a reliable tenant.
- We use Section 8 as a great resource for tenants because it is a very popular program for housing.
- Section 8 Web Sites for listing Your Investment Property.
Asset Protection strategy is already in place.
Selling the Investment Property with minimal Closing Costs.
Optional: Have it already furnished.

Investors should provide a turnkey solution for all their properties they plan to sell in the near future.

BUYERS like the idea of purchasing a property that comes bundled with a tenant.

Action Plans allow for Immediate Cash Flow and no Headaches!

Written by Bob Burns.

####

Money in The Bank Baby!

Real Estate Investor
about.me/RobertKBurns
Telephone #: 305-586-5280
email: sec8@planocho.com

Our Internet Footprint:

Tuesday, February 21, 2012

Determining Your Investment Property Value

A good Real Estate Investor is constantly looking for motivated sellers that are offering deals they can make a substantial profit on. Investors have to determine what they are willing to pay for this asset without losing money in the process. There are several problems that can occur with this investment objective :

Finding Motivated Sellers. In order to make a substantial profit, investors must offer a purchase price substantially lower than the Seller is willing to accept. If the Seller doesn't negotiate with you on price or terms you are wasting your time. Move On!
Determining the Maximum Allowable Offer MAO. This formula allows real estate investors to determine the MAXIMUM price they can offer the seller and still make a profit.
Determining the Property's Repairs Costs. Sellers are usually motivated to sell their property because the asset or themselves are in a state of distress. As investors purchase multiple properties they get pretty good at determining the cost to bring the property back online.
What is the After Repair Value APR? What will be the property's value be after cleanup and repairs are done? You need comparables to assess the property's value. The Multiple Listing Service MLS is a fantastic source for retrieving sale and property information but:
- MLS is only available to Realtor Associations.
- You have to be a Realtor Association Member.
- Costs money to be a member:
  - Realtor License Fee.
  - Association Membership Fees.
  - Continuing Education Fees.

What if you don't have access to the MLS to determine property comparables or COMPS? How are you going to determine a property's value if you don't have access to information about the neighborhood?

Don't Worry!

There is plenty of information on the internet. Most counties in the United States provide free data concerning all the properties they currently have on their tax rolls. We provide a page on our web site that lists Property Information and Clerk of the Court data for each of Florida's counties.

Once you have determined the following items:

Repair Costs.
If you are financing the deal, Principle and Interest or P&I and closing costs.
Monthly Fees like:
- Electricity and Water Access.
- Insurance.
- Taxes.
Determine the After Repair Value APR.

you will need to plug in these numbers into the MAO formula to determine your MAXIMUM Offer Price.

YOU MUST never, never, never, ever go beyond that price or you will lose money and the MAO price is only good for 90 days! It is based on a three month window.

Related Links, Blog Postings, Presentations or Articles:

In the very near future we will provided a short video below this blog posting that will help determine a property's After Repair Value APR in Miami-Dade County, Florida.

Written by +Bob Burns.

####

Never Quit!

Real Estate Investor
about.me/RobertKBurns
Telephone #: 305-586-5280
email: sec8@planocho.com

Our Internet Footprint:

Monday, January 23, 2012

Do You need FUNDING to be a Real Estate Investor?

Eventually a Real Estate Investor will hear about a deal that is too good to pass up but their CASH is all tied up in another deal. There are no funds to purchase or repair! Time to borrow money!

But before the phone call is made, Investors need to:

Act Quickly before the deal is sold to another investor.
Ask questions about:
- Will the owner accept "No Money Down?" If not, what is the minimum down payment?
- Can the down payment be something other than cash?
- Will the owner hold paper? If so, up to what percentage?
- What are the monthly carrying charges? (Insurance, utilities...)
Determine the properties Maximum Allowable Offer MAO so you can make an offer that is going to make you money quickly.
Make sure you have multiple exit strategies.

Once you feel comfortable about the terms of the deal, time to dial your Lender's number! Good Real Estate Investors always have funds available 24/7 to take advantage of transactions that magically appear.

Lenders are adverse to risk so here are some questions you should ask the funding entity:

What states are they licensed to lend money?
Will they fund the deal based on the After Repair Value ARV (good) or the contracted price on the Purchase Agreement (bad)?
Will they fund the repair costs?
Is there a Prepayment Penalty?
How long can the investor borrow the money for?
Up to what percentage will they fund? If your contracted price is $150K and they will only fund 70% what is the total amount that they will lend? Answer:$105K. That means you have to come up with $45K. OUCH!
If needed, can the investor get more time?
What are the repayment terms? Are these terms negotiable?
Are there any Closing Costs, Points, Etc.?
What are the Minimum and Maximum amounts I can borrow?
Are there funds available 24/7 to take advantage of NEW investment opportunities?

Every real estate transaction is unique so there are different type of loans you can use for each deal depending on the parameters. Here are a few names you have probably heard of: