People all over the country are investing in real estate. There are so many ways you can do this. Since I finance investment properties I am going to post a few idea’s that have made investors I deal with successful. I am also going to outline a few ins and outs of investing to help you grasp it even if you know nothing about investing.
1) There are 3 popular methods for investing in residential real estate I will cover:
- A: Purchasing and selling a property for a profit.
- B: Purchasing a home and renting it for monthly cash flow plus future liquidation.
- C: Building a home for either or.
Real Estate Investing Tips for Beginners with no money
One of the best methods to use is to pay cash. No loan and no requirements to follow. Purchasing a home needing rehabilitation then repairing it yourself or hiring who you want allows direct control over the costs. Retaining the property and renting means you have no loan payment and more monthly income, or what I will refer to as “Cash Flow”, so you can build up capital over time or supplement your income.
Most people chose to start off by using financing. There are several methods to do this. Mortgage Brokers, Mortgage Banks, and Private Investors. I am going to cover a general understanding of each as it pertains to investing.
Hard Money: Usually private investors will secure the property and not require much if anything for credit and income. They typically require over 30% as a down payment and can close very fast. However, the charges for these loans are very high and the rates are too.
Mortgage Broker/Bank: They both offer the widest array of loans for buying properties. You can provide Income and assets to get the lowest rate and the most aggressive loan to value (LTV) which means put less money down if any. You could say how much you make and provide assets. (SIVA, Stated Income Verified Assets) You could state how much you make and say how much in assets you have. (SISA, Stated Income Stated Assets)
SIVA and SISA loans require a verbal verification or employment usually stating you work where you say you do and for how long. If you are self-employed it may require you to only supply a CPA letter stating you filed taxes on the business or a business license. Ideally for 2 years.
Another loan is No Ratio. This loan is stating where you are employed but no income is listed therefore no debt ratio is used to qualify you for your loan. You still have to show proof of your assets.
Also a No Income No Asset or No Doc loan. There is no verification of income or assets at all.
The less you provide the more risk there is for a mortgage lender. When you add risk they lower the LTV or raise the rate.
So there is some detail. I feel it is needed because 75% or more of investors use some form of reduced documentation to obtain loans.
Now back to investing strategy………
A: Purchasing and selling a property for a profit.
What is commonly referred to as flipping? In many states, it is illegal to do this so I encourage you to seek legal counsel. The most popular form is buying a bank repo, foreclosure, or distressed property under fair market value. Then either fixing it up to increase marketability or selling it right away. This is the quickest way to get a lot of cash to build capital. Several people start off this way then move into retaining properties because they have the capital to invest or they buy more with cash to flip.
Downfalls – It takes a lot of money to rehabilitate a home. It requires a lot of other ongoing expenses. Typically you put the home on the market and sell it when someone buys it. It may take 3,6,12 or more months to do this and if you finance the purchase you have a mortgage payment plus taxes and insurance every month. Typically you do not rent it out. You want it vacant and freshly remodelled for optimum saleability.
B: Purchasing a home and renting it for monthly cash flow plus future liquidation.
This is a great way to supplement your monthly cash flow IAS-7. It is ongoing income every month you can have. Depending on how you buy the property you can make serious profits every month and later liquidate the home for quick cash for retirement and so on.
Downfalls- Over time houses need repair. Some renters pay late. My advice is that rental income is a supplement rather than a reliable way to pay bills. Keep your day job and do not over-extend yourself and rely on this income. People move out and you have a mortgage with no cash flow. Always have a good NWC formula.
C: Building a home for either or.
Home construction is pretty nice. You have a brand-new house. You do not rehab. It has low expenses for repair for several years. It typically increases in value after construction. This is actually a wonderful way to retain or to sometimes flip a property.
Building one can be great, but you need to figure out a way to defray construction project costs so you don’t end up blowing your budget or spending more on construction than your home will be worth. Consider using construction management software (or having your contractor do so) to prevent costs from going out of control and to monitor its progress throughout the project’s duration.
Downfalls- Retaining is great. I really only can site the above flaws in retaining in section B. For flipping, you have a whole new set of issues. If you are in a new development it is hard to find comparable sales to support the price of the home. A few sales have to hit sometimes before you can get financing for a buyer. Maybe it is a good idea to wait until a few phrases have been built. 1 advantage is the builder works out flaws and 2 the houses in the first phase or 2 have sales. I suggest multi-family custom home builders for retaining.
This is all I have time for today. I will expand.
Important details about real estate conveyancing
Discussions between the two peak bodies are now attempting to finalize guidelines for model lease legislation. Chief Executive Officer of the Property Council welcomed the government’s initiative to apply equitable legislation across Australia’s retail sector. The Property Council endorses the government’s commitment to convene a meeting of state and territory ministers for Small Business to facilitate the rapid introduction of harmonized retail lease legislation.
However, the Property Council is seriously concerned by proposals to amend the Trade Practices Act to treat the small business as though it is a consumer. This approach could diminish the requirement for small business to at least take some responsibility for their actions before entering into business contracts.
They need to receive accurate information in an understandable form, they need access to justice, they to be assured of proper accounting for outgoings; however, If the government wants a competitive market they can’t create a system that protects and preserves mediocre traders. Consumers and other shopping centre retailers will be the big losers.
Given we faced the possibility of national retail lease legislation with leases in perpetuity and third party setting of rents, yesterday’s announcement of the Government’s package for Small Business reform is a pretty good outcome for retail property owners.
When you have a property E Settlement Agents Perth at your side, he or she can help make a remarkable condition into the contract communicating that the vendor must leave the property in commendable condition. These principles will form the basis of the Government’s safety net for retail lease legislation.
Essentially the Government will adopt a three-pronged approach to improving the regulation of the retail leasing regime: The Government has adopted our call for retail legislation to remain a state/territory responsibility. In so doing they acknowledge the work done by the Property Council and the Australian Retailers Association to develop best practice principles for tenancy reform.
The treatment of small business (limited to transactions under $1million) as though they were a consumer for the purposes of actions in relation to unconscionable conduct, The implications of this are being carefully assessed.
The Property Council of Australia has taken all due care in preparing this report but urges all members to seek their own independent advice before acting on issues referred to in this Lobbying Update. An independent member of the ACT Legislative Assembly, Michael Moore, and last week introduced a bill proposing amendment of the Tenancy Tribunal Act which would, if passed, expose rental levels to third party review at any time not just at a rent review period or at the renewal of the lease.