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Real Estate Investing FAQReal estate investing FAQ is your chance to ask any rental property investment question you have or look over our list of real estate investing FAQ's
Go directly to real estate investing FAQ answersHave a real estate question?Do you have a question about some aspect of real estate investing or rental property ownership? Ask you question and get credit when it is built into a web page. What Other Visitors Have askedClick below to see contributions from other visitors to this page...
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Real Estate Investing FAQ's
The housing market, like the stock market is cyclical. The general trend is towards increasing value. However, housing prices go up and down like stock prices (though usually more slowly). Also, remember that much of the cycle is local as industries relocate and people follow the jobs. Depending on your local real estate market, this is a great time for owning rental property . If you don't own a house find a rental house and ask the landlord if they might be interested in giving you a lease-option . Ask for generous rent credits. Pay your rent on time and repair your credit while you are renting. Once you are able to, purchase the house, do the best home improvements, rent the house out and start the process over again. If you own a house now, look for another house and convert your current home to a rental property. By doing this you will get a preferred homeowners interest rate on your new home and still maintain the lower interest rate on your first house (now a rental). This is called loan fraud and you could be criminally prosecuted for it. Maybe. In some cases this may indicate a very motivated seller. However, be wary of areas that people are abandoning due to high crime or loss of industry. Unless you have inside information about changes, buying a property in this type of location is highly speculative. No - this is not necessary. If you are a licensed agent you must disclose this to a seller or buyer. This could work to your advantage or disadvantage depending on the buyer/seller's frame of mind. You've heard that real estate is all about location and this is true. The best place to buy is where families are buying their first home. Buying a $1,000,000 house in suburban LA is probably not a great idea while neither is buying an abandoned house in a drug-infested neighborhood. While this is tempting, it has its downsides. Dealing with tenants that have no ownership stake leads to lots of headaches. You could hire a management company but that will take away about 10% of your income. If you buy a single family house and give the tenants an ownership stake with a rent to own strategy you will have the fewest headaches. Single family houses are also the highest demand type of residential real estate. Look for motivated sellers MLS stands for Multiple Listing Service and is used by Realtors to list houses. Realtors have special MLS privileges that allow them to do comparable searches but you can look at properties for sale at websites like Realty.com. REO stands for Real Estate Owned which is property owned by banks gotten through foreclosure. Review bank owned real estate. A short sale is a sale that is made at a price below what the mortgage value of the property is. A bank may accept less than what is owed against the property to avoid the costs of foreclosure. Unless you buy property directly from sellers who are willing to finance their property, your credit score is pretty important. In addition, many real estate agents won't even work with you unless you have a "pre-approval letter" from your banker. Lots of places: banks, mortgage brokers, the seller, your 401k, IRA's, private investors and even family members. Check out this discussion of financing investment property. Does the property have a positive cash flow based on what you can get from a typical rent minus your expenses of ownership? Learn the rules of buying rental properties. In some States it's a necessity, in others not so much. If you are a novice, it would not hurt to have a real estate attorney look over the contract (make the contract "subject to" a legal review). Experienced lawyers can keep you from making a foolish mistake. Certainly you should in the beginning of your investment career. Even experienced investors overlook some problems that can cost you lots of money down the road. Get rid of that real estate agent. You never know what the homeowner will accept until they have something in writing with a check in their hand. This is a clause that will help you get out of a real estate contract. Every contract should have several contingency clauses (for example, "subject to" financing approval, home inspection, etc.) Everything is negotiable. You can include the car in the garage as part of the contract. If the buyer is open, you can try another approach. Try to find out what is important to the seller - time, price, terms? A HUD-1 statement is a required statement the closing agent must provide your when you take out a loan backed by the government. It outlines costs to the seller and the buyer at closing. You should receive it at least one day prior to closing.Typically you should plan for the following expenses: Learn more about how to finance investment property from number of sources - but it should be in your checking account a couple of months before closing First you need to assess the condition of the property and make the best home improvements. Determine if you are going to do-it-yourself or hire a general contractor. I advertise with "Rent to Own" signs and on Craigslist. Advertising in large newspapers is a waste of money. There are a number of reasons - better cash flow, larger deposit (some non-refundable), more demand for your property, reduced maintenance costs and, most importantly - higher quality tenant. Getting a tenant with an "owner mentality" eliminates 80% of the hassles of land-lording Tenants usually don't exercise their option to purchase. But, if they do, use a 1031 Exchange to buy another property and you won't pay taxes. That way you can continue to build equity for the long term. Always call their current landlord and verify their employment. References are useless because potential tenants always seem to give you a relative. You might find a Tenant Trace service from attending meetings at your local real estate investment club. I like to visit their current residence and see how they live now. That will give you a good idea of what type of tenant they will be. Learn how to be a landlord. You want to avoid the possibility that some Judge will think that this is a land contract and that you must follow foreclosure law to evict the tenants. Maintaining a separate lease with a refundable deposit is one way to help distinguish that. I have very strong language about late fees and loss of rent credits if the rent is not paid on time. I also make it clear that the tenant will forfeit all accumulated credits if they do not pay by the 25th of the month. I also require that the tenants assume responsibility for all small repairs (I use $200) so that they are not calling me every time the toilet plugs up or their child breaks a window. Some tenants will leave if you just give them an eviction notice. Others will not leave until you get a Court order. Learn how to evict a tenant. Check with members of your local real estate investment club for what is customary in your region and learn rental property law . If you follow my Rent to own recommendations, it is not that much work to actively manage your properties. If you use a management company you will lose at least the first months rent every time you get a new tenant. In addition, you will not be able to claim tax losses that exceed your income. Some, like depreciation, can be very substantial.
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