Four Strategies to Buy Rentals With No Down Payment

This tends to be a pretty controversial subject, and for good reason. When I was getting started in the business, I was young and broke and had no credit to speak of. I was not qualified to borrow money, yet I figured out how to buy properties, and I bought a lot of them. It was not long before I became a full time real estate investor, and on paper, I was a millionaire long before my 30th birthday. I accomplished this with a lot of hard work, education and tolerance to take the risk.

With all this said, just because you don’t need money to buy houses, does not mean you should have no money. I am a big, big believer in this. You see, although I was a millionaire at a young age, I basically lost it all when the market shifted. I was too aggressive with my growth, and did not establish an appropriate amount of reserves. After starting over, I structured things differently and am in a good position to not only survive a down turn, but to thrive in it. In this article, I will briefly walk through 4 ways to buy rentals with nothing out of pocket, but want you to understand that this does not mean you should own rentals with no reserves.

Owner Finance: This could mean many things, but for the purposes of this article I am going to assume that the seller of the home is extremely motivated and is willing to basically sell the house just to get away from the mortgage payments. This is commonly referred to as a subject-to transaction because you, as the buyer, will take title subject-to any other liens that are in place. What this means is you get ownership of the house, but the seller is still on the hook for the loan. You as the buyer will agree to either pay off the loan or make payments on the loan on their behalf. If you don’t, the lender can foreclose and wipe you off of title.

The seller is taking a tremendous amount of risk with this type of transaction, so it is difficult to negotiate and they need to be extremely motivated. It works well for you because you don’t need down payments or to qualify for a loan. It works for them because they have someone else making the payments on their loan, which relieves them of the payment pressure, and potentially can improve their credit. As you become more experienced, this is a strategy you will want to look into. This allows you to purchase an unlimited number of cash flowing properties without ever needing to qualify or sign for a loan.

Lease Options: This is the strategy that really worked for me when I was just getting started. I like it a lot because it is easy to explain to the seller and it is not difficult to get them comfortable with it. They still need to be motivated to want to do this, but nothing like the subject-to transactions.

The way this works is you negotiate with a seller of a home to lease the property for a set period of time. I would typically negotiate 10 years on these, but it can be anything you are comfortable with. The rent amount will be set. From there you agree on a price to buy the property for sometime during the lease term. The price is typically locked in close to today’s value. You then sublease the property, hopefully for more than your rent payment, and wait for the value to increase. If the value does not increase, which has happened to me, you can either re-negotiate the deal or let the property go. You have no obligation to buy, so you are not taking the risk of market fluctuation. If and when the value does increase you have several options: You can sell your option, exercise your option and resell the house for your profit, or just exercise the option and keep the property in your portfolio.

Bridge Loans: The idea here is to find a property that needs a lot of work that will make a good rental. You need to negotiate a price were you can buy it, fix it, and roll in all closing costs, and still be at or below 70% of the after repaired value (ARV). This does not work well unless the property needs to be repaired. This is very different than the first two strategies discussed, and is commonly used with bank owned foreclosures. Although, anytime you can negotiate a great deal will work.

After you purchase the home, you want to get it repaired and get a tenant in place as quickly as possible. You then refinance the loan into your permanent rental property loan. There are some additional details for this to work that are beyond the scope of this article.

Partners: At the time the market was collapsing around me, there were tremendous buying opportunities everywhere. Using the Bridge loan strategy, I was able to pick up a handful of deals that I still have today. I did not qualify for loans, so I brought in a partner to sign on the debt for me, and I shared the deal with him 50/50. Neither one of us put money down, and the properties all cash flow, net of vacancies and maintenance, a minimum of $300 a month. There has also been a tremendous amount of appreciation over the years. The houses have more than doubled in value!

No matter what your strategy in real estate, partners can help you reach your potential. They can provide anything that you are lacking to get deals closed. I have a great deal of respect for partnerships because I think they are necessary, but I also think they can be the worst decision ever made.

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Successful Housing Projects With Construction Management Services

Dwelling at a desirable region that is properly equipped with all the facilities required is one of the most searched about factors. Unfortunately, sluggish monetary status in and around the world seems to be real restrain in such circumstances. With prices of properties going higher and unavailability of the same, aforesaid wish list often remains incomplete.

Eventually, the owners of construction projects are getting affected too. After all, gathering proper and potential consumers for their residential or any other genre of edifice creation is getting blocked. In the due course, ventures getting closed are a common factor too. No wonder, with the help of proficient construction management services, these perplexities are getting fulfilled and today its efficacies can also be found in the field of affordable housing management system.

Low to moderate income holders are often found struggling while deciding on the most profitable property investment for abiding onto the same. Thankfully, with the help of affordable housing system, all those problematic facets got removed to some extent.

Business owners in this construction industry are well aware about the competitions and other complications that are related with the development of such housing pattern. That is the reason why, they are impeccably depending on above mentioned service solutions. After all, architects, economists, legal experts and various other honchos associated with such service providers are highly experienced and knowledgeable. Eventually, planning the execution process of such affordable projects becomes truly lucrative for owners and at the same-time for its end-users.

Reducing and hence removing all the day to day perplexities associated with a construction project are something that management recourses mentioned above are reputed for. Such aids are also favoured for the immense capability to streamline the entire execution process and hence, at the end of certain projects, earning desirable revenue and goodwill of potential consumers can be gathered by owners.

Needless to state, such felicitating properties can’t be gained single handled by project heads. Moreover, it is nothing new that professional assistance is of paramount help for any sorts of business process. In case of building and construction, such aid is of equal importance. Nevertheless, when the matters are related with affordable housing, incepting such guidance and assistance is always a profitable deal to opt for.

No matter how much unique a project is and what are the complexities attached, with the help of deft and favourable management services, even affordable housing process gets dignified and lucrative. There are many more too. Like:

By adopting such sorts of management services, getting linked with strong administering principles are assured
Risk removal also gets finely done if one gets to hire such sorts of expertise supervising system
Robust planning of the execution process that ascertains profitable return at the end is achievable too
Financial management and professional auditing of monetary details is an essential part for any business process which is also executed finely
Advisories and consultations delivered by experts associated with such service solutions process can be immensely profitable
Recognising the prospect and doing things accordingly is of vital importance for construction industry that gets fulfilled with it, etc.

There is no wrong in stating that these are just a few among array of other beneficial facets that one gets to gather on hiring such sorts of administering services. Actually, construction and building processes are accustomed with numerous unavoidable critical issues. Resolving all those facets often becomes essential for achieving the business goals and securing a dominating place in this industry. This is of no need to state that all those facets also gets properly accomplished with the help of deft counsels accustomed with such sorts of service providers. However not only for affordable housing, one can also seek such industrious assistance for:

Legitimate maintenance of audits and compliances of construction projects
Administering the entire project for assuring desirable returns
Dealing with any sorts of contractual disputes that in a way makes the execution process more smoothed and profitable

Understanding any sorts of service process is only possible by getting adhered with the same. Things are same for management services responsible in administering affordable housing. Hence, other than going haywire and perplexed about how to complete a project in a most gainful way, settling with such assistance is a diligent deal.

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Little Governments: The Homeowners Association

The phrase “Homeowners Association” may sound innocuous enough to some but it sends shivers down the spines of many. In books and movies this group of home-owners is typically portrayed as power-hungry, meddling and suspicious. Think Big Brother meets Mussolini and you’ll have an idea of this group’s image.

Is this reputation deserved? It’s hard not to believe the rumors while being bombarded with news stories about Homeowners Associations (H.O.A.’s) that force residents to take down American flags, or those that take homes when residents are late paying their dues.

H.O.A.’s are like “little governments,” according to Jackie Faye of NBC News. Like all governments, they exercise the power granted to them in one of two ways: with benevolence or authority. Perhaps Abraham Lincoln foresaw the rise of the H.O.A. when he claimed that “… if you want to test a man’s character, give him power.”

So, who are these people?

A H.O.A. is actually a legal entity whose purpose is to manage a group of housing units, or a common interest development, as they are known in some regions of the country. These developments may be single-family dwellings or condominiums. The decision-making body of this entity is typically known as “the Board,” and there may be committees as well. The association board is composed of homeowners who act as volunteers, and are generally chosen in annual elections open to all homeowners within the community.

The reasons for volunteering to sit on a homeowners association board are varied. Some homeowners want more of a say in how the money is spent, others are concerned with maintaining home values.

Duties and responsibilities

Although it seems as if their boards have unlimited power to do as the members wish, most states have laws that govern what they can and cannot do. Yes, they sometimes overstep these laws. While duties and responsibilities vary across the country, here are some that are common to most:

• Paying taxes on the common areas
• The enforcement of the association’s rules, such as the bylaws and the Covenants, Conditions and Restrictions (CC&Rs)
• Creating the association’s budget
• Creating rules for the use of the common areas
• Disciplining homeowners for violations of H.O.A. rules

Buying a home in a H.O.A.-governed community

They must supply the homeowner with certain documents when there is an offer to purchase the property. The seller then gives these documents to the buyer. There is usually a charge for the copies and the seller typically pays this fee.
The doc packages are usually quite thick and may be extremely complex and boring. It is essential, though, that you read and understand everything in them. If you need help, contact an attorney. Once you own the home, you are obliged to follow the rules.

Some items to pay close attention to in the CC&Rs include:

• Pet policies, if you have pets
• Parking rules, for yourself and guests
• The rules and restrictions for the use of on-site amenities
• Landscaping rules
• House color, exterior decorations allowed
• Restrictions on the construction of outbuildings, such as sheds and gazebos
• The rules regarding leasing your home

Look at the H.O.A.’s budget:
• Does the income cover the costs? If not, why?
• How is the money spent?
• Does the reserve account hold enough money for emergencies?

Check out the board’s meeting minutes:
• What type of issues does the board typically face?
• What type of actions have they taken against homeowners?
• Have they talked about increasing fees or any upcoming special assessments?

Read over the governing documents, or bylaws, to determine how and when elections are held, how to sit on the board and the length of board member’s terms.

One of the most important aspects of purchasing a home governed by an H.O.A. involves determining if there is pending litigation. Sometimes the association is suing the developer or a homeowner or the homeowners association is being sued. If there is litigation pending, you may not be able to get a loan, so make sure you get all the information you need about this.

Buying a home regulated by a homeowners association has advantages, such as security and the regulation of the area’s appearance and noise levels. The drawbacks, on the other hand, are numerous and include the additional monthly outlay for association fees and the sometimes-meddlesome members of the homeowners association. Do your homework when considering purchasing into a common interest development governed by a homeowners association. Investigate it thoroughly to make sure you don’t end up in a horror story on the nightly news.

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Why Non-Conforming Is a Risky Strategy

They are all over town, the investment properties that seem too good to be true when you run your numbers. This is not always the case, but usually there is a reason for the price. A property can be non-conforming for several reasons of which I explain below.

Size – We normally see this with large additions. You don’t want to be the biggest house on the block, and it is worse if there is a significant size difference to the neighborhood. If you are the biggest house, your house is worth less per sq foot meaning you don’t get the value you would expect from the size.

Appearance – I see this a lot with new construction. There might be a handful of new houses in a neighborhood of houses that were built 30 years ago. This brand new house might be worth $400,000 in a new neighborhood, but because it is surrounded by older homes, it is worth much less. You cannot compare the new house to the new neighborhood ½ a mile away. People will pay less if they are not surrounded by similar homes, and it is very difficult to appraise these, so be careful!

Something else that could fit into non-conforming appearances is under or over improvements. We just funded our first property with an in-the-ground swimming pool. The pool provided almost no value and could potentially provide a negative value. It might cost $25,000 to put that pool in, but other homes don’t have a pool so it is not expected and people don’t pay for it. I believe it might actually decrease the value, because people expect back yards and don’t want the maintenance hassle. Simple things like granite counters compared to laminate are also important. I would look at other houses that are currently listed and try to copy what is on the market or over improve just a little to standout, but do not expect a higher price just because you have the higher quality. I think under improved houses is the obvious one. It is because of these houses people can fix and flip. They get a house at a big discount because it does not fit in the current condition. Once the condition is brought to standard, it can be sold at a higher price.

Use – This is the big one and the reason I thought I should write this article. I own two non-conforming multi units. What makes them non-conforming is that they do not conform to city zoning. In one case I am zoned for single family and a have a duplex, and the other I am zoned for a duplex and have a triplex. I purchased them this way, and in both cases the city is aware of the current use. The reason they work for me is the numbers as rentals are really strong and I make a fair amount of money each month. But there are two problems you need to know if you decide to go the route I did.

1) Management. My guess is that most of these buildings only have one electric and water meter, so if you ask that your tenant pay utilities you will need to find a fair way to divide this. Of course this creates challenges because tenants start complaining that they use less and don’t want to pay as much as their neighbor. Other problems could be one furnace or water heater with one thermostat, mail getting mixed up, and of course problems if you ever need to pull permits for improvements. On my triplex, the US Postal Service will not allow me to have three mailboxes, so I had to work it out with one of the tenants to distribute the mail. On that same triplex, I was denied a permit to build a garage that I planned to rent separately because there are too many structures for the zoning. On my duplex, I was denied the ability to have two access points to the property when the city put in a new sidewalk. My tenants share one access and they are fine with it, but these are things that I learned after I owned them.

2) Exit. The big problem that I see with non-conforming investments and especially non-conforming use is the exit is very difficult. It is challenging to finance these, so it will be difficult to refinance or sell them. If your buyer can’t get financing, they can’t buy. Thus reducing the buyer pool significantly; this obviously reduces the value. These need to be financed with cash, private money, or banks and cannot be financed FHA, VA or conventional. Unlike conforming properties, you need to account for your potential buyer pool when you analyze the re-sale value.

Non-conforming buildings can be very profitable and I am very satisfied with mine, but there is some real risk. When you do your diligence you might want to check with the city about what they will require, as well as make adjustments to the value to justify the fact that the financing is difficult. You don’t want to be surprised that it is worth a lot less than the other homes after you own it. Also, if you don’t have cash or non-traditional loans, you will not be able to buy, so don’t risk your earnest money until you know you can close.

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Indian Real Estate – A New Investment Haven

Indian real estate has always been an attractive investment option, even more so for non-resident Indians (NRI’s). The escalation of real estate prices has always been higher than in most other countries and the growth prospects in the long term is high. NRI’s world over are investing heavily in the real estate market, both for investment purposes as well as residential. Most NRI’s prefer to retire to their hometown in India, surrounding themselves with friends and relatives – primarily Kerala, Karnataka, Tamil Nadu, Maharashtra and Delhi NCR.

Most NRI’s are spread across the globe, but there is a huge concentration of them in the Gulf. The advantage that they have is that they earn in currencies that have traded strongly against the Indian National Rupee coupled with the fact that their earnings are not taxed off-sets a part of the house cost already. The Kerala Gulf diaspora in 2008, was numbered to be more than 2.5 million and this number has only gone up since. Most malayalees invest in residential real estate and they expect the best for the substantial amounts that they spend.

Developers in Trivandrum (capital of Kerala) have started capitalizing on these investments by building more apartment in Trivandrum. They have noticed a few trends that are fast becoming prevalent and driving demand. Most clients want luxury projects, which has seen a rise in luxury flats for sale in Trivandrum, Cochin and Kozhikode. Real estate developers are becoming very careful about the ideal size to pricing ratio. We have seen that these Developers in Trivandrum are always constructing apartment in Trivandrum for people of all classes. Townships arealso becoming a lot more prevalent, with customers demanding accessibility to all amenities and a better, more affluent lifestyle.

For most NRI’s who are retiring to Kerala, investment in one of the cities seem a good option. With a massive renovation in the infrastructure both civic and social, accessibility and connectivity to all basic necessities as well as a better quality of life is possible.

As is with all other investments, investors should be careful as to who they are investing with. Real estate developers who have been in the industry for several years or have been researched thoroughly are your best bet. Better discounts can be availed by pre-booking, several luxury flats for sale in Trivandrum which are ongoing are sought out by investors mainly because of their longstanding reputation as on-time builders, trustworthiness and quality.

There are also several avenues for real estate as a rental income source, once the primary residence is bought. However there are several laws and tax regulations with regard to rental income and double taxation. These need to be thoroughly examined, usually a good real estate developer should be able to throw light on the same.

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