Real Estate That More Than Just The Rent

Deciding to get involved with investing in a rental property is an important decision and finding the right property for your efforts can make the difference between a profitable, successful career in rental properties and a discouraging experience that leaves you unwilling to continue on. No matter if you are looking at a rental property purchase for the first time or the 50th time, there are some key things to consider when searching out a good deal.

More Than Just The Rent
Money plays into your investment in a variety of ways, making an impact beyond simply what kind of rent payments you will be receiving. Knowing what kind of cash flow will be available through rent payments is important, but so is knowing what kind of cash you are going to put up for needed improvements or routine maintenance to the building. Whoever is selling the rental property is doing so for a reason, so make sure that high maintenance costs isn’t one of them.

The value of surrounding real estate, rental or not, can influence the kind of activity you receive at your rental property. In areas of expensive homes, rental properties will often pull in higher rental amounts even if the property isn’t up to those standards. Consumers that have their heart set on a particular area may turn to renting in the face of expensive home prices that would yield unaffordable mortgage payments.

Other rental properties in the area of course also play in to your cash flow situation and purchasing a rental property operating with rent payments below what the area is worth are great targets. Sometimes rental property owners get set in their ways with rent and avoid raising rent to scare off customers. Knowing that you can later raise a rent after purchasing a rental property is a great way to get an early jump on profitability.

Who Are You Buying From?
Understanding why someone is selling a rental property will go a long way towards understanding whether or not it is a good investment. Property owners that live far from their rental properties often get fed up with managing a property so far away and sell out of convenience. These types of sellers offer great opportunities as they are often more willing to deal in order to be rid of the obligation that they have grown tired of.

Additionally, the history of the property often reflects the history of the property owner. If you are dealing with a stable seller with a history of good rental ownership, it is probably that the property has been kept up to date with adequate repairs and improvements when necessary. Ask for all improvement records available on the property to look for a history of care taken with the property. Those that have been taken care of well will be less likely to cause headaches later.

What Does The Code Say?
Older buildings are more likely to have issues with building and fire codes. Do research not only into the age of a particular property but also into the history of updates done in regards to building and fire codes. Has anyone ever been out to inspect the property to ensure that is up to code with various local statutes? As soon as you sign on the dotted line, those obligations become yours so investigating just what issues may arise will save you from uncovering code surprises down the road.

The Right Title Insurance

Title insurance has become an accepted part of most real estate transactions, giving lenders some security in regards to claims against a particular property that they may be insuring. Title insurance companies offer that security and your realtor may have a favorite entity that she or he tries to steer you towards during your real estate transaction.

However, as with most aspects of the real estate process, you have a choice in title companies and it would certainly behoove you to look into all of the possible options. Of course, there is certainly value in going with a title insurance company that your realtor has a familiarity with, but simple familiarity does not always make for the best business decision. Here are some things to think about when going through the process of selecting a title insurer.

This Does Not Apply To You
On a personal level as the owner of a property, title insurance does nothing to protect you. Title insurance protects your lender from claims against a property, but not the owner. For that kind of protection, a separate type of insurance called an owner’s policy can be taken out to protect you from similar claims. If claims do arise, they are not usually small, so owner’s policies can certainly come in handy.

The Grass Is Always A Different Color
While the grass may not always be greener when you investigate a number of title insurance companies, it is certainly a different color. Each title insurance company has their own unique ways of covering certain things, omitting certain things and generally constructing a policy unique to that organization. Shop around for your needs and get full disclosures from each company of what is and what is not covered.

If you are a new home buyer, sometimes builders can make claims against the title of a home. Find out if that kind of activity is covered under the policies you investigate. Your situation is unique and will always have special circumstances that may not universally apply to all title insurance offers. Consult your realtor and read through the coverage declarations of the companies you consider to ensure that you are covered as you need to be.

Read The Report
During the course of the title insurance process, the title insurance company you eventually choose for your real estate transaction will send a report to the lending company on your deal with any points of interest or dispute concerning the property’s title. This can be an interesting read and you may be able to point out mistakes or issues with it as well. Make sure that both your lender and title insurance company have an accurate view of your property, as it will greatly affect you should a claim come against the property’s title standing.

Title insurance can sometimes seem like an arduous part of the real estate process, but making sure that you are properly covered in any business transaction is simply a smart thing to do. Those that have had title claims come against their properties will tell you that process is not enjoyable and the right kind of title insurance can greatly reduce your exposure to that event. As always, you are paying your realtor for a reason and one of them is expert advice on the twists and turns of your real estate transaction.

Economy could set record with no recession in sight

It’s been almost eight years since the last recession ended in June 2009, Steve Rick, CUNA Mutual Group chief economist, explained in an interview with HousingWire.

With economists predicting the next two years won’t bring a recession, that could put the economy on track for its longest period without a recession in modern history, Rick explained.

“The longest was back in the 1990s under Bill Clinton and we went 10 years without having a recession,” he said. “We’ll hit eight years, which is long-that’s a good stretch with no recession. We don’t expect another recession for another two years, so we could break the record of ten years, but we’ll see.”

In fact, he explained that there are no major imbalances in the market at this point that could bring on a recession.

This week, the ADP National Employment Report predicted strong growth for January with the highest increase in jobs since June 2016. It’s predicted increase of 246,000 is significantly higher than previous months.

Rick’s forecast for Friday’s jobs report is a bit more modest at 225,000 jobs, but still significantly above the last several months. He explained that the jump in business optimism since the election of President Donald Trump pushed many employers to create new jobs.

In fact, Trump’s stimulus plans could even push the economy to 3% inflation, instead of the anticipated 2%, Rick said.

“If Trump got his wish list and promises on the campaign trail, we would have maybe inflation close to 3% by the end of this year and not the current 2% we have today,” he said. “If that happened the Federal Reserve may have to raise rates four times this year instead of three.”

Earlier this week, the Federal Open Market Committee opted not to raise rates during its first meeting of the year, confirming economists’ expectations that they will take a more “wait and see” approach.

However, that was only the first of eight scheduled meetings for 2017.

But another economist insisted that even the projected three rate hikes is too many. Jason Obradovich, New American Funding executive vice president of capital markets, explained in an interview with HousingWire that for all its intentions, the Fed probably won’t be raising rates as much as it would like in 2017.

If the Fed does raise rates too fast, Rick explained that could bring an economic slowdown, or even a recession.

Investment Property Tips

Getting involved with an investment of any kind is a significant business operation and one that should not be entered into lightly by any means. By going through an extensive set of information before ever signing your name on the dotted line, you can avoid some of the pitfalls that are awaiting investors on some projects. There will always be unforeseen circumstances encountered on any business deal and purchasing an investment property is no different.

Know Your (Potential) Tenants
If you are buying a multi-family home with current renters, make sure you get a full disclosure on all of the information surrounding those renters. Do some of the tenants have a history of late payments? Are you going to have to replace one of the renters in the near future?

Obviously, a piece of real estate full of eight-year tenants will be a bit more attractive than a property with a high level of turnover. By buying a rental property, you are buying into the management of that property and you should have a complete picture on the kind of time and effort commitment that is going to be necessary to maintain the real estate. If minimizing your day-to-day time expenditure on a property is important to you, perhaps you will put a premium on a history of stability with the property.

Know Your Property
Of course you will take numerous tours of the property before purchase, but make sure you either commit to memory or write down any of the small little items you notice that might need work or further investment. Obviously, the state of the appliances in the piece of real estate is something to be noticed as you will often be asked to update those appliances later and some kind of expectation has to be determined as to how likely it is that you’ll have to in the near future.

Any kind of infestation is a huge red flag as it can indicate further infrastructure problems with the property, so be sure to look for anything that might suggest a pest problem. Externally, investors sometimes neglect to think about features such as landscaping and drive way/roadway repairs that could become issues over the course of owning a multi-family property. It is easy to see problems that a coat of paint could solve but perhaps more difficult to see sprinkler-system troubles on a property inspected in December. Be sure to exhaustively inspect your potential investment just as you would exhaustively inspect a piece of real estate you hope to make your new home.

Know Your Implied Agreements
Often, investment properties come with strings attached to other companies that might have agreements on the property. Sometimes those agreements terminate during a change of ownership, but sometimes they don’t. That can include cable television services, landscaping, snow removal agreements and a whole slew of property-upkeep services that need to be done on any property. If you are not planning to take care of these types of things yourself, an outside company must be used and sometimes previous agreements will leave you without the ability to even negotiate rates. These are all costs associated with adding an investment property to your portfolio and should be understood before taking action on any piece of real estate.

Home buying process that is not the only time

Though home inspections are often part of the home buying process that is not the only time you may look to the abilities of a professional inspector for your needs. When making large additions to your home or trying to put your home on the market with accurate information about the state of things like your roof or furnace, professional inspectors can also offer their services.

Foundations, roofs, major appliances and other aspects of your home can be subjected to professional inspection to ensure that they are in the proper working order. While the professional is usually the best decision in most cases where legal issues come into play such as a home sale or purchase and permitting for new structures on your land, simply doing a first inspection yourself can sometimes save you the hassle of having multiple inspections.

Things To Take A First Look At
Your roof is something that you can usually take a look at and pinpoint areas that need to be improved. Do you have shingles that are damaged or out of place? Is there anywhere on the roof where you can see through the outside shell? These may seem like common sense issues to address, but they are the kind of common sense issues that a professional inspector would point out as well.

You don’t need to wait for a professional inspector to tell you to fix a broken roof. Take the initiative and make an effort to get your home in good shape before the professional inspector is called. During a home selling process, this can leave you with fewer issues to discuss later as part of a contract negotiation.

In addition to the roof, there is certainly something to be said for simply eyeing the exterior of your piece of real estate. If there are cracks in any of the outside walls, especially near the base, those will need to be looked at and probably repaired. Again, these are common sense tips but steps that can often be overlooked during the frenzy of buying or selling a home.

The Professional Inspector’s Role
When legal agreements start to come into play, such as during a home-buying process, a professional inspector is usually required to come out to the home and look over the property in its entirety. During any deal when you purchase a home that is already built, there will inevitably be some issues that come up during inspection and it is then up to your realtor to work out a deal to remedy those situations.

On the minor side, these inspections can turn up things like small cracks in interior walls or wood working that needs to be tended to, but they can also turn up big problems such a shaky foundation or substandard furnace. Furnaces tend to be a hotspot (no pun intended) for inspection issues because most people don’t have the knowledge to accurately appraise a furnace on their own.

Are Foreclosures Worth the Risk

Many home buyers and real estate investors have been prompted by steadily increasing interest rates to be more aggressive in their hunt for bargain homes. Competition for the best-priced and most attractive homes has only increased in most real estate markets and because of that intensity, foreclosures are drawing more and more interest from prospective home buyers and investors.

While foreclosures certainly offer some financial benefits, there are also risks involved, as you might expect. Not every foreclosure is the same and while the interest in them is growing, you need to be aware of what to look for when evaluating whether or not a foreclosure opportunist is right for you. Here are some things to look for.

Pre-foreclosure properties can offer an attractive investment or home purchase opportunity to those willing to work for it. There exists a period of time in between when a home owner is notified that their loan is in default and when the bank actually seizes the home to put it on the market to recoup expenses. During that period of time, it is possible to purchase the home and satisfy financing requirements on it.

There are two negatives at play when going the pre-foreclosure rate and both discourage a majority of the potential investors that contemplate the pre-foreclosure route. One is the extremely brief period of time available to complete a deal. The period of time is regulated by individual states and usually consists of a couple months.

The other discouraging aspect is the necessity to deal with a home owner that is probably embarrassed by the foreclosure and may not even be aware that such information is made public. Knocking on a door or picking up a phone to contact someone that may not even be aware of pre-foreclosure purchases can be a difficult thing to do.

The Risky World Of Auctions
The best advice for those pondering auctions as a way to get in on foreclosed property is to simple not get involved at all. The risks are immense when dealing with a bank-run auction as you will most likely not have seen the house, have no way to protect yourself against title problems should they exist and must pay in cash.

That collection of traits discourages most investors and rightfully so. There is simply too much uncertainty when dealing with auctions to know for sure that the low sticker price is necessarily worth the hassle of going through title clean up issues and scraping together the cash for a purchase.

Unusually high jobs report

January more jobs than economists expected, led by gains in retail trade, construction and financial activities.

Total nonfarm payroll employment increased by 227,000 in January, while the unemployment rate remained unchanged at 4.8%, according to today’s report from the Bureau of Labor Statistics.

ADP predicted this increase and more earlier this week as its data showed an increase of 246,000, however with its spotty record, economists’ expectations were much more modest.

“The Street is looking for a 175k nonfarm payrolls in Friday’s report,” Brent Nyitray, iServe Residential Lending director of capital markets wrote Wednesday in his note to clients.

This increase is significantly higher than December’s increase of 156,000 jobs.

However, one economist predicted an increase of 225,000 jobs. Steve Rick, CUNA Mutual Group chief economist, explained in an interview with HousingWire that the jump in business optimism since the election of President Donald Trump pushed many employers to create new jobs.

However, while this gain was significant, the labor force increased by 584,000 in January, bringing the labor force participation rate to 62.9% of the population.

Here are where some of the major gains in jobs occurred in January:

Retail trade: Increased 46,000

Construction: Increased 36,000

Financial Activities: Increased 32,000

Professional and technical services: Increased 23,000

Food services: Increased 30,000

Health care: Increased 18,000

Employment in other major industries, including mining and logging, manufacturing, wholesale trade, transportation and warehousing, information and government, showed little change over the month.

The increase in construction will be a welcome relief to the supply-starved housing market.

An extremely daunting task

Buying a first new home is a big step in anyone’s life and the process can initially seem like an extremely daunting task. With all of the information available, advice to be learned from and realtors to choose from, it can certainly seem like an insurmountable mountain of information.

While that may initially be true, there are some steps that you can take that will help you cut through all of that and avoid information overload. The new home buying process is an exciting one and while there are certainly many things to think about, they shouldn’t detract from the experience.

Use The Web
Online resources, much like this site, can help you do a great amount of research into a home or area without ever leaving the comfort of your favorite chair. No matter what area you’re looking to purchase real estate in, there are undoubtedly many online resources concerning that area. Everything from county governments to local realtors provide handy region-specific tips and tricks that might help you in your search for a new home.

While your realtor will help you with a lot of the information about home prices in the area you’re investigating and other related bits of information, it can also be empowering to take a hold of the situation and find the kind of applicable information you’re looking for yourself. Anything that helps you get comfortable with the home buying process is a benefit.

Know Your Limits
There are a variety of ways to get frustrated during the home buying process and perhaps chief of all of them is pursuing a home that you simply cannot afford. Every step of the process, from convincing a realtor to show you an expensive property to getting financial backing for a piece of real estate outside your income viability, makes the process more difficult and will ultimately discourage you about the home buying process.

Yes, we would all like to have our first home be the perfect combination of location, size and amenities but many times it is not realistic to purchase a 10-bedroom estate with a first home purchase. If you have an accurate view of what you can afford, it will ease the entire process as your realtor will show you nothing but realistic homes, of which you will almost certainly find one you’ll love for a first piece of real estate.

Fannie Mae refines appraisal policies

Fannie Mae released its first selling guide updates for 2017, clarifying its rules around property inspections by appraiser trainees.

According to the guide, Fannie Mae clarified its “existing policy that allows an unlicensed or uncertified appraiser, or an appraiser trainee to complete the property inspection. When the unlicensed or uncertified appraiser or appraiser trainee completes the property inspection, the supervisory appraiser is not required to also inspect the property.”

The clarification is effective immediately.

Although the industry welcomes the news, more still needs to be done in order for appraisers to act on the clarification.

Matthew Simmons, managing partner at Maxwell, Hendry & Simmons, a commercial and residential appraisal and consulting firm, explained that from a policy perspective, this is a fantastic clarification.

Simmons added that the trainee system for appraisers is a two-year journey, and being unable to utilize trainees to handle certain appraisal inspections for their entire training period creates a major disincentive for seasoned appraisers to take on trainees.

Keep in mind that this is in an industry that’s already top heavy with a lot of people closer to retirement than what is ideal.

“Training shouldn’t be a pure profit center for supervising appraisers, but it also shouldn’t be regulated to the degree that supervisors can’t make a decision about when a trainee is capable of inspecting a house on their own,” Simmons said.

“While Fannie has clarified their position, the real test will be if investors change their policies. That’s where the actual policy prohibitions currently reside,” he continued.

To Simmons, the move is Fannie trying to signal to investors that it’s time to modernize their policies.

“We’ve already spoken with several lending clients of our firm and they’re taking a wait-and-see approach to see how their investors react before giving the green light to trainees,” he said.

And investors aren’t the only factor that appraisers are wary about.

“The other element to consider is how states will react. While this may prompt investor policy changes, many states have more stringent rules relative to trainees.”

Simmons pointed to his time on the Florida Real Estate Appraisal Board, when they enacted rules that prohibit a trainee from inspecting a property without their supervisor present for their first 12 months.

Trump push for Dodd Frank overhaul

As one might expect, the reactions to President Donald Trump’s initiation of the overhaulof the Dodd-Frank Wall Street Reform Act came in fast and furious after Trump signed an executive order on Friday that calls for the Secretary of the Department of the Treasury to begin reviewing Dodd-Frank.

And unsurprisingly, those reactions varied wildly, with left-leaning people and organizations calling the move an outrage and other assorted adjectives, and those that lean right having the polar opposite reaction.

As HousingWire previously reported, one big supporter of the move is House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, who stood next the president as he signed the order.

“Dodd-Frank failed to keep its promises, but President Trump is following through on his promise to the American people to dismantle Dodd-Frank,” Hensarling said.

“That’s not what Wall Street wants, but it is what hardworking Americans need to have a healthy economy with more opportunities so they can achieve financial independence,” Hensarling added. “Republicans are eager to work with the President to end and replace the Dodd-Frank mistake with legislation that holds Wall Street and Washington accountable, ends taxpayer-funded bailouts forever, and unleashes America’s economic potential.”

On the other end of the political spectrum is Sen. Elizabeth Warren, D-Massachusetts, who went scorched earth in declaring her opposition to Trump’s move.

“Donald Trump talked a big game about Wall Street during his campaign – but as President, we’re finding out whose side he’s really on,” Warren said in a statement.

“Today, after literally standing alongside big bank and hedge fund CEOs, he announced two new orders – one that will make it easier for investment advisors to cheat you out of your retirement savings, and another that will put two former Goldman Sachs executives in charge of gutting the rules that protect you from financial fraud and another economic meltdown,” Warren continued. “The Wall Street bankers and lobbyists whose greed and recklessness nearly destroyed this country may be toasting each other with champagne, but the American people have not forgotten the 2008 financial crisis – and they will not forget what happened today.”

Tim Pawlenty, the former Republican Party presidential candidate and current CEO of the Financial Services Roundtable, said that the president’s executive order is a good first step.

“Modernizing America’s financial regulatory system in ways that will grow the economy, create jobs and protect consumers as well as taxpayers is a key ingredient to boosting financial opportunities for America’s families and businesses,” Pawlenty said.

And back on the left, Stephanie Taylor, co-founder of the Progressive Change Campaign Committee, said that Trump’s move shows his true colors.

“Just so it’s clear, Trump is siding with Wall Street bankers once again. After holding a closed-door meeting with Wall Street CEOs to seek their blessing, Trump is rolling back Dodd-Frank’s consumer protections and a requirement for financial advisors to act in their clients’ best interests — not their own,” Taylor said. “Trump just made it easier for Wall Street to steal billions from working families – and creates the conditions for another massive financial meltdown in the future.”