Wednesday, January 28, 2015

Fix and Flip, or Buy and Hold? 8 Questions to Help You Decide

Fix and flip, or buy and hold? That is the question. Unfortunately, the answer is sometimes less obvious than most of us would like it to be.

When it comes to deciding which type of real estate investing is “better,” there’s no one-size-fits-all solution. That’s the bad news. The good news is that there is an answer to this question that’s specifically right for you.

Ask yourself these eight questions to figure out whether you’re better off flipping your investment property or holding on to it for the long haul.

Question #1: Do you need the money now or later?
Flipping your investment property will put a handy sum of money in your pocket a lot faster than the buy-and-hold route. However, you stand to make even more money long term if you hang on to the place for several years: the value of your property will most likely increase, and once you pay off the initial investment, you’ll be bringing in passive income.

Question #2: Is the market heading up or down?
You can actually flip a house and make a profit regardless of what the market is doing, because property values aren’t really going to change that much over the course of a few months. However, you don’t want to sign up for a buy-and-hold investment in a market that’s projected to go down over the next several years.

Usually, property values increase faster than the rate of inflation. That’s one of the things that makes buy-and-hold investments a good idea. But if property values are heading in the wrong direction, it undermines a big part of the value proposition. You’re better off flipping if you find yourself in this kind of situation. Research real estate trends in the area online, from a dependable source and see which way things are heading before you make your choice.

Question #3: Do you have enough capital to flip a house?
Unlike a buy-and-hold property, it takes more working capital up front to pull off a fix-and-flip. Beyond the repairs themselves (which can get very pricey), you also have to foot the bill for contractors, carrying costs, and a host of other expenses. You don’t want to start a flip only to realize that you don’t have enough capital available to finish it.

Question #4: Can you cover vacancies, financially, if you buy and hold?
Buy-and-hold investment properties will usually come with their share of vacancies. Are you in a stable enough position that you can compensate for those vacancies with personal savings or other income, when they come up? If not, you may want to think about building up some savings with fix-and-flips before you move to buy-and-hold investments.

Question #5: How old is the investment property?
When you buy and hold, you’re going to be responsible for maintenance and upkeep. Newer properties will have fewer problems than older properties on the maintenance front. If it’s an older property, fixing and flipping it may be the way to go.

Question #6: How far away is the investment property from where you live?
If you’re buying and holding, the odds are good that you’ll be visiting your investment property quite a bit—especially if you’re planning on managing it yourself. You could end up regretting a buy-and-hold investment that’s located farther away than you want to drive on a regular basis. On the other hand, with fix-and-flips, distance doesn’t matter as much. Even if you’re not crazy about the commute, you’ll only have to put up with it for a little while: once the place is sold, you’ll never have to drive over there again.

Question #7: What tax bracket are you in?
This is a big-picture question that could come back to haunt you if you’re not careful. Depending on your tax bracket, some kinds of real estate investing will leave you with more money in your wallet than others come April 15. For example, if you’re in a high-income tax bracket, you’ll probably end up paying more taxes from a sudden influx of fix-and-flip cash than you will if you are in a lower-income tax bracket. Think ahead on this one.

Question #8: What would you like to do more?
This one is more important than you might think. Remember, the goal is to bring in money, not headaches. Some people really enjoy the intensity and thrill of flipping a house; others can’t handle the stress. On the flip side of the coin, some investors enjoy the steadier and more predictable challenges that come with managing tenants, while others just don’t have the patience for it. The bottom line is that if you’re going to make money, you may as well have fun while you’re doing it!

This article has been republished for educational purposes. This information was originally published on Auction.com, LLC, the nation's leading online real estate marketplace. Kristine Serio specializes in writing about business and real estate.

Tuesday, January 27, 2015

5 Easy Ways to Pay Off Your Mortgage Faster

Do you dream of the day you pay off your home loan? You can realize that dream three, five, ten or even fifteen years faster with a few alternatives. Here’s how.

1. Refinance and Reinvest
The average mortgage rates in 2014 have been about four percent for 30-year fixed loans; 15-year fixed loans and 5/1 ARMs have been around three-percent. Suppose you’ve been paying on a 7.25 percent $200,000 30-year mortgage for four years at approximately $1,364 per month, and can get a refinance rate that’s at 5.5 percent. By refinancing to the lower rate, but continuing to make the same payment, you could shave five years off your mortgage, and save $82,080 in interest. However, if you can get a 15 year fixed at three percent, your payment will increase by $17 to $1,381 per month and you’ll save $242,560 over the life of the loan while shaving nine years from your repayment period.

2. Double Up
One of the most frustrating things about paying a mortgage is how slowly the balance goes down in the early years. Suppose your $200,000 mortgage has an interest rate of 4.00 percent. After paying $955 a month for an entire year, your balance will still be $196,478. That’s because after paying the interest owed, not much goes toward reducing the principal balance. However, what if you paid extra each month – doubling the principal payment? The advantage of this strategy is that your extra payments start out low and then grow over time as (hopefully) your income increases. The result is that you pay off a 30-year mortgage in approximately 17 years.

3. Dedicate Savings
One risk of prepaying a mortgage is that if you need the money, it is already gone to prepayments. Speak with a qualified financial advisor for options; two products are a must to ask about:
  • CD (Certificate of Deposit)
  • Money Market Savings
When your principle balance and your savings balance match, it could be time to think about an early mortgage payoff.

4. Refinance to a Shorter Term
Perhaps the most direct way to accelerate your mortgage repayment is to refinance into a shorter-term loan. The biggest advantage of this method is that shorter loan terms usually come with lower interest rates. Take the previous example discussed earlier in the article; by refinancing a $200,000 30 year fixed loan at 7.25 percent to a 15 year fixed at three percent, you could save $242,560 over the life of the loan.

5. Bi-weekly Payments
Another easy way to accelerate a mortgage payoff is to divide the monthly payment in two, and make half of it on the first of the month and half before the 15th of each month. This works especially well if you get paid every two weeks. Instead of making 12 monthly payments, you’d make 26 bi-weekly payments; this is like making an extra payment each year. On a 30-year mortgage at 4.0 percent, those interest savings would shorten your mortgage by just over four years. Remember, you may have to make one full payment prior to setting up bi-weekly payments, so ask your lender what is required for this setup.

Before You Pre-pay Your Mortgage
While becoming mortgage-free is a good goal, there may be smarter uses for your money. If you have high-interest credit card debt, for example, you’ll save more by paying it off than you will by making extra mortgage payments. Remember credit card debt typically carries a much higher interest rate and is not usually tax-deductible. You should also have an emergency fund – enough to cover three-to-six months of living expenses. Finally, make sure your retirement account is fully-funded, especially if your employer matches your contributions.

By using any of these tips, or by combining two or more of them, you may move up your mortgage payoff by years. Speak with your tax professional and your financial advisor and compare mortgage rates for refinancing to find the best scenario for you.

Thursday, January 22, 2015

4 Ways to Sell Your Home Faster

Looking to sell your home in a hurry? A quick closing may be right around the corner if you follow these tips.

1. Target What Buyers Desire
While buyers' first priority continues to be location, house hunters may be willing to pay more and make an offer quicker if a home has the right amenities. The key to a faster sale may not be adding the features buyers are looking for, but marketing the features buyers desire that your home already has.

2. Let Your Price Do the Work
Setting the right price can have a significant impact on how quickly you sell your home and is one of the biggest decisions in the selling process. Something as simple as whether you set your price at a round number ($300,000, for example) or an odd price ($299,999) can affect whether or not your home appears in a buyer's search as well as having a psychological impact. A few simple steps for smart pricing can help you appear in more home searches and help you market your home.

3. Get Ahead of Negotiations
Are buyers responding to your big yard with concern about maintenance? Does the square footage of your home mean lots of time cleaning for any buyer? Instead of letting this be a pain point, be a savvy negotiator and consider offering up landscaping or cleaning services for the year to move the sale along quicker.

4. Always Be Ready to Close
Don't wait until you've received an offer to begin finding the professionals and forms you'll need to seal the deal. Having a real estate attorney and closing company chosen and at the ready can help speed up the closing process. Compiling all of the real estate forms you need from deeds to contracts will allow you to be ready for closing at any time.



Tuesday, January 13, 2015

3 Things Millennial Home Buyers Want

What can sellers do to appeal to Millennial home buyers? Karen Lawson of LendingTree looks at what members of Generation Y want from their new home and why sellers should market to those desires.

Millennials (loosely-defined as those individuals born between 1981 and 1996, also known as Generation Y) face obstacles to home ownership that their Baby Boomer or Gen X parents did not. The Brookings Institution reports that Millennials will account for one in three adults by 2020 – a force to be reckoned with. However, the National Association of Realtors® reports that although the "leading edge" Millennials aged 25 to 34 want to buy property, they can’t without stronger job markets and a wider choice of affordable residences.

Challenges Faced By Millennials

The main hurdles faced by Millennials are affordability, jobs, and inventory.

Affordability
Millennial home buyers face a double threat of low wages and staggering student loan debt. According to a report by the Economic Policy Institute, student loan debt grew by an average of six percent annually between 2008 and 2012. High levels of student loan debt can make it impossible to qualify for a mortgage, and as property prices rise, owning a home becomes a moving target.

The Economic Policy Institute reports that 2013 college grads earned an average annual salary of $34,500; this was the lowest average pay since 1998. Which areas are most affordable for these grads? The National Association of Realtors® named Austin, Texas and Salt Lake City, Utah among areas with "relatively affordable" properties.

Jobs
Millennial buyers face subdued (but improving) job markets, and the available jobs are likely to come with fewer employer-paid benefits like health insurance and pensions. Employees who pay for these things themselves have that much less cash available to buy homes. The National Association of Realtors® identified Austin and Dallas, Texas and Grand Rapids, Michigan as cities with the strongest job growth within metro areas identified as attractive to Millennials.

Inventory
The National Association of Realtors® reported that the Ogden and Salt Lake City, Utah and the Minneapolis-St. Paul Bloomington MN-WI metro areas had the highest increases in available houses between May 2013 and May 2014. Wherever Millennials look for their next homes, they prefer a good selection of properties and neighborhoods to choose from.

Millennial Home Buyers: Savvy Shoppers
Millennials have morphed from shopaholics into careful consumers: Bloomberg-Businessweek reports that today's Millennials are responsible and resourceful buyers who no longer deserve their earlier reputation as tech-toy-crazed materialists. The Great Recession changed all of that.

According to Bloomberg, Millennials currently spend about $200 billion a year and make up about 25 percent of the workforce; by 2020, they will comprise the majority of the workforce and their spending will double.

The National Association of Realtors® says that Millennials value their neighborhoods as much as their homes. Millennial home buyers prefer open single-story floor plans, wood or tile flooring and environmentally-friendly "green" features.

Millennials shop online for everything -- including homes. In addition to searching the web for homes, Millennials can educate themselves on every step of the home buying process and even get personalized mortgage rates online.

Thursday, January 8, 2015

5 Most Popular Homes for Sale By Owner in December

Our most popular sellers hit house hunters' hot buttons in December with great listing photos that highlight their curb appeal. Enticing photos made each of these homes an easy choice for our Home of the Week on social media, which added thousands of views to each listing. What marketing tips will you take away from these homes?


1. 312 Vanburg Place, Lafayette, LA 70508
Price: $635,000
Highlights: Our most popular home for the month of December is a beautiful 4-bedroom, 3.5-bathroom home in Lafayette that was custom-built in 2013 with an interior designer's attention to detail. The chef's kitchen includes cathedral ceilings and Thermador appliances while the master suite includes a walk-in closet, standalone tub, separate vanities and walk-in shower. Plenty of amenities to admire on this listing.


2. 259 Bob White Rd, Ocoee, TN 37361
Price: $369,900
Highlights: Custom-designed and built in 2013, this 3-bedroom, 3.5-bathroom home offers 3,126 square feet of living space on 3.35 acres with a stunning view of the Great Smoky Mountains. Hardwood floors are featured throughout with exotic Brazilian Koa flooring on the main level. A gourmet kitchen provides high-end stainless steel appliances while the master suite has a separate oversized shower, soaking tub and double vanities.

3. 200 Oak Glen Ct, Seneca, SC 29672
Price: $420,000
Highlights: Built in 2009, this 4,100 square foot modern treasure offers a 17-seat custom home theater, a spacious great room that includes a rock fireplace with TV insert and a gourmet kitchen in addition to it's 5 bedrooms and 3.5 bathrooms. The house also has a spacious 3 car garage as well as an additional 675 square foot shop/garage in the basement that can be used for storage and projects.

4. 731 Martinsville Ford Road, Bowling Green, KY 42103
Price: $650,000
Highlights: Improvements completed in 2010 more than doubled the size of this 3-bedroom, 3-bathroom to 3,450 square feet and included the addition of a covered porch with a fireplace as well as a new master suite with a walk-in shower. Beautiful exposed beams accent the greatroom and loft above it, while the kitchen is modern and part of a spacious open floor plan. This is country living at it's best.

5. 15 Michigan Avenue, Massapequa, NY 11758
Price: $699,000
Highlights: This 4-bedroom, 3-bathroom home was beautifully expanded and renovated in 2013. Exterior features include a beautiful front porch and fenced-in backyard while an open floor plan and large bedrooms help make all 2,400 interior square feet feel spacious. Wood floors, handcrafted moldings, solid wood doors and beautifully appointed tile show that this home was built with craftsmanship in mind.




Wednesday, January 7, 2015

How to Estimate Repair Costs with a Fix-and-Flip Investment Property

You’re new to flipping houses, and you’ve already heard your share of warnings about one of the biggest pitfalls in the business: underestimating repair costs.

Those warnings are true. Unexpected repair costs are going to find their way out of the woodwork when you flip a house, regardless of how careful you are. But that doesn’t mean you can’t enter the house-flipping battlefield with a foolproof plan of attack.


If you’re looking for a checklist that will help you anticipate all the repair costs of a fix-and-flip investment property, you’ve found it. Read on to arm yourself against the worst known budget-saboteurs in house flipping—and the unknown ones, as well.

The House
The first thing most of us think of when we think “repair costs” is the house itself. That’s the easy part. The less-than-easy part is this: What exactly do you need to fix?

The answer literally runs the gamut from “almost nothing” to “almost everything,” whether that means a simple cosmetic paint job, changing out a few fixtures here and there, or gutting the entire 1970s-era kitchen. And sometimes the things you need to fix aren’t always the things you can see. We’ve all seen that house-flipping episode on HGTV where they take a sledgehammer to the wall and find ten years of mold lurking in the shadows beyond it. Your fix-and-flip investment will probably have its own share of surprises. So how do you make sure you haven’t overlooked anything?

You create something called a “budget repair sheet.”

Budget repair sheets are also called “cost estimate forms.” They are basically spreadsheets that keep track of what needs to be repaired in different areas of your house. With your budget repair sheet in hand, you do a walk-through of the property with your general contractor (who will help you figure out what to put on the list), making note of the things that need to be fixed.

It might still be tricky to spot the mold in the walls, but as far as estimating physical repairs goes, a budget repair sheet is definitely your safest bet.

The General Contractor (GC)
You probably noticed that, in the example above, you weren’t walking through your investment property filling out the budget repair sheet by yourself. You had a general contractor with you. And there’s a good reason for that. When you’re new to flipping houses, sometimes “you don’t know what you don’t know” about construction. Usually, trying to wing it on your own will end up costing you more money than if you just hired someone who knew what to do in the first place.

Keep in mind that you’re not looking for just any GC. You want a general contractor who will get the job right and stick with your project to the very end. Ask around your social network to get some recommendations, or contact the local public works and building department for some reliable names. You can also check online referral sites for promising reviews.

A good general contractor will make your life a lot easier, and will also free up your time so that you can start hunting for your next investment property. Just don’t forget to add the GC’s salary to your estimated total repair costs for the flip.

The Subcontractors
You’re also going to need to pay a few different subcontractors to take care of the specific repairs in your fix-and-flip. Your subcontractors are your painters, plumbers, electricians, and so forth. If you have a general contractor, then you’ll have some help getting fair quotes from all of the subcontractors that you’ll need when you flip your house. Many GCs will even find the subcontractors for you so that you don’t have to deal with the hassle of it yourself. But you’re still going to have to foot the bill.

Carrying Costs
New fix-and-flip investors sometimes overlook carrying costs. Repairing your investment property is probably going to take a few months, and during that time, you’re responsible for basic upkeep. That means that you will have to pay utility bills (gas, water, electric), as well as insurance and property taxes. Depending on what kind of property you have, you could also have to pay HOA or condo fees.

So, not surprisingly, the timeframe is key when it comes to estimating your carrying costs. You and your general contractor will want to keep an eye on the subcontractors to make sure they’re finishing their jobs on time and on budget. Create a schedule that everyone agrees to in advance, and then follow up on it to make sure that your subcontractors are sticking to the plan. If one subcontractor falls behind a couple weeks, it could cause a domino effect of delays—and carrying costs could sabotage your budget.

Expect the Unexpected.
Even when you’re careful, it’s almost guaranteed that part of your renovation will throw you a “surprise party”—and then send you the bill. Always expect the unexpected, and build a buffer into your total estimated repair costs. After you’ve calculated everything you can according to the checklist above, set your budget to be 10% more than the number you come up with.

You might not always see the sneak attack coming. But if you account for what you know, and plan for what you don’t know, you’ll come out on top at the end of your fix-and-flip experience.

Looking to find a great investment property in your area? Search homes for sale from by owner sellers and save thousands in commission. 

This information was originally published on Auction.com, the nation's leading online real estate marketplace. Kristine Serio is a writer and editor specializing in business and real estate. Her real estate roots stretch back to her grandfather, who launched a profitable second career as a real estate investor during the 1950s. Kristine’s authors and entrepreneurs have been featured in The New York Times, O: the Oprah Magazine, and the San Diego Union Tribune.