Real Estate Investing Facts

Why is it some investors seem to float through “interesting” times successfully with their deals flowing smoothly and profits consistent, while others seem to languish, having problems with their investments not performing as they should, and their deals not consistently delivering their expected profits? I think it is because they don’t follow some basic rules for successful investing that I’ve found over time.

I’ve listed some of the most important aspects I’ve found below, but let me give you the overall Rule #1 I’ve set for myself when it comes to investing.

Rule #1: I’m not a victim!!!

This means that all wins and losses are up to me. I am solely responsible for my actions and outcomes, and I take full responsibility for all good or bad things that happen.
Please read that over 3 times!

Whether you are new or experienced this pertains to you. It is impossible when you are new to know everything about the business, and mistakes will be made. However, the best one can do is immerse oneself into learning all you can about investing “the right way.” That is why Alexis’ lab is such an important step in your training.

Rule #2: Do your homework.

As an example, do not just look at the average price of your comparable sales and actives. Get out and drive them. Knock on doors to see the most similar comps. Be “Alexis bold” and say, “May I please take a quick look around your house? I may be buying one around the corner and your home is the same.” It is imperative that you have a very good idea of the eventual sales price of your home. Also, really go deep with your contractor prior to writing your offers to ensure that your fixing-up prices are indeed accurate. These are just a few examples of “doing your homework.”

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Rule #3: It doesn’t happen twice.

Mistakes are inevitable. We all make them. But the winners rarely make the same mistake twice. They find out what they did wrong. Analyze other ways to do what needs to be done and correct the mistake or problem to make sure it doesn’t happen again.

Rule # 4: Always seek other options to ensure you are looking at the best solution to every issue.

Example #1: I find a great deal. Should I do it myself? Sell as is? Fix it up? Assign to a contractor? What are ALL of my options (think out of the box) for the best solution for my circumstances?

Example #2: I find a big, unexpected repair on a job. Do I do the repair? Do I just disclose it? Who else could I ask to look at it? Who could I consult who has been through this? STOP, THINK, write out options, and solve the problem.

I find the more options I consider (within reason—don’t get stuck), the better solutions I come up with.

Rule # 5: Abhor conflict.

Successful investors (and people in general) who look for solutions instead of conflict seem to slide easier through deals and life. Always avoid shaky characters and deals that just don’t “smell right.” When conflicts do arise, look for win/win situations. ALWAYS, in any situation, see things from the other guy’s point of view.

Well, I’m not helping you find deals with this article, I’m helping you make the deals you find go smoother, ensure profits, and most importantly, give you peace of mind as you build your long term real estate empire. This is a long-term process. Commit to the above and your journey to riches will be smoother.

Coach Tim Rhode

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If you are in the rental business, sooner or later, you are going to have a renter who inexplicably ceases paying rent. They may give you the run around with stories about why they can’t pay and promises of an entire payment plus late fees just around the corner. Or, they can simply neglect your phone calls and refuse to answer the door if you show up in person trying to collect rent. Bottom line is, when it comes to this point, such renters will need to be served with a three day notice to leave to start the evictions process. A suffolk evictions lawyer can help you with this.

While you may be frustrated and seduced to take measures into your own hands, it is quite essential to keep to the legal procedures for removing a non-paying renter from your premises. Specifically, the law expressly forbids you from doing the following:

Changing Locks

In no way is it legal for you to remove the locks, or install new locks on the property to “lock out” your tenant. It doesn’t matter if they are months behind on their rent, have entirely trashed the property and are in violation of every provision in the lease. They are lawfully protected against a “lock out” and may take you to court to regain entry.

Utility Shut-offs

You may not shut off the water, gas or electricity for the purpose to force your tenants to move out. Again, your renters, however far behind in rent they are, can seek legal recourse against you for this action and can collect heavy fines against you.

Taking Renter’s Property

You can not harass your tenant into moving out. This would include illegally entering the rental unit and taking their property. Only under very specific conditions (abandonment) is a landlord allowed to remove a renter’s possessions.

Physical Removal

Just the legal authority (usually the sheriff’s office or their agents) is allowed to remove a tenant after a writ of possession is obtained from the court and the legal waiting time has finished. This means that you can’t hire your own help to physically move out an occupant. Consult a nassau evictions lawyer for more information.

While the above list describes the main things that you, as a landlord, cannot do to get a tenant to move out, it is not all inclusive. Any number of different creative strategies to harass a tenant to leave are also illegal.

The one legal way to remove a renter from your property is to go through the legal eviction process. Yes, it costs money and yes it takes time. Remember that you are able to deduct the unpaid rent for the term that your renter remains in the property during the eviction process from their security deposit.

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If an investor buys a single-family residence to live in, the property will generate no income. Therefore, the lender qualifies the borrower with regard to the ability to make the payments.

Likewise, if an investor buys a residential property as a rental and the tenant moves out, the borrower will be required to make the mortgage payments until the property is re-rented. Therefore it should be no surprise that the lender is going to qualify the borrower with regard to the ability to make the payments. A single-family rental house is either 100% rented or 100% vacant. The lender will look at the worst-case scenario (100 % vacant) and determine whether the borrower can make the payments from his/her own income.

In apartment building financing, it is the property that primarily qualifies for the loan and not the individual borrower. While apartment buildings are purchased for potential appreciation, the actual cash flow called “Net Operating Income” (NOI) is what gives the building its value. NOI is what lenders are considering when making a loan on a property with the individual borrower’s financial situation as a secondary consideration.

In apartment building financing, the mortgage payments are referred to as the Annual Debt Service (ADS), and are made from the NOI of the property. Paying the mortgage in apartment building is called “servicing the debt” or “debt service.” Rents are collected. Expenses to operate the property are paid. The remaining cash flows called NOI are available to service the debt.

Apartment buildings are rarely 100% vacant or 100% rented. In the apartment building project the property can have significant vacancy and there may still be enough cash flow necessary to service the debt.

The lender considers numerous factors when qualifying the property. What is the typical vacancy and rental rates in the area? How does this building compare to those rates? What is its current vacancy rate? How long does it typically take to get units rented? Even with vacancies, does the property cash flow and if so, at what vacancy rate will it no longer cash flow?

The lender has many considerations and not one of these was your (or your money partners) FICO (credit score). What the lender may look at is your (or your investor’s) character. In other words, if the NOI is sufficient to service the debt, will the investor use that cash to service the debt or will the investor buy a fancy new car instead? Does the investor understand how to operate this type of apartment building and if not, has competent management been retained? They want assurances that their NOI will be protected.

The lender will also likely require the investor to retain a portion of the remaining NOI as “reserves.” Most lenders will require those reserves to be deposited with the lender so they can be easily used to cover any unexpected shortage in cash flow, allowing the investor to continue to service the debt.

Additionally, the lender is going to apply a margin of safety in their loan underwriting to assure that the amount of debt service the investor is obligated to make is less than the cash flow the property produces. To do this, they will apply what is called a “Debt Service Coverage Ratio” also called “Debt Coverage Ratio” (DCR) to determine the amount they will loan on the property.

In conclusion, apartment lenders base their lending decisions primarily on cash flow from the property and not of the financial strength or creditworthiness of the borrower. Additionally, they apply safety measures including the establishment of reserve accounts and a DCR to assure that the cash flow from the property will be sufficient to service the debt.

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Have you ever been hit by something that you should have prepared for…and didn’t? It’s like the time when you computer crashed and you hadn’t backed it up in a few weeks or you spent hours on a document that you hadn’t saved as you went? Well, if you have a business there is something that you might have put off that will hurt you much more, if you get caught.

I’m talking about documentation that you need to prove you legally and legitimately are running a business. It’s the stuff that doesn’t really matter, until it does matter. Without it, you could lose everything you own in a lawsuit or find yourself buried in tax liens that you can’t ever get out of.

This is the documentation that you need to have so you can keep out of hot water if the worst happens.

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Here’s a quick list of the basic documents you’ll need to create a C Corporation, S Corporation or an LLC:

C Corporation Articles of Incorporation (filed with your home state) Bylaws Share Certificates Organizational Resolutions of the Directors Organizational Resolutions of the Shareholders
IRS Tax ID Confirmation Filing Letter (this is generated when you file IRS Form SS-4, either by mail, fax, or online at the IRS website)

State Business License S Corporation
Articles of Incorporation (filed with your home state)
Bylaws Share Certificates
Organizational Resolutions of the Directors
Organizational Resolutions of the Shareholders
IRS Tax ID Confirmation Filing Letter (this is generated when you file IRS Form SS-4, either by mail, fax, or online at the IRS website)
IRS Form 2553 S Corporation Election
State Business License

Limited Liability Company
Articles of Organization (filed with your home state)
Operating Agreement
Member Interest Certificates
Organizational Resolutions of the Managers (if you have a Manager-Managed LLC)
Organizational Resolutions of the Members
IRS Tax ID Confirmation Filing Letter
(this is generated when you file IRS Form SS-4, either by mail, fax, or online at the IRS website)
State Business License

If you’re filing your LLC as a C Corporation you’ll also need IRS Form 8832, or If you’re filing your LLC as an S Corporation, you’ll need IRS Form 2553.

With these documents, you can be sure that your business structure will have at least the minimum required to stay legal and keep you protected. The fewer of these documents you have, the more trouble your business could have surviving a challenge from a lawsuit or from a tax audit.

Stay informed! At US TaxAid, we’re always looking to bring you the most current tax information out there, and to break it down into language everyone can understand. If you know anyone else who might benefit from the information resources you’ll find here, tell them to come and check us out. Remember, membership on our www.USTaxAid.com website is FREE.

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Copyright © 2010 Foreclosures.com.
This article is available for free distribution under the following terms:
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b) You must maintain all links to Foreclosures.com.
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If applying for a mortgage loan with poor credit, you will find steps you are able to take to assist you in getting a much better rate. Granted, if your credit score is low, the likelihood of obtaining a prime rate is slim. Nevertheless, reasonable rates are available for lower credit scores. As a homebuyer, you should be willing to investigate numerous lenders and compare diverse financial loan programs. Moreover, homebuyers should avoid maneuvers which could hurt their chances of approval.

Avoid Late Payments When Applying for a Mortgage loan

Even if your credit score is excellent, the occasional late payment is common. If your planning on purchasing a home, it is important to establish a good payment history with creditors – just before making a request for a house loan. Mortgage lenders understand that situations occur which make it difficult to pay bills on time. Nevertheless, if hoping to purchase a residence, it’s important to start creating excellent credit history habits.

Several loan companies approve mortgage loans to people with a number of late payments. Yet, these people will pay higher rates. To avoid higher mortgage rates, attempt to submit all credit card and loan payments on time. If possible, adopt new payment habits at least twelve to six months before applying for any mortgage loan.

Limit the Number of Credit history Inquiries

A common mistake made by some home buyers is allowing a number of financial institutions to pull their credit. Shopping around for a mortgage loan is smart. Nonetheless, if comparing three or four individual creditors, do not consent to allow your credit checked every time. Instead, request no-obligation quotes from creditors.

Quotes do not involve credit history checks. However, buyers should supply an accurate credit description. To do so, will assist in obtaining a copy of your individual report on the web, which does not count on your credit history report. Once the loan companies remit a quote, compare the various rates and choose the bank loan with the finest rates and terms. Next, complete a home loan bank loan application. To finalize the loan approval, the chosen lender will pull your credit score.

Prevent Opening New Credit history Accounts

When applying for a mortgage, it is essential to maintain a lower debt to earnings ratio. Obtaining new credit score lines while applying for any mortgage loan is really a poor idea. For instance, if you purchase a vehicle prior to your mortgage loan is finalized, this will increase your debt to revenue ratio. This could affect whether or not you even qualify for the approved loan amount. To steer clear of the hassle of having to re-qualify for any home loan financial loan, postpone opening new credit lines until the bank loan closes.

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