If you’re considering real estate as an investment, there’s one thing you’re guaranteed to hear:

Now is not a good time.

Your brother-in-law, your best friend, and your Great Aunt Minnie (who keeps her riches in a cigar box under the doghouse) will all surely recite text and verse. The time for real estate is over. No one can make any money in this market. If you’d just invested back in ‘93, then maybe…

Let’s start with an over-generalized, highly categorical statement that will surely cause twitching amongst the congregation:

• There are no bad times for real estate investment. And furthermore:
• Today is always a very good time to get started.

Let’s Discuss

Real estate is a diverse investment with multiple areas of interest. Saying you want to invest in real estate is similar to announcing you want to fly. O-kay… fly how? Are we talking single engine aircraft? Jet fighters? Helicopters? Or were you hoping to sprout wings?

In the world of REI, you’ve got rehabbing, buy-and-hold, speculation, raw land development, flipping, as well as numerous subcategories within each. There are up and down cycles for each type of real estate investment but at any given moment, at any location, there will be potentially profitable and decidedly poor ways to invest depending on current market conditions (which have this nasty way of changing when you’re not paying attention. )

For example, a rapidly appreciating market makes it difficult for buy-and-hold landlords to find homes with positive cashflow while flippers are out having a blast. When list prices drop like bowling balls from an airplane, buy-and-hold investors rejoice and make merry whilest flippers make like chicken little (and rightly so.)

The Magic Key

There is no substitute for learning your market. You can’t rely on CNN and the nightly news for your intel. (Besides, those guys seem to think everyone lives in NYC or Boston.) All the stories about house prices dropping…how about we define, exactly where? Not in my area. Not in tons of other places either. But if, thanks to cable news, you think the median house price is $245,000 and show up in my neighborhood, excited to find new homes selling for $150,000, you’re liable to overpay by 20-30K and wind up with the albatross of negative cashflow draped indelicately around your financial statement.

And just for the record, ‘tis a very bad idea indeed to decide which area of REI to specialize in before learning your local market. A biggie problem we see in here are newbie investors, fresh out of some seminar with A Method. Six months later, they’re whining that ‘it doesn’t work here.’ Well, Duh! If they’d taken the time to learn the local market first, they never would’ve gone to that seminar in the first place and could’ve saved a ton of both cash and time, not to mention aggravation.

And in Closing…

As investors, we must adapt with the market. Markets change, the economy heats and cools, Wall Street bears or bulls. As big-shot investors, committed to growing a healthy portfolio padded with the increase available through real estate investment, we either Adapt or Die. It’s survival of the fittest, baby.

But one thing’s for certain:

• Someone near you knows their local market.
• Someone’s done their homework.
• Someone’s prepared to take advantage of current market conditions.

At any given time, someone in your area is making money in real estate investment.

Now is a very good time to get started. Always.

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Tags: real estate, real estate investing, real estate investor

For the novice real estate investor, it’s mighty tempting to handle business deals and tenant phone calls from home, but having a home office or dedicated office area provides a degree of separation essential for running a successful real estate enterprise. No matter how hard you try, it’s impossible to sound professional with a screaming baby on one hip and SpongeBob blaring in the background.

Thinking like a successful business person and presenting a polished front to clients and colleagues begins with a state of mind, not a desk. Think separation-keeping business and home life apart where never the ‘twain shall meet. A home office doesn’t have to be elaborate to get the job done. Many a successful business person’s started with a separate phone line and answering machine.

Our first office consisted of business phone line coming through the dining room wall, a $10 phone and an answering machine atop a 2 drawer filing cabinet we picked up at Wally World for 25 bucks. When the phone rang, I threatened all child-units into silence, plastered a smile across my chops, imagined myself with neatly coiffured hair and a French manicure and transformed from June Cleaver to Betsy Businesswoman. The kids pantomimed their hysterics by clutching their bellies and rolling about the floor -silent hysterics as any peeps would’ve earned the little ratfinks cow-stall cleaning duty for a month.

A Place of My Own

A step up from the cabinet in the corner would be dedicating a room entirely to business use. When we built our current home, we looked for a plan with a first floor room near the front door (and the potty) to corral all the landlord office equipment and paperwork in one easily accessed spot. A single closet with shelves evenly spaced to the ceiling provides tons of room for office supplies. A cup-hook system with color-coded tabs keeps keys to each house out of the drawers and within reach. (Its super secret squirrel location also keeps nosy neighbors from knowing all our business if they stop by for afternoon java.)

Office furnishings don’t have to be elaborate or trendy, but if you’re spending tons of time staring at the walls anyway, you might as well make things pleasant. Recently, I found a totally cool MCM bookcase for $25 (that’s Mid Century Modern for all you decorating challenged individuals. You remember, the stuff your grandma couldn’t give away at her yard sale back in ‘73 that’s now going bonkers on ebay). It’s big enough for all my REI books plus the writing books that should’ve taught me how to quit writing mile-long sentences interrupted with dumb tidbits of useless information.

My office: plastic tables, antique swivel-chair, lovely HP-Officejet, etc.

A nicely equipped home office would include:

• A desk: We use two plastic folding tables from Sam’s Club sitting at right angles in a corner. Not pretty, but cheap and sturdy.

• Office chair: Make it adjustable and cushyand your back will thank you.

• Phone + answering machine: Spring for a better machine if possible. The newer, digital messaging system makes yours truly sound young, hip and professional, no lie. My kids snicker every time the silly thing comes on.

• Lighting: This is surprisingly more important than you might imagine. Any extra will help, but recently we splurged on one of those new daylight bulb lamps and the difference on my poor middle-aged eyes was immediate and dramatic.

• Dedicated phone line: Out here in the boonies, cell phone reception’s beyond laughable. We pay $40/month for a basic line with call waiting, caller ID and call forwarding. Even if you use a cell phone (young whipper-snappers), a landline may be necessary if you need a fax machine. Speaking of which-

• Fax machine/ printer/ scanner/ copier: I’m totally in love with my HP Officejet all-in-one. In fact, I’d marry the thing if the mister didn’t have first dibs (might do it anyway if the ink were a bit less expensive…) If you don’t have a copy machine, this puppy will make you cry with delight every time you throw your keys back in the drawer instead of fighting the Goth chicks for copy-time at the library. And don’t even get me started on the fax machine… so lovely.

• Filing cabinet: Word of experience–don’t skimp here! The cheap-o model we started with drove us to the loony bin and back– drawers sticking every which way, files falling sideways and out the back. Look for solid construction and file drawers with *sides* not rails. Hon’s a good brand available at most office supply stores.

• Shredder: Self explanatory, really, but be careful-one ate my fingers during a feeding frenzy and the result was very ugly (and painful.) I’ve given all my kids shredder lessons since that time and having a mangled hand to wave around illustrated the point quite well.

The Holy Grail: The IRS Home Office Deduction

Lots of folks are afraid to take the home office deduction, fearing they’ll trigger an audit or worse. But these days, with hundreds of thousands of folks working from home, the deduction is much more common and fairly simple to figure, as long as you have dedicated space used only for business purposes. Our accountant suggested we forget the idea of putting a sleeper sofa in our office, suggesting that making the office a multi-purpose room (office + guestroom) would muddy the waters, making the deduction harder to justify if we were ever challenged.

There’s no reason to forgo a legitimate deduction and, over time, this one can really add up. This year, ours is running in the $3000 range-nothing to sneeze at, for sure. For a simple calculator, check here to see how much your deduction might be. You can learn about the legalities through a simple, online search. (Here’s a good place to start.)

Home Offices are Good and Stuff

For any type of real estate related business, you’ll need a separate phone line or cell phone, answering machine with caller ID, and a filing cabinet. Later, you may want to add a fax machine, a computer just for your business, printer and (gasp!) perhaps a real desk.

Our home office is one of my favorite spots. Business stuff stays where it belongs-away from my kitchen. The ability to turn the volume up on the answering machine and close the door means we hear incoming calls and messages from most anywhere in the house, but can choose to ignore them all we want. During office hours, we set the answering machine to pickup after 4 rings, giving plenty of time to get to the phone if we’re advertising a vacancy or just feel like playing big-shot real estate investors for the day.

One of these years, I plan to outgrow my home office, but in the meantime, it’s probably my most favorite spot…

… right after that fishing hole just down the street a’ways.

Another look at nirvana: Even the drapes are deductible.

Cool MCM bookcase, file cabinet and other stuff.

Tags: deduction, home office, irs, office, productivity

Success as a landlord depends on screening tenants-weeding out the Naughty and renting to the Nice. Awareness of (and compliance with the Fair Housing Act is not only necessary, but essential to success for any rental business. Adopting a set of written criteria for tenant selection is one of the best (and easiest) ways to stay on the goodie-good side of the Fair Housing Act.

In its simplest incarnation, written criteria can be nothing more than a simple set of guidelines which clearly define who can rent your properties. For example:

Applicants:

• Must have verifiable monthly income of at least 3 times the rent
• Need credit score over 600
• Provide copy of photo ID
• Must have no prior evictions

Keeping things simple works, but more detailed criteria can help chose between several qualified applicants.

Let’s Makes Things as Difficult as Possible…

Here’s a sample set of written criteria using a point system. Criteria are weighted according to the importance the landlord places on each item- a system that allows more freedom for personal preference. (In the example below, it’s fairly obvious the landlord gets highly peeved by lateness and no-shows when showing his properties.)

Once again, feel free to cut, paste and personalize to suit your circumstances. A quick internet search will yield a surplus of additional ideas and clauses to suit a multitude of situations and localities. (Apologies in advance for formatting errors which fail to translate well from MSWord to Blogsville.)

Interview: House showing:

1. On time for appointment: 5 points
   1. Running late, called to inform: 3 points
   2. Late: 0-10 minutes 2 points
   3. 11-20 minutes 0 points
   4. 20+ minutes- landlord leaves, applicant rejected
2. Respectful and courteous: (subjective, score -5 to 5)
   1. To landlord:
   2. To each other:
   3. *Cursing, swearing, pushing, shoving, and violent behavior, demeaning speech or treatment of landlord or landlord’s agent or to one another: Applicant rejected
3. Neat/Clean appearance of all parties: 5 points

Application:

1. Attached copies of ID to application: (Driver’s license and social security card)
   1. Yes: 5 points
   2. No: 0 points
2. Filled out application entirely leaving no blanks:
   1. Yes: 5 points
   2. No: -5 points, grounds for rejection
3. Brought application fee? ($25)
   1. Yes: 5 points
   2. No: application shelved until funds received
4. Application complete without errors or omissions:
   1. Yes: 0 points- expected
   2. No: application rejected
5. Able to provide
   1. verification of previous address: Driver’s license or utility bill: 5 points
   2. Proof of income, employment: Pay stub: 5 points
   3. If self employed, a tax return or bank statement: 5 points
6. Able to pay first months rent:
   1. Yes: 0 points
   2. No: application rejected
7. Able to pay full amount of security deposit: 5 points
   1. Half of security deposit? 0 points
8. Monthly income= 3X rent amount ie: ($1350 x 3 = 4050/month or $48,600 / year).
   1. Higher 3X-4X: 5 points
   2. 3X: 0 points
   3. 2X or below: Application rejected, co-signer considered
9. Stable income or employment
   1. For of 3+ years: 5 points
   2. 1-3 years: 3 points
   3. 0-1 year: 0 points
10. Credit history:
    1. Score over 700: 10 points
    2. Score 650-700: 5 points
    3. Score 600-650: 2 points
    4. Below 600: 0 points
    5. Bankruptcy: -10 points
    6. Collections: -5 points
11. At current address for a minimum of:
    1. 1 year: 3 points
    2. 1+ years: 5 points
    3. Less than 1 year: -5 points
12. No pets: 5 points

Pets accepted on a case by case basis. No large or heavy breeds of dogs-no dogs over 20 pounds. No snakes, reptiles or birds larger than a canary.

1. Non-smoker: 10 points
2. Number of residents does not exceed occupancy limits: (2 per bedroom+1)

Background Check/Screening

Name must not appear in Sex Offenders Registry.

Criminal history may not contain drug offenses within 7 years except for one conviction for possession of a controlled substance.

Criminal history may not contain felony convictions within 7 years for violent crimes or property crimes.

Those with criminal history’s dating 7+ years will be considered on a case by case basis.

1. Verified previous landlord? 5 points
2. Verified 2 previous landlords? 10 points
3. Gave proper notice to previous landlord? 5 points
4. Verified rent amount to previous landlord? 0 points
5. No problems with previous landlord? 0 points
   1. Problems: Possible rejection
6. Prior evictions: Application rejected
7. Previous deposit fully returned: (None held for damages) 5 points
8. No significant violations of previous rental agreement: 5 points
9. Complaints filed with police dept for disturbances: Application rejected

Score: ______

Applicant: Accepted _____ Rejected____

Meanwhile, Back at the Ranch…

Many small-fry landlords never grow up to become big-shot landlords, because they never learn to do business like a grown-up. Professionalism is mandatory. Think like a pro, act like a pro, be a pro. It’s vital to set up systems and procedures and behave like the successful business person you want to become-not the one-home owner you may be at the moment.

Next week: The Home Office (unless I drown under piles unorganized paperwork between now and then…)

No comment.

landlord, tenants, rental

“No person shall be subjected to

discrimination

because of race,

color, religion, sex,

disability, familial

status, age, or

national origin.”

Housing discrimination isn’t a joke. It’s against the law and narrow-minded landlords who refuse to rent to those belonging to protected classes can find themselves on the wrong end of a well-deserved lawsuit.

Of course, you’d never find such low-life scum around here, but what about the small time landlord, bopping along minding his own business with no idea that entire organizations exist (and receive funding) for the expressed purpose of catching them unaware (read that: No bigots, No paycheck)?

For example:

A fellow by the name of Ned owns an 8-plex in a rough part of town. Gang activity is high and Ned knows that if he rents to just one gang member, all his tenants will grab their big screen TV’s and flee en masse. Oddly enough, the local gangs aren’t familiar with the anti-discrimination laws and only allow one particular ethnicity to partake in their social activities.

At first, Ned keeps his eyes open and watches the applications closely, vigorously checking criminal records, and for a time, all is well. Until the tenant in 6B allows her grown son to move in after making parole without telling Ned, causing several vacancies before he can get the situation under control.

A few more doting mammas and Ned’s fed up. He begins, whether consciously or unconsciously, avoiding anyone from this particular ethnic group. Ned’s not necessarily trying to discriminate-he’s trying to protect his investment. But no matter, pretty soon Ned gets a visit from the local housing authorities and he’s losing a lot more than a few months rent. Maximum fines reach $10,000 for a first offense and up to $50,000 for a third violation in seven years.

I’m Not A Lawyer, Nor Do I Play One on TV…

To protect yourself, it’s a good idea to spend some time getting cozy with the Fair Housing Act. Remember, interpretation varies from state to state and ‘protected classes’ can change at any time. For now, protected classes include:

• race
• color
• religion
• sex
• familial status
• national origin

Also, be aware that activists target members of protected classes, encouraging them to file suit and those who file have monetary incentive as they can collect not only for any actual loss, but also for ‘embarrassment and mental anguish.’ Once a complaint is filed, ‘testers’-individuals posing as members of the same protected class as the complainant-will call repeatedly, trying to catch you in some perceived discriminatory practice.

Rather than get into the intricacies of the law, let’s discuss some commonsense ways to stay on the sunny side.

Goes without saying, but:

• Treat Everyone the Same. No matter how many homes you do (or don’t) have, answer the phone and conduct all interviews in professional manner.
• Don’t ask stupid questions. Sorry, but ‘are you Polish?’ is just asking for trouble.
• Set occupancy rates for every unit and put it in writing. Its only logical to want to keep the number of people per unit low to minimize wear and tear, but consistently picking adults without children for your small apartment may get you in trouble with the ‘familial status’ rules.
• Return all phone calls in a timely manner. Don’t even think about ignoring calls from people who ‘sound’ like a protected class. (I *know* my accent’s thick, but just try to discriminate against The South and I’m liable to slap you with a suit myself.)
• Don’t tell someone your place is rented when it isn’t-doesn’t matter what the reasoning, someone’s going to scream if they figure out what you did. It’s our policy to continue showing all houses until the lease is signed.
• Number your applications as they arrive and choose the *first qualified tenant.* Let your applicants see you do the numbering, just for grins. Which leads us to…
• Have written criteria and follow them religiously (More on this next week). Sign and date a copy and mail it to yourself. If and when you make changes: Lather, Rinse, Repeat. Keep the unopened letters in your files, just in case.

Soapbox Time:

It’s a shame we live in a world where organizations like the Fair Housing Authority are necessary but they are and we do. Fear of lawsuits shouldn’t keep honest folks away from landlording, but a head-in-the-sand mentality can put you out of business.

Last Week: Managing Tenants, Part One: 5 Favorite Lease Clauses
Next Week: Written Criteria

Boxers are not a protected class…but they’re working on it.

Like every other landlord, we’ve had a few tenants with Special Needs. My favorite story (given a healthy amount of hind-sight and a Valium or three) involves a well-qualified, newly single business manager who moved into our quaint ‘40’s style garage apartment.

On paper, she looked like a dream tenant–stable job, good income, decent credit. A week after move-in, her ‘brother’ appeared. Seems our dream girl spent nights and weekends trolling for boyfriends on some questionable websites and caught herself a doozie. Drugs? Check. Criminal record? Check. Violent behavior? Check. Equally skuzzy friends hanging about premises? Double check. This jewel lasted only 6 weeks.

A Good Lease is Like a Sturdy Fence

The clauses in a lease can by divided into 2 general categories. The first are the necessary legal rhetoric which conform to the landlord/tenant statutes of your state and spell out the specifics of your agreement-the Who, What, Where, When and How Much.

The second type are far more interesting and just as important. These are the “You’d Better or We’re Gonna” clauses and should be written in specific, yet clearly understandable language (preferably English, not Klingon.) Just as parents lay down the law to their children- eat your veggies, clean your room, don’t spit in the house-landlords must clearly communicate what is and is not allowed. These are The Rules for living in your house.

Here are 5 of our favorites, taken directly from our lease and probably swiped from elsewhere. Feel free to cut and paste at will, just make sure you check with the proper smart people to see if they’ll fly in your state.

QUIET ENJOYMENT: Tenant shall be entitled to quiet enjoyment of the Premises, and Landlord will not interfere with that right, as long as Tenant pays the rent in a timely manner and performs all other obligations under this Lease

This is one of my favorites-tenants love it. I like to read this out loud with the proper flourishes and hand gestures (sets the tone nicely before laying down the law on other issues.)

USE OF PREMISES: The property shall be used as a residence by no more than ____ persons, and for no other purpose without written consent of the owner. Occupancy by guests without prior written consent staying over ten (10) days within one calendar month will be considered to be in violation of this clause.

If it is determined that one or more additional tenants have occupied the premises, such unauthorized tenants shall cause the rent for the premises to increase by $5.00 per day for each unauthorized tenant for each day exceeding the allowable ten (10) days.

Owner may, but is not obligated to, give written consent to allow the new tenants to continue occupying the property with an additional security deposit of $500 per tenant and an increase in rent as described above. A newborn or adopted child shall not be deemed an additional tenant.

In other words, ‘you specified 3 persons on the application, there better not be a fourth unless she weighs 7 lbs, 5 oz.’

DRAIN STOPPAGES: As of the date of this Rental Agreement, LESSOR represents, warrants and covenants that the sewer system of the Residence is in good working order, and that the sewer system will accept normal household waste for which the sewer system was designed.

LESSOR informs the Tenant that the sewer system of the Residence is not designed to accept many types of items, included but not limited to, paper diapers, sanitary napkins, tampons, children’s toys, wads of toilet paper, balls of hair, grease, oil, table scraps, clothing, rags, sand, dirt, rocks or newspaper.

Tenant agrees to pay for clearing the sewer drains of the Residence of any and all stoppages, except for those stoppages which the LESSOR will agree were caused by defective plumbing, tree roots, acts of nature, or which are declared in writing to have been so caused by the plumber or other person who is called to clear the stoppage.

No one calls us to unstop a toilet-ever. We demonstrate that all plumbing is working and lines are clear at the lease signing. We don’t live there. We don’t flush cooking grease down the drain or Hot Wheels down the toilet. Stopped sinks and drains are the tenant’s responsibility-The End.

Parking: Tenant shall be entitled to use _____ parking space(s) for the parking of motor vehicle(s).

Applicants list all vehicles including license plate information on the application. Nothing else is allowed on a permanent basis. We tell our tenants, if you have two cars, you can park two cars-not two cars and a boat, not two cars, one truck on blocks and one RV your parents drove in from Florida and certainly not without written authorization.

MAINTENANCE AND REPAIR: Tenant will, at Tenant’s sole expense, keep and maintain the Premises in good, clean and sanitary condition and repair during the term of this Lease and any renewal thereof.

Tenant shall be responsible to make all repairs to the Premises, fixtures, appliances and equipment therein that may have been damaged by Tenant’s misuse, waste, or neglect, or that of the Tenant’s family, agent, or visitor.

Tenant agrees that no painting will be done on or about the Premises without the prior written consent of Landlord.

Tenant shall promptly notify Landlord of any damage, defect or destruction of the Premises, or in the event of the failure of any of the appliances or equipment. Landlord will use its best efforts to repair or replace any such damaged or defective area, appliance or equipment.

Not to be confused with the Damages Vs. Wear-and-Tear clause, this one’s more specific-don’t tear stuff up or you’ll pay, don’t paint or we’ll scream, don’t be a piggy or you’ll be hunting another sty

Meanwhile, Back at the Ranch…

Our lease has evolved over time. Like most landlords, we started with a standard lease and added a few things we thought might be helpful. After some actual tenant issues, we refined some clauses and deleted others.

A strong lease depersonalizes the landlord/tenant relationship-you no longer need to rant and whine and threaten. Simply point to the lease-The Lease Says So, therefore it must be done. (Waving the hands about in a mystical fashion whilest gazing upward towards the heavens adds an air of wonder to the Recitation of the Lease.)

A good lease is a beautiful thing and a joy forevermore.

Amen.

Not a lease but more relevant (and less random) than last week’s picture.

landlord, tenant, Lease, rent

We’re living in exciting times.

Folks all over are blowing the trumpet of doom and despair concerning REI. In fact, the mortgage crisis has almost reached cliché status (we’re anxiously awaiting Rosie to expound on her blog before declaring this a done deal.) Granted, it all sounds pretty bleak and while I’m not trying to make light of those who’re hurting, the current situation is presenting amazing opportunities for investors prepared for the change of scenery.

Yes, real estate investing is careening through some massive alterations. The days of runaway appreciation are over and speculative buying isn’t such a hot idea anymore. Flippers with current inventory who bought at the top of the market may get squished in the middle as prices continue to fall in overheated markets.

But real estate investment isn’t dead. It’s not even breathing hard. Investors will have to learn new strategies and adapt to the new reality while old methods may not be as profitable. But homes can and will be bought and sold and someone will make lots of money.

Pundits and other smart people have expounded on the current situation ad nauseum, but truth be told, it doesn’t take a rocket scientist to find ways to make money investing in real estate in the current situation. Most of the changes revolve around two major truths:

Credit is tightening

Prices are falling

Which means: bargains will be available, just harder to finance. The good news? If it’s harder to find financing, it’ll be harder for everyone to finance meaning less competition for inventory. Smarter people can expound on the myriad ways investors can make money when credit’s tight and prices are low… but just typing that sentence sends shivers of cheer coursing through my Inner Investor.

Here are a few tips for the days ahead-

Check the copyright.

Before buying any REI books or courses, you might want to check when it was written. Just as in the ‘80’s,when real estate investment changed so drastically following the new tax laws, once again things are changing almost too quick to keep up. Of course, some books are timeless-those based on principle rather than gimmick but others will be outdated or no longer applicable. That’s one reason websites and forums such as BiggerPockets are such a valuable resource. Information can be updated rapidly, keeping up with changing opportunities.

Learn everything you can about private lending.

Long before banks came along and swiped the idea, Mr. and Ms. Everyday Citizen toted the note. When money’s tight, someone’s going to fill the gap. Maybe that somone could be you. Or perhaps you’ll find others willing to loan money for the bargains coming up in the next few years. Now would be a really great time to brush up on the methods of creative financing, both as a borrower and a lender.

Every market is local.

Let’s repeat that another way… Market conditions vary from city to city, neighborhood to neighborhood, even from street to street. You can’t call Joe Investor on the phone and ask, “How’s the market down there in Texas, Joe?”

Wish it were that easy!

Every day I hear friends and neighbors fretting over ‘falling house prices’-the catch? The vast majority of homes here haven’t dropped one bit. Some of these folks seem to think we live in Boston.

Take my word for it… we don’t.

Hyperinflation of housing prices did not occur in every market. Some of us who-shall-remain-nameless were caught whining a time or three just wishing for a smidgen of the appreciation of California and Florida. On the other hand, poor lending practices have pretty much been universal for a while now. So here, homes over a certain price continue to rise at a steady 3-5% while older, starter homes are falling in price as a glut of sub-prime foreclosures hit our market and drag down the comps.

Word to the wise: Get to know your market (and don’t take CNN’s word for it.)

How’s your credit?

A good credit score is a valuable commodity and as credit tightens, it will become even more important to safeguard your score. During the next year, work hard to fix your credit scores.

That doesn’t necessarily mean paying off all personal debt. In fact, sometimes it’s best to use those dollars to invest in something that will produce extra income every month rather than pursuing an aggressive strategy of debt reduction that will leave you without a cushion for investment and emergencies. Personally, I like the Pay Yourself First approach-put 10% of net pay in savings before anything else and learn to live on the rest. Read “The Richest Man in Babylon” by Clason for more on this subject.

Find access to cash-

All cash deals may just be the biggest bargain out there in the next few years. Just this week, a nice 2 bedroom home in our area listed for half the price it would’ve brought just a year ago. Someone (quicker than myself) is going to pick up that puppy and cashflow all the way to a very healthy bank account. (Heavy sigh…)

Bargains will be available to cash buyers who can close quickly. But according to financial smart-guys, savings are at an all-time low. What to do? Perhaps you can liquidate assets to raise capital in one of these ways–

HELOC:

If you have equity in your primary residence, perhaps you can open a line of credit to make cash offers. Just make sure you have permanent financing lined up before writing offers.

Sell something:

Do you really need that boat? Have you got any gold or silver coins sitting in a drawer somewhere? There’s usually something that can be sold to raise capital if you scrape close to the bone.

Find a private lender:

Plenty of folks out there would love to earn a better return on their savings, but know nothing about real estate. Put together a nice portfolio, complete with a solid business plan and send it to a few individuals you know that might be interested. Don’t go asking for favors. Be professional, use conservative figures and show them the money. You might be surprised who’ll bite.

Develop a good working relationship with a local bank.

Sometimes local banks have different lending criteria than national companies and can offer attractive lending options for investors. One bank I know of will waive the seasoning rules for homes purchased with cash on a case by case basis (read that: for their customers with an excellent history of repaying loans on-time.) As of the last time I spoke to the loan officer, our local bank is willing to loan the full purchase price for homes we buy for cash as long as the appraisal comes in at 70% LTV and no seasoning period. Most big banks require at least a 10% down payment on investment properties no matter how low the purchase price- a policy that can really tie up your cash and require you to own a home for one year before taking out a mortgage.

Sound Business Practices:

There are times in life and business when the conditions are so extraordinary you can’t help but make money. For those of us old enough to remember the Turtles, we’ve seen booms and bubbles and busts before (google that if you’re under 45-best 60’s group evah). So maybe the boom times are over… so what?

We’ve heard it all our lives-buy low, sell high. So wouldn’t right about now be one of the best times to buy, when everyone else is running away, waving their hands and squealing like a bunch of girlie-men in wholesale panic maneuvers?

Okay then… let’s get ready to do some buying!

Another random picture that has nothing to do with the article… except that it was taken recently while out hunting for bargains… and there may or may not be some clouds which may or may not have silver linings.

REI, mortgage crisis, real estate investment, credit score, cashflow, HELOC

You don’t need the construction skills of Bob Vila to be a rehab professional, yet it’s no secret you can save if you do some of the work yourself. As a general rule, estimates from contractors in our area run 1/3 for materials and 2/3’s for labor. So theoretically, we save 66% by doing the project ourselves, right?

Well… maybe.

To decide, consider:

• Cost of materials: Can materials be purchased at contractor cost or will you pay a hefty up-charge? Is it possible to find materials at salvage or a Habitat-type store to increase your margin of profit?
• Cost of time: How much longer will this take to DIY? And in real dollars, how much will this add to holding costs? Holding costs include but are not limited to mortgage payments, insurance (generally higher when property is empty and/or under construction), utility bills, and lost rent. If it takes 2 weeks working nights and weekends to complete a project your contractor can finish in 2 days, add 10 days of holding costs.

Just an Opinion:

The decision to DIY should be a simple mathematical equation where you:

• price materials
• estimate the time needed to complete the project
• multiply the number of days/weeks by the daily/weekly rate for holding costs, then
• subtract that amount from the contractor bid

Of course it’s not that easy… how much fun would that be?

For starters, you may not be delaying completion of the project if other work is going on anyway. Contractor delays are a common problem and if your’s has a history of putting off your projects for another day, you might be able to finish sooner than he can anyway. But besides that, there’s value hidden away in DIY projects that can only be mined by rolling up the sleeves and getting your nails encrusted with something icky.

By learning a new skill, you increase both ability and confidence. You’re also learning to identify quality work, the amount and difficulty of labor, special tools needed for the job, and reasonable time estimates for completion. If you decide to hire someone next time, you’ll have a much better idea what’s involved in the project and if bids are reasonable. That type of knowledge is invaluable to the rehab professional, paying dividends with every new project.

One of the mister’s favorite DIY projects is installing pine flooring in our rent houses. For more info, click here.

Just Another Opinion:

Consider taking on at least one new project with each rehab, even if it’s as simple as replacing a light switch or changing out a door knob. With experience, you’ll learn which repairs save the most and which are best left to others. During your first few houses, try to be as hands-on as possible and consider it part of your rehab education.

If you have no handy-man skills whatsoever, you might try working alongside your contractor (if he’ll have you). He may tell you to pound sand (politely of course), but if you have a good working relationship, it’s worth a shot. Later, you may find that hiring reputable contractors for most (if not all) of the work will save enough in holding costs to justify the expense.

Working alongside a professional is one of the best ways to learn a new skill. Here, Mr. Brz watches while our friend Marc Bridges demonstrates proper glazing technique.

And working with a friend is lots more fun. We’ll probably need Marc to teach us something else next time around.

construction, Contractor, DIY, handy-man

Tags: DIY, do it yourself, fixer, real estate investing, rehab, rehabber, Rehabbing