Rental Property Secrets

By: Crazy Cabinet Guy

As a rental property owner, I am always looking for ways to maximize the rental income and keep my units marketable without having to do any major renovations. I am always keeping my eye out for potential properties that I can buy, and easily rent out that will cover the mortgage and a little more. That being said, one of the biggest mistakes that I see other landlords and rental property owners make is that they are reluctant to or just flat out won’t put any money into their properties because they don’t think they will see a return for that investment. When I tell some of my counterparts that I put new kitchens and bathrooms into all of my rental units they think I am nuts. To quote one of my friends who has some properties, “Why would you spend $4,000 on an apartment that is just going to get destroyed by the next people that rent it?”. To answer his question, I thought I would write this article.

First, let’s think about the mathematics behind it. Granted each market or city is going to have a different result, but for where I live in the Philadelphia area this holds true. By doing a little research and finding comparable apartments in your market, you can find out what the magic number is. What are the three features that are going to stick out about any apartment? The condition of the rugs, the bathrooms, and the kitchens. If any of these items look worn or beat up, it is going to be harder to rent and you won’t be able to get as much for it… that is just a fact of life. So let’s say you spend $3,000 to upgrade the kitchen and bathroom(s). Yes, it is possible to spend that little on upgrades and I will show you how later on. Assuming the rest of your unit/building is in good condition, that $3,000 investment can produce an extra $200 a month in rent for me per unit. At $200 a month, you made your investment back in just over a year and you are now making more money per unit. Think about it. If a prospective renter is looking at two apartments: one with a dated kitchen and one with a modern kitchen and bathroom, which one is he/she going to choose? Not only that, but a nicer apartment is going to command a higher rent which in turn brings in a higher income renter who is less likely to abuse and destroy the apartment.

For some of you, I am sure that $3,000 to renovate a kitchen and bathroom(s) probably made you chuckle. If you are still shopping at the big box stores for your supplies, then you have a reason to laugh. To update both the kitchen and the bathroom in an apartment using their cabinets could easily cost you double if not triple. After doing a lot of research, I found a source for cabinets that saves me at least 30-40% per apartment. I started buying my cabinets on-line. If you do a search for RTA Kitchen Cabinets, you will find my secret. Not only are they cheaper, but they are also made of stronger materials and easier to assemble and install. By buying cabinets on-line, direct from the importer/manufacturer you can get them much cheaper because they don’t have the high overhead cost of a retail store. I have been using them for years now in my apartments, and you wouldn’t be able to tell the difference if you put them side-by-side with store bought or store ordered cabinets. The biggest benefit is that you don’t have to wait 6-7 weeks for cabinets like you do if you go to Home Depot or Lowes. These are delivered straight to your office or property in around 2 weeks.

So the next time you are trying to figure out why you empty units, or the guy across the street is renting his units for hundreds more, take a look at your kitchens and bathrooms. I simple upgrade will not only get you a quick return on your investment, but it will also continue to generate more revenue for years to come.

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I was able to save thousands on my kitchen cabinets. Find out my secrets.... you to can save thousands on kitchen cabinets and bathroom vanities by following these easy steps

Housing Prices one way to go but only Down!

According to the 10-City Composite Index of house prices released by real estate market data provider Altos Research, house prices declined 0.5% in September and 1.1% during the third quarter. The index is a measure of home prices based on summaries of metrics associated with active residential property listings. After bottoming out at $470,017 in January, it gradually increased to $509,030 in July before again declining and was $503,401 in September. Of the 26 markets Altos Research examines, asking prices increased in only five, including Los Angeles, which experienced a 1.5% increase, the largest of the 26 markets. Phoenix had the largest monthly decrease of 3.7%. Inventory also declined in 23 of 26 markets. All of the 26 markets except San Francisco had a median days-on-market of 100 or more in September. Miami had the slowest inventory turnover rate at 251 days. Altos said prices are likely to continue showing modest declines throughout the seasonally weak fall and w inter months of 2009, and that this year’s downturn would likely have been worse were it not for historically low mortgage rates and the first-time home buyer tax credit.

Private Lending with Your IRA

You can invest through your IRA with a truly self directed IRA. This method of investing is not well known because no one receives a commission when you invest this way. Therefore, there is no motivation for anyone in the financial services business to educate, advocate or recommend something they can't make money on.

More and more people are asking us about investing in real estate with their IRA.

We think private lending through your IRA is a great way to earn strong returns and capture fantastic tax benefits!

So, here are a few things to consider as you learn about investing in your IRA.

You can invest funds with us from your Traditional and Roth IRAs, many people do.

You will need to open an account with a “Third Party Administrator” (TPA), which acts as custodian of your account - investing the funds as you direct them to do.

If you already have an IRA you will transfer funds from your existing account likely held by a conventional brokerage firm to whichever TPA you choose.

When you conduct a real estate or private lending transaction in your IRA, you will fill out a few very simple forms provided by the TPA to direct the investment.

The TPA, acting as custodian of your account, will also sign all official documents on your behalf.

There are many, but here are several companies you might consider using as a Third Party Administrators:

Equity Trust Company www.TrustETC.com
Entrust Administration www.EnTrustAdmin.com
Pensco Trust Company www.Pensco.com
Guidant Financial www.GuidantFinancial.com

Come to our Free Seminar to Learn More.

A. B. Home Buyers LLC, is not an investment advisor, and is not qualified to provide advice on IRA rules, regulations, or eligibility requirements. Please consult with your tax and investment advisors. We are not affiliated with any of the companies listed and only provide them for informational purposes.

U.S. Treasury set to finalize home "short sales" plan

Source: Yahoo News


NEW YORK (Reuters) – The U.S. Treasury will soon finalize a plan to expand its incentives for mortgage companies to include "short sales" as a way to stem a rising tide of foreclosures, according to a Treasury spokeswoman.
"Short sales," or sales of homes for less than the balance on existing mortgages, are seen as a key way to supplement other efforts such as loan modifications to steady housing. Unlike most modifications, "short sales" eliminate the problem of negative equity that has become a big reason for defaults as home prices have plunged.

The incentives, first announced in May, would expand the government's Home Affordable Modification Program that has seen limited success in lowering payments for hundreds of thousands of homeowners deemed eligible. Just 12 percent of homeowners eligible have had their loans reworked, leaving millions more foreclosures to come, the Treasury said on September 9.

More short sales may alleviate fears that a raft of "shadow supply," or foreclosures in the pipeline, will flood the market and deal a blow to the nascent rebound in housing seen over the U.S. summer months, analysts said. The overhang of supply is currently about 7 million units, or 135 percent of a year's of existing home sales, according to Amherst Securities Group.

"What they are trying to do is move some of these foreclosures in the pipeline, and bring them to a resolution before (foreclosure) happens," said Lisa Marquis Jackson, a vice president at Irvine, California-based John Burns Real Estate Consulting. "12 percent of these being modified isn't enough to clean these up."

Realtors express frustrations with banks when trying to negotiate a short sale, which can take four to five months to complete, according to John Burns consultants. Buyers often walk away from sales because banks are slow to respond, or balk at the offer.

The Treasury will use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.

Incentives will be calculated on recent declines of local home prices and average home prices in these markets, the Treasury said in May. They would add to other incentives that servicers can receive for reducing loan payments. In May, the Treasury proposed lenders would receive a $1,000 payment for allowing the owner to sell the house for less than the amount owed on the mortgage, and accepting the proceeds as full repayment. They can also receive $1,000 for accepting a similar deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.

Borrowers who agree to short sales or deed-in-lieu deals can received up to $1,500 in closing costs. Treasury also said it will pay second lien holders up to $1,000 to relinquish their claims in such transactions.
"Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure," John Burns consultants said in a research note dated Oct 1 alerting clients of an impending Treasury announcement.

(Additional reporting by Emily Kaiser and David Lawder in Washington; Editing by Diane Craft)

Overlooked FHA Loan Ideal for Foreclosure Buyers

I didn’t write this article just wanted to post it and past it to all of you as A. B. Home Buyers had used this program with some of our buyers.

Hidden away in the deep recesses of the federal government is a one-shot financing plan which will allow you to not only buy foreclosures but also to pay for repairs and upgrades.

The FHA's 203(k) program has been on the books for decades but over time it's been rarely used. That's changed recently, in part because the program is ideal for many foreclosure buyers.

How It Works
With the 203(k) program you get financing to purchase or refinance an existing home (it has to be at least a year old) plus additional dollars to fix it. Since the government doesn't want you to take that extra money and just go to Vegas, it provides the construction money in draws as the repair work is completed after closing.

This program, of course, works perfectly for foreclosure buyers because it covers both the cost of acquisition as well as the expenses that may be required to improve the property's condition.

Unfortunately, the 203(k) plan does not work perfectly for everyone.

Details
In basic terms there are three groups of foreclosure buyers: Those who want residential property for themselves, those looking for investment real estate and those who want both. Two of these three groups are possible users of the 203(k) program.

• Yes, you can use 203(k) financing to purchase a home which you will use as a personal residence.
• Yes, you can use 203(k) financing to purchase a home with one to four units, provided that you physically occupy one of the units as your personal residence.
• No, you cannot use a 203(k) to acquire or refinance a pure investment property, one you do not use as a personal residence. Investors have been banned from the program since 1996.

Why would you want FHA 203(k) financing?

Those after-closing draws and inspections represent additional work for lenders, thus you can expect to pay somewhat higher fees. That said, the 203(k) program is still a good deal because it's far cheaper to get acquisition and construction money in one loan rather than two. This is because there's a single settlement and thus only one set of closing costs, one set of taxes, one origination fee, etc.

The 203(k) program also comes with attractive terms. For instance, HUD says you can get financing equal to the "as-is" value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation. Alternatively, you can get a loan equal to 110 percent of the "after-improved" value of the property.

Lastly, the 203(k) program is an FHA loan. That means no prepayment penalties and no surprise rate increases. You'll need to fully document income, debts and assets, but that's a low barrier for anyone who pays taxes and has financial records.

Limits
To come up with the right loan amount you need to know the value of the property and you need to have a good sense of what the improvements will cost. Not all improvements can be financed under the program and the maximum available for repairs in $35,000.

“Luxury items and improvements are not eligible as cost rehabilitation,” says HUD. “However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.” Keep in mind that your contractor has to be HUD certified and approved.

Bring Back Investors
In 1996, when investors were banned from the program, HUD explained that its “restrictions are in response to audit findings issued by the Office of the Inspector General and are in effect until further notice.”

“A lot of things have changed in 13 years,” said Jim Saccacio, chairman and CEO at RealtyTrac.com, the nation's leading source of foreclosure listings and data. “One of the most important is this: We're overwhelmed with a vast inventory of foreclosed homes. It is this inventory which makes it impossible for local home values to rise. We need to get more buyers into the marketplace and for this reason HUD's investor restrictions need to be reconsidered.”

Why should HUD open the 203(k) program so investors can pick up foreclosed properties? One very good reason is to reduce HUD's overall marketplace risk.

HUD has insured loans for millions of properties. Anything which reduces the foreclosure inventory can help increase the value of all properties, including those with FHA insured loans. Allowing more investors into the market generally increases demand and hopefully stabilizes or even grows local home prices. In the event of foreclosure HUD benefits because with higher market values insurance claims will be smaller.

In other words, the reason to broaden the 203(k) program is not because HUD suddenly has a warm tingly feeling when investors need mortgage insurance, rather the reason is self-interest: HUD can cut its costs and liabilities by getting more investors into the marketplace.

“Ten years ago, certain lenders and nonprofits stigmatized the 203(k) program by using the program for fraudulent purposes,” says the Treasury Department in a just-issued report. Well, yes, certain lenders and nonprofits did just that — but investors are not lenders or nonprofits. We're blaming the wrong folks.

Rather than restrict an entire program to investors because of the misdeeds of a few lenders and nonprofits back at the dawn of time, why not do a better job underwriting loans? That could solve the creepy program of “stigmatized” loan applications. Or, why not restrict lenders and nonprofits since they — not investors — were responsible for the moratorium in the first place?

It's time that the 1996 investor “moratorium” comes to an end. Times have changed — and so should HUD.

For more information regarding 203(k) speak with local FHA lenders before considering a real estate purchase. Be sure to work with an experienced 203(k) lender, one who can help with the complexity of draws and inspections after closing. Also, if possible, get practical ideas and information from local borrowers who have recently used the 203(k) program.

Please call our office with any questions and for properties available.
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Source: Peter G. Miller is syndicated in more than 100 newspapers and operates the consumer real estate site, OurBroker.com.