Buying a property is a very important decision in life and a lot of things need to be considered before moving ahead with this step. Please go through these steps to ensure that you’ll be totally satisfied.
Renting tips
Rental properties are everywhere. From the center of the city to the outskirts, they can be found almost anywhere. People often see it as other real estate properties. But, investing in rental properties is quite different from other real estate investments because it carries its own intricacies. Your expertise in real estate might not come in handy if you choose to include a rental property in your portfolio. So, here are a few tips: 5 things you must ensure while buying a rental property.
1. Cash Flow; is probably the best and the also the first parameter you should consider. Without the ability to generate cash flow a rental property is as good as nothing. How much would your rental property generate in the month to come, should be your highest priority. It’s all about the best ROI.
2. Amenities; some people might buy a house without amenities without giving it a second thought. But, no one would jump the gun and rent a house without these in place. When you are buying a house, you generally consider the future because amenities might grow in the future. For tenants, it is all about the present.
3. Neighbourhoods; You might not want to buy a rental property near a college. It will most likely be empty for 2-4 months of the year. Well, ultimately, it is going to affect your cash flow. You don’t want your rental property to be empty for a single day, do you?
4. Property Taxes; Most talked about, but often ignored! Yes, I am talking about property taxes. Since they can be dynamic, you often need to adjust your monthly rent. If the property taxes are high where you choose to buy, you in-turn would raise the rent bar to accommodate the taxes, not to mention how it might affect your prospects.
5. Safety; No one wants to live in an area with high crime rates. The tenants might compromise with all the above factors I mentioned above. But no one wants to put their lives in a crime-stricken area. An unsafe locality can be a major turn-off for prospective tenants.
Buyer Negotiation
They say everything is negotiable in real estate…but only if you know how to. The ability to negotiate prices is an important skill, and more so, when you are negotiating for a property. Who doesn’t want to save a few thousand dollars with a few persuasive words? But negotiation is not as easy as it seems. The seller at the other end will be prepared. Negotiation will be even more daunting if you get to face a real estate agent. It is better that you learn a few negotiation tips before you reach out to an agent for your next home purchase. I am sure it will save you a few, if not many, thousands of dollars on your home deal.
1. Know what you are negotiating for; What if you are negotiating for a property that has no scope for negotiation? Well, you are bound to fail. Negotiation is mostly possible in two cases. Firstly, when the property is overpriced. Secondly, when the supply is greater than the demand—classical economics. Once you know the home you are dealing with is negotiable, start doing your homework. Check how long the house has been on the listing, find the prices of the houses in the neighbourhood, and try to figure out if the seller wants to sell the house immediately. Once you have the data, you are in the driving seat.
2. Motivate the seller; Motivation can make a person do things he wasn’t even thinking of doing a second before. Give him/her hints that you are interested in it by telling him/her that you will buy it as soon as a deal is reached. It may also help if you can communicate without suspicion that you will pay 20% or more as a down payment.
3. Pitch low; What you pitch as a buyer can make or break your buying strategy. The general rule says that you should pitch a price of at least 10% lower than the price you want to pay for the home. It suddenly gives you leverage over the seller. This strategy also works amazingly well when you are dealing in a buyer’s market. This happens simply because there are more houses to sell than the number of potential buyers. Sellers don’t want to lose customers over price.
4. Do not prolong the bargain; It might seem appealing to extend the bargain to the limit and try to finalize at your offer price. But do not do that, unless you do not have the intention to buy a house. Because in such a case, you might actually lose the deal. Also, do not get carried away while negotiating and let your emotions interfere and finalize the deal if you find a slight hint of the final offer from the seller.
5. Poker face with an appeal; Nothing works better than a poker face while negotiating prices. Make sure your face emanates an air of confidence and displays an interest in the property. It’s an art. Before you enter a negotiation, you must know what terms you would like to push for and what terms are you willing to give up. Leave emotions at the door and if possible, give yourself a prep round. An emotional and apathetic demeanour can just win you the game easily.
Buying Tips
For most of us, buying a house is the most complicated financial decision. We’ve got 7 straightforward tips for you, which will help you in making the decision:
1. Do a thorough inspection of the house; A house may look beautiful on the outside, but inside it can be mildew infested with water leaking in the basement. Thoroughly inspect the house before finalizing it. Get the help of a professional to investigate things like mildew, foundation, leakages, wiring, blockage, termite etc. Flush each toilet and check every faucet. Check all the switchboards and plugs. These little things that usually get ignored later turn into big problems.
2. Keep a close eye on the neighbourhood; You went home searching in the winter and zeroed-in on the most beautiful and peaceful house. But, in the summer it turned out to be disastrous your neighbourhood became a noisy nightmare, with horns blowing out in the middle of the night and mornings being spent shushing the next door teenagers blaring music. Most homebuyers realize it late that though they got their perfect home, the neighbourhood wasn’t for them. If you have found the home you want to buy, drive past it at all hours of the day. Regular commuting will make sure that you can deal with living there on a regular basis.
3. Search for services near you; While the neighbourhood is being inspected, find out how far the house is from basic services. Search for the nearest grocery store, and make sure to research the schools. Even if you don’t have kids, having schools around is important. Schools increase the resale value of a house. Having a good school around can increase your home’s value as much as 20%. Also, when you put your house on resale, it is most likely that the buyer will have kids.
4. Be practical; A practical approach, not emotions should be driving your decision of buying the potential house. Remember, bigger isn’t always better when it comes to the house. If you are a first-time buyer, maintaining a big house won’t be easy. Plus, large houses only appeal to a selected audience. It will pose a problem when you will want to re-sell the house.
5. Explore mortgage options; Not everyone will buy a house with cash at the closing table. Most people need a mortgage for buying property. With the market flooding with different types of mortgage companies and services, it is up to you to select a mortgage that will suit your needs. Choose to keep the future in mind. Go for a fixed-rate mortgage if you plan to stick around for a long term and go for an ARM if you are buying a starter property. Do your comparisons and shop around. Visit different mortgage lenders as different types of mortgages offer different interest rates and terms.
6. Get your home loan pre-approved; As the rule of thumb goes - You only get the mortgage that you are approved for. Getting a pre-approval for a loan is important. It is easy to get pre-qualified but having a pre-approved mortgage isn’t easy for everyone. To get a loan pre-approval your financial information has to be checked by the lender. Based on that, the lender will let you know how much they will lend you. This will save you a lot of time and energy. You will get an estimate of the actual budget and won’t run around with houses you can’t afford.
7. Understand what you are signing for; Considering all the above points, you’ve finally found your dream house, and you're ready to make it yours. You have to make an offer, to begin with. Take into account several things before making and accepting the proposal. Make an offer based on how long the house has been on sale, and compare the asking price with that of nearby properties etc. Pay attention to the fine print of the proposal, make sure it is an offer includes both the price and terms. Don’t sign anything without reading or understanding it, learn if the contract has any hidden terms. Some cases have been observed where the terms demanded money in lieu of extra value from buyers.
Rental Investment
A rental is an income property; It is a property bought or developed with the sole purpose of earning income. The advantages of investing in rental properties are powerful. If everything goes well, the rental owner will make lots of money for sure.
Here are some lucrative reasons that make rentals the best choice for real estate investment:
1. Rental properties provide a regular cash flow. The biggest benefit of owning a rental property is that the renters will provide you with a direct income stream. The cash-on-cash value of rentals is usually higher than that of any other property. The cash-on-cash value represents the ROI of the investment you have made. Along with it, your property can produce Passive Income for you.
2. Passive Income is the monthly income that you do not have to work for. All the rent money that is left after the mortgage and other expenses are paid is counted as passive income. And as time passes, appreciation also gets included in the passive income. Appreciation is the increase in value in the rent over a specific period of time. All this money goes straight into your pocket. You can easily get leverage for a rental property.
3. It is easier to get financing for rental properties. This means that rental properties can be bought with loaned funds and a smaller percentage of the total value is paid from your pocket. You can also leverage lower down payments on equity and lower taxes. They allow an investor to make more money through higher rent and appreciation and increase the returns. You get sweat equity with the financial property.
4. Another factor that should be considered is that the sweat equity you will gain with the rental will add additional value to the property. You’ll get the opportunity to fix up the property in between tenants, which will return attractive dividends to you. Doing maintenance and upgrades on your property like repainting the home, refinishing the interior, landscaping the yard etc., will add value to your property at half of the financial cost. Not only will it help you add appreciation to the rent, but it will also increase the value of the property itself. This will help you when you want to re-sell the property in the future. So, if home improvement projects interest you, then the rental property is for you.
5. Rental properties have great tax advantages; As a rental property owner, you can enjoy huge deductions on tax. You can write-off a list of things that tend to reduce your taxes. The list includes insurance on the property.
6. Bookkeeping/accounting/tax preparation fees; You can also depreciate certain expenses from your income, which can reduce the taxes you owe like the salary of any person you employ to provide services for the property like the management and repairs/upgrades to the property, property taxes, mortgage interests, and the cost of providing utilities if they are included in the rental agreement. As a rental owner, you are entitled to lower tax rates on the profit you make when you sell the property.