Short Term Vs. Long Term Rentals

Short-term rentals have always been a popular investment, but in recent years, they have become even more popular as vacation rental alternatives to hotel chains. But before you invest in a short-term rental, there are a few things you should consider.

One thing to keep in mind is that short-term rentals often require more repairs and maintenance than long-term rentals. This is because tenants generally don't treat short-term rentals as their own homes the way long-term tenants do. Additionally, short-term rentals always need someone available 24/7 to deal with any guest needs that may arise. Of course, you could hire a property management company to take care of these things, but that would take away from your profits and typically costs 10%-30% of rents.

Another consideration is that while short-term rentals usually have a higher return on investment than long-term rentals, they also come with higher vacancy rates, advertising costs, cleaning costs, and maintenance costs. On the other hand, owning a vacation property that you can enjoy yourself may be worth the extra work.

Ultimately, there is no one-size-fits-all approach to real estate investing. Consider what works for you and make the best choice for your goals.

Let’s discuss you and see which investment model you are better suited for.

Tips For A Buyer of A Fixer Upper

Tips for a Buyer of a Fixer-Upper

Over the last few years weekend warriors have been delighted to find an abundance of television shows devoted to fixing up homes. More specifically, they show viewers how to take a fixer upper and turn it from an ugly duckling to a special property that they can call home. It sounds so easy but before you grab a sledge hammer and head out to buy that cheap bank- owned building on the corner, there are things to consider.

First and foremost, how handy are you really? Fixer-uppers can vary from cosmetic paint and carpet, maybe changing a countertop or fixtures; then there are fixers which have electrical problems and slab leaks. It’s important to understand what you are capable of handling – either yourself or supervisory level.

Tips for a Buyer of a Fixer-Upper

• Do Your Research – Don’t assume anything. Check for local ordinances and zones to make sure the plans you have for the property are truly available to you.     

• Hire a Professional – Regardless of your level of “handiness” you need professional help. Start with a professional home inspection and understand the true condition of the home.

• Know Your Limits – A great deal is only a deal if you can take on the project. Be honest with yourself. If you need to, hire a General Contractor to handle the renovation.

Fixer-uppers can be great investments. These properties can be converted to beautiful homes or flipped for quick profit, but either way, handled well these ugly ducklings will live up to the best episode of HGTV.

Foreclosures- What is A Foreclosed Property?

Foreclosures – What is a Foreclosed Property?

Unfortunately since the mortgage meltdown, foreclosed properties have become more common. Many home buyers see this as an opportunity to find a great home for a bargain price. While foreclosures can offer some nice discounts, understanding how foreclosures work and how this affects the buyer is critical to ensure you are getting a good deal and not a disaster.

What is a Foreclosure?

First it’s important to understand what qualifies as a foreclosure. A foreclosure is a property which has been taken back by the lender in order to satisfy an unpaid mortgage debt. It is owned by the bank or lender and they have now listed the property for sale.

Can I save money buying a foreclosure?

Yes and no! It’s true that lenders do not want to hold onto their foreclosed properties longer than they need to, but they also understand the value of the home in its current condition.

While deeply distressed properties might be listed at very low prices, good homes in decent condition might not be listed below comparables in the same area.

Is the buying process different from a traditional sale?

The actual buying process is the same; you write an offer, obtain financing and close. The differences lay in the protections and opportunities for negotiation during the process. Most foreclosures are sold “as is” and the lender will not negotiate repairs of any kind. There could also be clauses which remove other contingencies, such as financing or appraisal. The buyer needs to read the agreement very carefully.

Buying a foreclosure can be a great way to find a nice property at a discounted price. Not all properties are a good deal however. Understanding the foreclosure market and reading the contracts very carefully is the key to buying a foreclosure – this way you get the most home for your money without buying a problem.

Ask me for more advice as to whether foreclosures should be part of your home search.

Is Flipping Houses Right For You?

Is Flipping Houses for You?

There are a wide variety of ways to invest in real estate; To be successful in real estate investing, it’s critical that you identify what skills you have and your tolerance for risk. Flipping homes is one of these ways, but not every investor is prepared for what house flipping involves. Understanding the model can help you determine if this is the right investment strategy for you.

Investors can make great profits by flipping properties. First question is what kind of income are you seeking, active or passive? Actively buying, fixing and flipping properties is quick cash that requires careful timing and effort. Rental properties on the other hand offer passive long-term income which accumulates over time.

The second consideration is risk. Flipping is really speculation. When buying a flipper, one must gauge the cost of refurbishment, remodeling and the cost of the holding time into the price valuation, then carefully market the home and realize the profit. Any number of variances can occur which could cause the value to drop and profits to reduce or even disappear, such as a delay in remodeling or a slow real estate market. Having ready cash to cover the unexpected is critical to success.

Flipping houses is one way to invest in real estate. For those who are able to plan for the unexpected, this quick turn-around model might be a great tool for wealth building.

Understanding your market, resources and risk tolerance is the first step in deciding if flipping is right for you.

Call to discuss further whether you should become a house flipper.

Vacation Rental Ownership – Is It For You?

Vacation Rental Ownership – Is It For You?

Investment properties used to be homes and multi-family properties used for full time rentals. Over the past decade, we’ve seen a new crop of investment properties emerge, the short term rentals. But what’s involved in owning a vacation rental? Is it worth the work?

A short term rental is a great investment for a number of reasons. In addition to creating annual income for the investor, the property could also appreciate in value during the time of ownership. Although the short term rental is still a rental property, it often pencils out to much higher income than a traditional long term lease does.

Vacation Rentals might seem like a great deal of work, and they can be. The first choice a vacation rental owner will need to make is whether they would like to self-manage or hire a property management company. Many short term rentals are managed by a professional property manager that specializes in the short term market. These managers have people on call to help with arrival, departure, cleaning, repairs and rent collections. While they do charge for their services, a professionally managed vacation rental can provide a nice income stream by building positive reviews.

Of course there are downsides to owning this kind of investment. It’s important to choose the right location to ensure a steady stream of renters. Additionally, one must budget for unexpected repairs or damage. With the deposit being made with a credit card, it can be difficult to collect for damage done to the home.

The Internet has been instrumental in the new vacation economy as peer-to-peer platforms like Airbnb, VRBO and HomeAway offer visitors the ability to interact directly with the owner. By reducing the advertising costs, investor-owners, can negotiate directly with potential renters and screen them to prevent possible problems.

Ask me for a vetted real estate agent recommendation no matter where in the world you would like to buy a property as I am only licensed to do business in Pennsylvania at this time.

Tips to Pay Off Your Loan Faster

Tips to Pay off Your Loan Faster

For generations, homeowners would buy a home for life. Working over the years to make the payments and celebrating the end of the 30 year mortgage were great milestones in the family. Today, few home buyers expect to be in their home for longer than 7 years on average. Paying off a 30 year mortgage seems like an impossible task. Fortunately, there are great ways to pay off your loan which do not involve time. Here are a few tips for paying off your mortgage loan faster.

·      Biweekly Payments – Work with your lender to determine how they handle biweekly payments. If processed immediately, you can save 8 years of payments on a 30 year loan.

·      Extra Payments – By making just one extra payment each year, you can pay off your loan 7- 11 years earlier.

·      Refinance to 15 years – There are great interest rates available for mortgage loans. Consider a 15 year mortgage.

·      Principal Reduction – Watch for ways to add to your monthly payment a little at a time. When possible, increase the principal payment you make.

Paying off your mortgage builds wealth. Consider your life goals, including retirement. A 30 year loan taken out at 37 years old will not be complete until 67 – retirement age. The loan needs to be part of the overall financial plan from the beginning and making payoff a priority with a few simple steps can add up to huge savings in interest which can then be used for better investments.

Take Advantage of Your Home Equity: A Homeowner’s Guide

Take Advantage of Your Home Equity: A Homeowner’s Guide 

Homeownership offers many advantages over renting, including a stable living environment, predictable monthly payments, and the freedom to make modifications. Neighborhoods with high rates of homeownership have less crime and more civic engagement. Additionally, studies show that homeowners are happier and healthier than renters, and their children do better in school.1

But one of the biggest perks of homeownership is the opportunity to build wealth over time. Researchers at the Urban Institute found that homeownership is financially beneficial for most families,2 and a recent study showed that the median net worth of homeowners can be up to 80 times greater than that of renters in some areas.3

So how does purchasing a home help you build wealth? And what steps should you take to maximize the potential of your investment? Find out how to harness the power of home equity for a secure financial future.

WHAT IS HOME EQUITY?

Home equity is the difference between what your home is worth and the amount you owe on your mortgage. So, for example, if your home would currently sell for $250,000, and the remaining balance on your mortgage is $200,000, then you have $50,000 in home equity.

$250,000 (Home’s Market Value)

-           $200,000 (Mortgage Balance)

______________________________

             $50,000 (Home Equity)

The equity in your home is considered a non-liquid asset. It’s your money; but rather than sitting in a bank account, it’s providing you with a place to live. And when you factor in the potential of appreciation, an investment in real estate will likely offer a better return than any savings account available today. 

HOW DOES HOME EQUITY BUILD WEALTH?

A mortgage payment is a type of “forced savings” for home buyers. When you make a mortgage payment each month, a portion of the money goes towards interest on your loan, and the remaining part goes towards paying off your principal, or loan balance. That means the amount of money you owe the bank is reduced every month. As your loan balance goes down, your home equity goes up.

Additionally, unlike other assets that you borrow money to purchase, the value of your home generally increases, or appreciates, over time. For example, when you pay off your car loan after five or seven years, you will own it outright. But if you try to sell it, the car will be worth much less than when you bought it. However, when you purchase a home, its value typically rises over time. So when you sell it, not only will you have grown your equity through your monthly mortgage payments, but in most cases, your home’s market value will be higher than what you originally paid. And even if you only put down 10% at the time of purchase—or pay off just a small portion of your mortgage—you get to keep 100% of the property’s appreciated value. That’s the wealth-building power of real estate. 

WHAT CAN I DO TO GROW MY HOME’S EQUITY FASTER?

Now that you understand the benefits of building equity, you may wonder how you can speed up your rate of growth. There are two basic ways to increase the equity in your home:

1)    Pay down your mortgage.

We shared earlier that your home’s equity goes up as your mortgage balance goes down. So paying down your mortgage is one way to increase the equity in your home.

Some homeowners do this by adding a little extra to their payment each month, making one additional mortgage payment per year, or making a lump-sum payment when extra money becomes available—like an annual bonus, tax refund, gift, or inheritance.

Before making any extra payments, however, be sure to check with your mortgage lender about the specific terms of your loan. Some mortgages have prepayment penalties. And it’s important to ensure that if you do make additional payments, the money will be applied to your loan principal.

Another option to pay off your mortgage faster is to decrease your amortization period. For example, if you can afford the larger monthly payments, you might consider refinancing from a 30-year or 25-year mortgage to a 15-year mortgage. Not only will you grow your home equity faster, but you could also save a bundle in interest over the life of your loan.

2)    Raise your home’s market value.

Boosting the market value of your property is another way to grow your home equity. While many factors that contribute to your property’s appreciation are out of your control (e.g. demographic trends or the strength of the economy) there are things you can do to increase what it’s worth.

For example, many homeowners enjoy do-it-yourself projects that can add value at a relatively low cost. Others choose to invest in larger, strategic upgrades. Keep in mind, you won’t necessarily get back every dollar you invest in your home. In fact, according to Remodeling Magazine’s latest Cost vs. Value Report, the remodeling project with the highest return on investment is a garage door replacement, which costs about $3600 and is expected to recoup 97.5% at resale. In contrast, an upscale kitchen remodel—which can cost around $130,000—averages less than a 60% return on investment.4

Of course, keeping up with routine maintenance is the most important thing you can do to protect your property’s value. Neglecting to maintain your home’s structure and systems could have a negative impact on its value—therefore reducing your home equity. So be sure to stay on top of recommended maintenance and repairs.

HOW DO I ACCESS MY HOME EQUITY IF I NEED IT?

When you put your money into a checking or savings account, it’s easy to make a withdrawal when needed. However, tapping into your home equity is a little more complicated.

The primary way homeowners access their equity is by selling their home. Many sellers will use their equity as a downpayment on a new home. Or some homeowners may choose to downsize and use the equity to supplement their income or retirement savings.

But what if you want to access the equity in your home while you’re still living in it? Maybe you want to finance a home renovation, consolidate debt, or pay for college. To do that, you will need to take out a loan using your home equity as collateral.

There are several ways to borrow against your home equity, depending on your needs and qualifications:5

1)    Second Mortgage - A second mortgage, also known as a home equity loan, is structured similar to a primary mortgage. You borrow a lump-sum amount, which you are responsible for paying back—with interest—over a set period of time. Most second mortgages have a fixed interest rate and provide the borrower with a predictable monthly payment. Keep in mind, if you take out a home equity loan, you will be making monthly payments on both your primary and secondary mortgages, so budget accordingly.

2)    Cash-Out Refinance - With a cash-out refinance, you refinance your primary mortgage for a higher amount than you currently owe. Then you pay off your original mortgage and keep the difference as cash. This option may be preferable to a second mortgage if you have a high interest rate on your current mortgage or prefer to make just one payment per month.

3)    Home Equity Line of Credit (HELOC) - A home equity line of credit, or HELOC, is a revolving line of credit, similar to a credit card. It allows you to draw out money as you need it instead of taking out a lump sum all at once. A HELOC may come with a checkbook or debit card to enable easy access to funds. You will only need to make payments on the amount of money that has been drawn. Similar to a credit card, the interest rate on a HELOC is variable, so your payment each month could change depending on how much you borrow and how interest rates fluctuate.

4)    Reverse Mortgage - A reverse mortgage enables qualifying seniors to borrow against the equity in their home to supplement their retirement funds. In most cases, the loan (plus interest) doesn’t need to be repaid until the homeowners sell, move, or are deceased.6

Tapping into your home equity may be a good option for some homeowners, but it’s important to do your research first. In some cases, another type of loan or financing method may offer a lower interest rate or better terms to fit your needs. And it’s important to remember that defaulting on a home equity loan could result in foreclosure. Ask us for a referral to a lender or financial adviser to find out if a home equity loan is right for you.

WE’RE HERE TO HELP YOU

Wherever you are in the equity-growing process, we can help. We work with buyers to find the perfect home to begin their wealth-building journey. We also offer free assistance to existing homeowners who want to know their home’s current market value to refinance or secure a home equity loan. And when you’re ready to sell, we can help you get top dollar to maximize your equity stake. Contact us today to schedule a complimentary consultation!

The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

Sources:

1.      National Association of Realtors -
https://www.nar.realtor/blogs/economists-outlook/highlights-from-social-benefits-of-homeownership-and-stable-housing

2.      Urban Institute -
https://www.urban.org/urban-wire/homeownership-still-financially-better-renting

3.      Census Bureau -
https://www.census.gov/library/stories/2019/08/gaps-in-wealth-americans-by-household-type.html

4.      Remodeling Magazine -
https://www.remodeling.hw.net/cost-vs-value/2019/

5.      Investopedia -
https://www.investopedia.com/mortgage/heloc/home-equity/

6.      Bankrate -
https://www.bankrate.com/mortgage/reverse-mortgage-guide/