3 Real Estate Investments That Produce Good Returns

Since the early days of America’s Wild West when homesteaders competed in land lotteries, the allure of owning your own piece of property has never wavered. Real estate investing is not just one of the most glamorous investment vehicles today, but according to Entrepreneur, if done right it can also be one of the most profitable.

Of course, as with most big goals in life, this is often harder to achieve than it sounds. From narrowing down your property options to picking a geographic area to invest in to figuring out how to fund your initial investment, there are many things to think through before making your first real estate investment.

In this post, learn about three real estate investments that can reliably produce good returns.

Residential multi-family units

For the purposes of real estate investing, a multi-family building can be anything from a simple duplex with a shared wall to a full-on multi-story apartment complex complete with parking garage and onsite amenities.

The key here is that you have multiple potential income streams from a single piece of rental property. As one multi-family building investor tells Business Insider, “the more doors, the better.”

With a multi-family property, you can be making money even if one or two units lie vacant for a month or two, whether due to maintenance needs or just a temporarily sluggish rental market.

Commercial multi-unit office space

With this type of real estate investment, here again you see a multi-unit concept, but instead of renting to singles, couples or families on the residential side, you will be renting space to solopreneurs, partnerships and corporations on the commercial side.

As My Stock Market Basics points out, you may earn less per unit on commercial property rental income than you would with multi-unit residential property rental income, but in exchange you will devote less time, effort and energy (not to mention money for repairs and maintenance) by investing in commercial property.

If you have the equity to get into the commercial real estate market in a growth area, you can be earning a stable return on investment without many of the typical headaches of dealing with tenants on the residential side of the real estate market.

Real estate funds

If for some reason you are not keen to invest the sweat equity into commercial or residential real property, you can still deal yourself into the real estate investment market by participating in real estate funds.

These funds work much like mutual funds do, using trusts or crowdfunding to help a group of real estate investors acquire an interest in residential or commercial property without the headaches that can come from outright ownership and day-to-day management.

Investopedia recommends these possibilities:

– Real Estate Investment Trusts (REITs). REITs offer hands-off investing with dependable dividend payouts at 90 percent of the fund’s taxable income.

– Peer to peer (P2P) lending. Often called crowdfunding, P2P lending gets you into the real estate investment market for a low initial investment and a potentially high (5 to 12 percent) return.

– Dividend stocks. Look for “dividend aristocrat” stocks, which are so-labeled because they pay increasingly greater dividends from one year to the next.

– Index funds. These are mutual funds tied to the real estate market index.

With these three options to choose from, you are likely to find a real estate investing entry point that works for your budget, available time and goals. The best thing about investing into real estate is that there really is no one “right” or “wrong” strategy to use that can guarantee success. Rather, by doing your research, planning carefully and always aiming to operate from a cash surplus, you can set yourself up for ultimate success.

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What Options Do You Have to Refinance Your Home?

When you’re considering refinancing your home, it’s common to have a lot of questions. Unlike a first-time homebuyer, you’ve often gone through the mortgage process before and think you may know what to expect. But what options should you take into consideration before filling out a residential mortgage application? There is a wide range of options available for refinancing your home, and selecting the correct one often involves knowing what kind of financial situation you’re facing. Here are some basics to help get you started in the process.

What Options Do You Have to Refinance Your Home?

The first question to ask is why are you looking at an online mortgage? Are you looking for a better deal than your current mortgage because your credit has improved since you were a first-time homebuyer? Are you filling out a residential mortgage application because you’re looking at a second home, perhaps to spend winters in a warmer climate? Are you considering adding investment property to your overall financial portfolio and an online mortgage is easier to administer than one with your local bank? Refinancing a home may be a confusing process, but knowing why you’re doing it and what the economic conditions are may help you make a smarter decision in the long run. Here are some common types of refinance options to consider when looking at a residential mortgage application:

  • Cash-Out Refinance: When you’re in a situation where you need extra cash at a lower interest rate than otherwise available for home improvement loans, college tuition or other necessary expense, a cash-out refinance loan may be a good option to consider. It will typically work best when you’ve built significant equity in your home, which you may then turn into cash, leveraging your home’s equity against the balance of the loan.
  • FHA Streamline: An FHA streamline mortgage is a fast and easy way to save money on your FHA mortgage loan. Depending on the terms of your current mortgage, you may be eligible to refinance with a minimum 5 percent reduction in your payment, with no appraisal, income or asset verification required.
  • VA Interest Rate Reduction Refinance Loan (IRRRL): Did you get a VA mortgage loan to finance your home when the economy was better and the interest rates were higher? If you’ve served in our country’s military, whether you’re currently on active duty or a veteran, getting an IRRRL loan through the VA may enable you to enjoy the lower interest rates available in today’s economic market. With a lower interest rate, you may enjoy either a shorter repayment period or a lower monthly payment with a simple online mortgage application.
  • HARP 2.0 Program: Offered through the federal government, the Home Affordable Refinance Plan was developed when the housing bubble burst. Established in March 2009 by the Federal Housing Finance Agency, it was intended to help homeowners, even first-time home buyers, who found themselves upside-down in their mortgages, owing more than their home was worth. If this describes the circumstances you find yourself in, a HARP refinance loan may be helpful if you’ve kept your mortgage payments current but have not been able to receive traditional refinancing due to the changed value of your home. However, if you’re potentially eligible for this program, be aware that it currently has an application deadline of September 30, 2017 with no guarantee of its extension.
  • Refinance to a Fixed-Rate Mortgage: If you have an adjustable-rate mortgage and you’re seeing the rates and your payment constantly changing, it may be very frustrating when you need to stick to a budget. When you need to count on a constant payment over a longer period of time, such as during retirement or while on a fixed income, a fixed-rate mortgage refinance may help provide that level of security. By refinancing into a fixed-rate mortgage refinance loan, you may be able to enjoy lower overall repayments and may not need to worry about changing payment amounts over the remaining life of the mortgage.

Whether you’re a first-time homebuyer facing an online mortgage process to refinance a bad interest rate or are considering a residential mortgage application to fund investment property, refinancing is often a complex process. Knowing how the process works and what your options are may mean all the difference between negotiating a successful contract and being stuck in a bad deal for years to come. By educating yourself on the options you have available, you may be able to turn a tidy profit on investment property or enjoy that perfect vacation home you never thought you’d have the chance to own. Please contact us today for more details.

Mortgage Applications Rise for New Construction Home Purchases

Mortgage applications for new home purchases increased by 5 percent relative to the previous month, according to the Mortgage Bankers Association (MBA) Builder Applications Survey (BAS) data for August 2016.

“Applications for new home purchase mortgages were up in August on an unadjusted basis following a sluggish July,” says Lynn Fisher, MBA’s Vice President of Research and Economics. “New home purchase applications increased 5 percent over the month and increased more than 14 percent compared to August a year ago. Based on the applications data, our estimate of seasonally adjusted new home sales for August reached 601,000 sales, the highest level observed in our survey since it began in 2012. While our new home sales estimates have trailed the recent Census data, the increase in our series in August, which derives from a different source of data compared to the Census, provides some corroboration that single family building activity has remained strong even as the summer winds down. Our sense is that builders have been attempting to catch up with demand in the face of labor shortfalls and other limiting factors in various parts of the country.”

By product type, conventional loans composed 67.7 percent of loan applications, FHA loans composed 18.4 percent, RHS/USDA loans composed 0.7 percent and VA loans composed 13.2 percent. The average loan size of new homes decreased from $325,843 in July to $325,224 in August.

The MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 601,000 units in August 2016, based on data from the BAS. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.

The seasonally adjusted estimate for August is an increase of 11.3 percent from the July pace of 540,000 units. On an unadjusted basis, the MBA estimates that there were 48,000 new home sales in August 2016, an increase of 6.7 percent from 45,000 new home sales in July.

MBA’s Builder Applications Survey tracks application volume from mortgage subsidiaries of home builders across the country. Utilizing this data, as well as data from other sources, MBA is able to provide an early estimate of new home sales volumes at the national, state, and metro level. This data also provides information regarding the types of loans used by new home buyers. Official new home sales estimates are conducted by the Census Bureau on a monthly basis. In that data, new home sales are recorded at contract signing. This is typical with a mortgage application.

How To Determine The Cost of a Fixer Upper

Trying to decide whether to buy a fixer-upper house? Follow these seven steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.
Decide what you can do yourself.

TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house.
• Do you really have the skills to do it? Some tasks, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by amateurs.
• Do you really have the time and desire to do it? Can you take time off work to renovate your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?

Price the cost of repairs and remodeling before you make an offer
• Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he’s going to do.
• If you’re doing the work yourself, price the supplies.
• Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.

Check permit costs
• Ask local officials if the work you’re going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it’ll cause problems when you resell your home.
• Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.
• Factor the time and aggravation of permits into your plans.

Double-check pricing on structural work
If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems.

Get written estimates for repairs before you commit to buying a home with structural issues.

Don’t purchase a home that needs major structural work unless:
• You’re getting it at a steep discount
• You’re sure you’ve uncovered the extent of the problem
• You know the problem can be fixed
• You have a binding written estimate for the repairs
Check the cost of financing
Be sure you have enough money for a down-payment, closing costs, and repairs without draining your savings.

If you’re planning to fund the repairs with a home equity or home improvement loan:
• Get yourself pre-approved for both loans before you make an offer.
• Make the deal contingent on getting both the purchase money loan and the renovation money loan, so you’re not forced to close the sale when you have no loan to fix the house.
• Consider the Federal Housing Administration’s Section 203(k) program, which is designed to help home owners who are purchasing or refinancing a home that needs rehabilitation. The program wraps the purchase/refinance and rehabilitation costs into a single mortgage. To qualify for the loan, the total value of the property must fall within the FHA mortgage limit for your area, as with other FHA loans. A streamlined 203(k) program provides an additional amount for rehabilitation, up to $35,000, on top of an existing mortgage. It’s a simpler process than obtaining the standard 203(k).

Calculate your fair purchase offer
Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.
For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.

Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.
The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.
Ask your real estate agent if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair.
Include inspection contingencies in your offer
Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:
• Home inspection. This is key in a fixer-upper assessment. The home inspector will uncover hidden issues in need of replacement or repair. You may know you want to replace those 1970s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.
• Radon, mold, lead-based paint
• Septic and well
• Pest
Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don’t want to deal with.

If that happens, this isn’t the right fixer-upper house for you. Go back to the top of this list and start again.
G.M. Filisko

Pricing your home based on data, not emotion, can mean a swift sale

Home pricing is more of a science than an art, but many homeowners price with their heartstrings instead of cold, hard data. Here’s why crunching the numbers is always the better route to an accurate home price — as well as what can happen when home sellers overlook those all important data points.

Homeowners often think that it’s OK to overprice at first, because — who knows? — maybe you’ll just get what you’re asking for. Although you can certainly lower an inflated price later, you’ll sacrifice a lot in the process. The most obvious damage: A house that remains on the market for months can prevent you from moving into your dream home. Already purchased that next home? You might saddle yourself with two mortgages.

“You lose a lot of time and money if you don’t price it right,” says Norma Newgent, an agent with Area Pro Realty in Tampa, Fla.

And worse: Continually lowering the price could turn off potential buyers who might start wondering just what is wrong with your home.

“Buyers are smart and educated,” says Lisa Hjorten of Marketplace Sotheby’s International Realty in Redmond, Wash. “You’re probably going to lose them.”

It’s easy for homeowners to stumble into two common traps:

  1. Confusing actual value with sentimental value — how much they assume their home’s worth because they lived there and loved the time they spent there.

2. Assuming renovations should result in a dollar-for-dollar increase in the selling   price — or more.

“Many homeowners think, ‘Of course my home is worth a bazillion dollars,’” says Newgent. If they put in a few thousand dollars-worth of new flooring, for example, they might overestimate the upgrade’s impact on the home’s value into the tens of thousands.

Talmadge’s Texas home came with a built-in renovation trap: It was already the nicest home in the area, making it harder to sell. Major additions had inflated the square footage — and the price, according to one appraiser — without accounting for the surrounding neighborhood. That created a disconnect for buyers: Wealthier ones who might be interested in the upgraded home disliked the neighborhood, and less affluent buyers couldn’t afford the asking price.

“Don’t buy the nicest home on the block” is common real estate advice for this reason.

That’s not to say that renovations aren’t worth it. You want to enjoy your home while you’re in it, right? Smart renovations make your home more comfortable and functional but should typically reflect the neighborhood. A REALTOR® can help you understand what certain upgrades can recoup when you sell and which appeal to buyers.

Another culprit for many a mispriced home is online tools, like Zillow’s “Zestimate,” that prescribe an estimated market value based on local data.

The estimate is often wildly inaccurate. A Virginia-area real estate company  has compared actual sold prices with predicted online estimates for several hundred homes in the area for the past few years and concluded the predictions failed half of the time.

The Right Stats for the Right Price

So, what is the best pricing strategy? I use something called comps (also known as “comparable sales”) to determine the appropriate listing price. I don’t just look at your immediate neighborhood– I also look for other near-by homes with similar floor plans, square footage, and amenities that sold in the last few months.

Once this information has been collected, it will help to determine what you can expect to receive for your home. If a three-bedroom bungalow with granite countertops and a walk-out basement down the block sold for $359,000, expecting more from your own three-bedroom bungalow with granite countertops and a walk-out basement is a pipe dream.

After crunching the data, I will work with you to determine a fair price that will entice buyers. The number might be less than you hope and expect, but listing your home correctly — not idealistically — is a sure way to avoid the aches and pains of a long, drawn-out listing that just won’t sell.

A Mid-Year Review of the Northern Virginia Economy and Housing Market

During the first five months of 2016, the Northern Virginia region had modest gains in existing home sales and robust economic growth. Inventory growth stalled after an influx of spring listings occurred in March. Tight inventory may suppress closed sales going forward, but closed sales should continue to be above their 2015-levels, albeit slightly. Despite the constrained supply, pricing did not increase during this period and may continue to be lackluster in upcoming months.

Economic Trends

After weak activity in 2014, job growth gained momentum throughout 2015 in the Washington region. The first few months of 2016 built upon that momentum, resulting in the strongest job growth in 15 years, which was double the 2000-2013 average. Solid job growth in the Washington region – including the District, five counties in Maryland, and 17 jurisdictions in Virginia and Jefferson, W. Va. – often bolsters home sales volume in the Northern Virginia region, especially when the job growth is in high-wage sectors.

Based on the job growth in the first four months of 2016, the average wage should continue to rise and exceed its 2013 level.

Existing Home Sales Inventory and Closed Sales

Inventory gains slowed during the first three months of 2016 and contributed to the tepid closed sales growth. In March, this trend reversed temporarily, and active listings jumped 11.9 percent from those of March 2015, driven by the largest gain in new listings in almost one year.

Closed sales in April and May had the largest year-over-year gains since last summer, rising 8.6 percent and 7.9 percent, respectively.  In May, new listings had the sharpest 12-month decrease in five years, falling 17.1 percent. Weak inventory growth may moderate sales growth moving forward.

Outlook

The region should continue to benefit from low unemployment, steady population growth and robust job growth in the last half of 2016. Increasingly tight inventory will likely constrain the market but has not yet driven up prices.

Fielding a Lowball Purchase Offer on Your Home

Consider before you ignore or outright refuse a very low purchase offer for your home. A counteroffer and negotiation could turn that low purchase offer into a sale.

You just received a purchase offer from someone who wants to buy your home. You’re excited and relieved, until you realize the purchase offer is much lower than your asking price. How should you respond? Set aside your emotions, focus on the facts, and prepare a counteroffer that keeps the buyers involved in the deal.

Check your emotions.

A purchase offer, even a very low one, means someone wants to purchase your home. Unless the offer is laughably low, it deserves a cordial response, whether that’s a counteroffer or an outright rejection. Remain calm and discuss with your real estate agent the many ways you can respond to a lowball purchase offer.

Counter the purchase offer.

Unless you’ve received multiple purchase offers, the best response is to counter the low offer with a price and terms you’re willing to accept. Some buyers make a low offer because they think that’s customary, they’re afraid they’ll overpay, or they want to test your limits.

A counteroffer signals that you’re willing to negotiate. One strategy for your counteroffer is to lower your price, but remove any concessions such as seller assistance with closing costs, or features such as kitchen appliances that you’d like to take with you.

Consider the terms.

Price is paramount for most buyers and sellers, but it’s not the only deal point. A low purchase offer might make sense if the contingencies are reasonable, the closing date meets your needs, and the buyer is preapproved for a mortgage. Consider what terms you might change in a counteroffer to make the deal work.

Review your comps.

Ask your real estate agent whether any homes that are comparable to yours (known as “comps”) have been sold or put on the market since your home was listed for sale. If those new comps are at lower prices, you might have to lower your price to match them if you want to sell.

Consider the buyer’s comps.

Buyers sometimes attach comps to a low offer to try to convince the seller to accept a lower purchase offer. Take a look at those comps. Are the homes similar to yours? If so, your asking price might be unrealistic. If not, you might want to include in your counteroffer information about those homes and your own comps that justify your asking price.

If the buyers don’t include comps to justify their low purchase offer, have your real estate agent ask the buyers’ agent for those comps.

Get the agents together.

If the purchase offer is too low to counter, but you don’t have a better option, ask your real estate agent to call the buyer’s agent and try to narrow the price gap so that a counteroffer would make sense. Also, ask your real estate agent whether the buyer (or buyer’s agent) has a reputation for lowball purchase offers. If that’s the case, you might feel freer to reject the offer.

Don’t signal desperation.

Buyers are sensitive to signs that a seller may be receptive to a low purchase offer. If your home is vacant or your home’s listing describes you as a “motivated” seller, you’re signaling you’re open to a low offer.

If you can remedy the situation, maybe by renting furniture or asking your agent not to mention in your home listing that you’re motivated, the next purchase offer you get might be more to your liking.