What Is House Hacking?

House hacking is a real estate investing strategy that involves buying a property, living in one part of it, and renting out the spaces you don’t occupy. It’s a simple strategy but remarkably powerful, and while the term “house hacking” has only become popular in recent years, the concept has been around forever.

House hacking is the perfect gateway into real estate investing. Most people instinctively recognize that buying property has tremendous potential, but it’s also intimidating. The high price tag and the complexity of managing a property scare a lot of people off, but house hacking offers a way to mitigate both of those issues:

• Living in the property makes it easier to keep up with maintenance, collect rent, and deal with problems as they arise.
• When you buy a property as your personal residence, some loans allow you to put as little as 3.5% down as a deposit (they’re called owner-occupant loans and have lower rates, too).

House hacking is also incredibly flexible, and you can make it work with almost any type of property. As long as you can fit more than one person into a space, it can probably work as a house hack. I’ve met people who have bought three-bedroom homes, cordoned off a section of the living room for themselves with a wooden partition, and rented out all three bedrooms.

Of course, that’s an extreme approach, and you don’t have to do that to be profitable, but it goes to show how creative you can get. Let’s take a look at some of the more typical arrangements that people use.

House Hacking With a Small Multi-Family Property

A multi-family property is any property that has multiple, separate units on a single lot. For the purposes of house hacking, that means duplexes, triplexes, and quadplexes. If you want to qualify for owner-occupant loans, your property has to be “residential.” That means it can’t have more than four units.

Multi-family properties are usually the standard for house hacking. It’s tough to say whether it’s more profitable to house hack with a multi-family home than a single-family home, but it’s almost always more comfortable. Rare is the person who likes sharing their bathroom with a strange man who always forgets to clean his beard hairs out of the sink.

Unfortunately, these properties are usually harder to come by than single-family homes. There are fewer of them, and there’s often competition from investors. Those factors can drive prices upward.

House Hacking With a Single Family Home

For those who are unable to afford (or find) a multi-family property, single-family homes can be a viable replacement. These are the properties that most people think of as a house. There are a lot more of them on the market in just about every city, so your chances of finding one that’s worth investing in are a lot higher.

There are obvious downsides to this approach. Again, whether or not it will be profitable depends on the location, the property, and the market, but it will always require that you give up some of your personal space. If you don’t mind sharing your sink with Johnny Beardhairs, though, it can be just as effective as house hacking a multi-family property.

If you’re planning to use a single-family property for a house hack, you’ll need to assess the property carefully. Consider ways to divide the property or convert a portion of it to a separate unit. Consider your own comfort and that of your tenants. A well-planned and well-executed division of the unit will have more value and attract a better class of tenant.

Want to learn about some of our other favorite real estate investing strategies? Take a look at our introduction to the asset class: Investing 101: Real Estate Investing For Beginners

House Hacking With Long-term vs. Short-term Tenants

Picking a property type isn’t the only choice that will affect your house hacking experience. You’ll also have to decide whether to go with long-term or short-term tenants.

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Long-term tenants are what you probably imagine when you think of renters. They usually sign a lease for somewhere between a month and a year. Short-term tenants may only stick around for somewhere between a night and a week (think Airbnb and VRBO).

There are pros and cons to both:

• Long-term: Keeping tenants in your property for months or years at a time is ideal for those who prefer stability. You wouldn’t have to worry as much about generating demand or turning over your property. Your rental income will be predictable. That said, when a tenant does leave, there will usually be much more extensive repairs necessary before it’s ready for the next one, and they’re noticeably less profitable.
• Short-term: Bringing in tenants on a daily or weekly basis is a lot more work than a long-term rental. You’d have to clean the place between each one and worry about a lot more people. Your income may be seasonal or unpredictable. On the bright side, you can charge a lot more for a property on a nightly basis than you can on a monthly one.

In short, you’d want to choose long-term tenants if you want as passive an experience as possible. If your main priority is making as much money as you can, short-term tenants are usually the better way to go. Be sure to consider your available time and your housekeeping skills before deciding on short-term rentals. You’ll also want to consider whether your location attracts a year-round stream of short-term visitors.

The Advantages of House Hacking

I said that house hacking is one of the most powerful strategies for building wealth because it can get someone to pay for your housing. Of course, that’s an oversimplification. Let’s take a look at exactly why it’s so useful. It’s going to be a long list, so bear with me.

A successful house hack allows you to:

• Generate Passive Cash Flow: If your rental income for the property exceeds the cost of owning it, your home will actually put money back into your pocket every month instead of taking some out. Even if you don’t have positive cash flow while you live in the property (those owner-occupancy loans require that you do so for a year), it should if you ever decide to move out. Even if you only manage to break even, that still means you’re living for free!
• Maximize Leverage: Leverage (debt) is a big part of what makes house hacking so powerful. You only have to pay a fraction of the price of a property to gain access to it and benefit from its cash flow and appreciation. Mortgages are also among the lowest-interest loans you can get. That lets you pay for a valuable investment with a low-interest loan, and that’s unusual: good luck getting a lender to give you a mortgage to go buy a bunch of stocks!
• Build Equity: Have you ever heard someone say that renting is like throwing money away? That’s because owning a property allows you to build equity that you can tap into later. You can potentially recoup all the money you put toward the principal balance of the property when you sell it. If you select quality properties in good locations their value is likely to increase.
• Diversify Your Portfolio: One of the keys to successful investing is diversification. If your portfolio is entirely comprised of paper assets like stocks and bonds, having a rental property or two is a great way to hedge your bets against market downturns and inflation. 
• Receive Tax Incentives: The tax code has dozens of rules that incentivize real estate investing. You can take deductions for maintenance, depreciation, property taxes, mortgage interest, and more. If you decide to sell your property, the IRS will tax the capital gains at rates far lower than ordinary income rates. If you live in the property for two years, you can even exclude $250,000 of those gains.

Honestly, the list above probably isn’t exhaustive, but it should get the point across. House hacking can turn the most common obstacle to saving money (having to spend thousands of dollars a year on shelter) into a wealth-generation machine.

Let’s take a look at a couple of examples that demonstrate the power of house hacking.

House Hacking in Action

Take a look at the numbers above. They’re just approximations, but they’re realistic ones. Both would be solid deals, but not extraordinary.

Let’s walk through the first one. Finding a triplex in a mid to low-cost-of-living city for $250,000 might be tough, but it’s doable. If you rent each unit for $850 a month, put 5% down, and reserve 1% of the value of the home each year for miscellaneous costs, you’d have to pay just over $100 a month for your own housing. After moving out, you could get another $850 a month, bumping your cash flow up to $736 a month.

Next, the second example. Buying a single-family home in a mid to high-cost-of-living area for $500,000 is achievable. You’d get more rent for each bedroom due to the location, but the extra debt would outweigh the benefits by a bit. Still, you’d only pay $660 a month for housing live in a location where homes are worth half a million dollars. Once you moved out, you’d be up almost $500 a month in cash flow.

Now, consider how much better off the owner of each of these properties would be than their tenants. The owner of the first property would pay $736 less than their tenants to live in the same place. How much better off would you be if you could save $700 more a month? That would compound into more than $120,000 of additional wealth if you lived in the property for just a decade. What if you did a second house hack the next year? What if you kept going?

Want to see how much wealth your house hack could generate? Use this calculator to see the effects of saving extra money each month: Savings Calculator

The Disadvantages of House Hacking

A good house hack is one of the best investments that you can make. It can revolutionize your life and put you on the fast track to financial independence. That doesn’t mean it’s all puppies and rainbows. There are risks involved and obstacles to overcome. Like any worthwhile goal, house hacking takes some hard work.

So before you go rushing off to throw money at a random real estate agent, let’s take a pause. Investing can always go wrong, and house hacking is no exception. It presents four major challenges. They are:

• Saving the Cash: Real estate is a capital-intensive investing strategy. There are costs to get into the property upfront (downpayment, closing costs), and costs to own it each month (mortgage, taxes, and maintenance). Don’t try to jump into real estate without a strong financial foundation.
• Getting a Loan: Having the money for a down payment doesn’t guarantee that you’ll qualify for a mortgage. These days, you’ll need to have at least a good credit score, a stable income, and the patience to work through the property purchase process.
• Finding the Deal: Compared to investing in something like passive index funds, real estate takes a lot of research. Good deals usually don’t just fall into your lap. You’ll need to learn to analyze properties, get over the fear of making offers, and likely look at many properties you don’t want and deal with more than a few rejections before you can close on a property.
• Dealing with Tenants: Once you have your property, you need to get some into it, collect rent from them each month, keep them from destroying it, and fix the things they break. Some house hacks also put you in direct contact with your tenants. It might not be so bad if you live in separate units, but sharing a living room might not be fun.

House hacking is a powerful strategy, but it’s not foolproof. There are risks and limitations, as there are with every investing tactic. It will take more effort, thought, and energy to pull off than sticking your cash in an index fund, even if you get a property manager and only rent out your garage.

Don’t underestimate the challenges of real estate investing. It’s not a get-rich-quick scheme, and anyone who tells you otherwise is selling you something you probably don’t want.

Are you hunting for new ways to reach financial independence and retire early? Take a look at our suggestions: How to Retire Early: The Shockingly Simple Path to Freedom

Should You House Hack? Ask the Experts

House hacking has the potential to be a life-changing investment. It’s one of the best ways to rapidly scale your net worth, develop a passive income stream, and reach financial independence. That said, it’s not the right move for everyone. Tying up your cash and taking on a mortgage can be daunting, and there are significant personal considerations.

If you’re unsure whether house hacking makes sense in your situation, don’t hesitate to talk to an expert (or ten). There are plenty of local real estate meet-ups across the country, and you can find plenty of more experienced real estate investors there. You should also reach out to lenders, real estate agents, and a Certified Public Accountant to make sure that your investments make sense before you commit.

The post What is House Hacking and Should You Try It? appeared first on FinMasters.

While private real estate investing can be lucrative, there are many important considerations to make before jumping in. This guide will explore some of the pros and cons of private real estate investing.

What Is Private Real Estate Investing?

Private real estate investing involves the direct ownership of property or contribution to a private real estate fund or partnership. It can be a more active form of investing than traditional avenues, as stakeholders are often directly responsible for maintaining the properties they own.

Private real estate investing is considered an alternative financial vehicle. Unlike public real estate investment trusts (REITs), private real estate isn’t traded on financial markets. It also demands a more managerial outlook than other typical items in a portfolio.

Learn more: Uncover effective ways on how to start investing in real estate with our insightful guide to top strategies.

Residential properties are probably the most popular vehicles for private real estate equity due to their availability, ease of management, and potential for predictable ongoing revenue. Commercial properties, specialized buildings, and undeveloped or semi-developed land are also favorites of the private real estate investment community.

Profits in private real estate investing are realized via regular income like rents and value appreciation over time. Investors can also take advantage of tax deductions on property depreciation.

More than $160 billion was raised globally for private real estate investments in 2022. Like any investment vehicle, the private real estate market endures ups and downs, especially in times of inflation and recession. Even so, the industry is positioned to grow as real estate markets expand.

Is private real estate investing worth the risk? Here’s a look at some of its advantages, drawbacks, and potential opportunities.

Learn more: Enhance your property investment knowledge with our selection of the best books on real estate investing.

Pros of Private Real Estate Investing

Private real estate equity is especially attractive to high-value investors and funds. Here are some of the reasons why.

High Potential Returns

There are many avenues for finding success in private real estate investing.

Rental income and lease payments are common for residential and commercial properties. Undeveloped land with valuable resources like oil or minerals can also earn investors extraction royalties. Depending on the property, private equity holders can even earn ancillary income from sources like parking space rentals or licensing fees.

Appreciation is another appealing prospect to private investors.

Properties tend to increase in value when held for several years. This is especially true in areas going through rapid development or economic growth. Private investors earn money through appreciation by selling the property at a higher value or leveraging their equity for refinancing or other investments.

Diversification

Diversification is a key concept for all investment strategies, including real estate. The idea is to distribute one’s money across a wide variety of commodities and assets.

An investor’s portfolio may include holdings in stocks, bonds, cash, or even cryptocurrency. They may also have holdings in multiple industries, such as positions in real estate, tech, consumer goods, and utilities commodities.

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The biggest benefit of diversification is risk mitigation. When you hold positions in several different areas, the investments that perform well can balance out the ones that are underperforming.

For example, if a boom in the real estate market drives up the value of your property holdings, it can make up for times when your tech stocks suffer from industry-wide slowdowns.

By contrast, concentrating all your investment capital in just one or two specific areas exposes you to risk. If your portfolio holds nothing but communications, for instance, you’re tied to the ups and downs of that industry alone. When the communication sector goes through a downturn, your portfolio’s value can take a disastrous hit.

Diversification addresses this issue, protecting shareholders from market volatility and changing economic cycles. By adding private real estate interests into your portfolio and holding a diverse array of properties, you can effectively manage and mitigate your overall risk.

Control and Decision-Making

Private real estate investing is a more active form of investing than stocks or ETFs. For example, owning a residential property for rental income necessitates property maintenance, improvement costs, regulation awareness, and so forth.

While active management takes more work, it gives the investor more control over their assets. They make decisions and take actions that directly affect their holdings in hopes of generating income. More passive investors may not often have a meaningful say in the day-to-day maintenance of their holdings.

Being more involved in decision-making gives investors a sense of control over their assets. It also reinforces the investor’s connection and dedication to their properties, which can be great incentives for active management.

Tax Benefits

Large-scale investments are often vehicles for holders’ tax strategies. Several real estate investing strategies help limit annual taxable income, offering the opportunity for deductions.

For example, an investor in low-income housing may receive tax credits for making improvements, complying with energy efficiency regulations, or depreciation. A commercial real estate investor can get breaks on property taxes, interest expenses, or qualified income.

Limiting one’s taxable income can result in a more favorable tax return at the end of the year. This, in turn, can free up cash flow and other income strategies like compound growth.

Be sure to consult a tax professional before adopting any tax mitigation strategy!

Access to Unique Opportunities

Private real estate investors have access to prospects that other investors don’t. For instance, they can invest directly in residential or commercial properties. They can also make profits via natural resources like oil or gas.

Certain strategies are unique to private real estate investors.

Besides owning properties themselves, they can become part of a “syndicate”, pooling their funds with those of other investors. They can serve as lenders for development projects, earning interest on debt or mortgage payments, or invest in one-off opportunities in niche markets like senior housing or healthcare businesses that need more specialized attention.

These properties and strategies generally aren’t available to everyday investors, as they often require greater capital or are limited to accredited investors. The exclusivity of these assets makes them more appealing to those who can afford them.

Cons of Private Real Estate Investments

Despite its potential benefits, the private real estate investment market comes with some real disadvantages that investors have to consider carefully.

Illiquidity

Investing in real estate is a complex process involving very large assets. Converting investments into cash can be difficult and may take a considerable amount of time. This illiquidity can prove a detriment to some investors.

Since they’re more exclusive, private real estate investments have much smaller pools of potential buyers. The process of investing may further be subject to regulation compliance, zoning disputes, and many other administrative requirements that can slow down transactions and make it more difficult to liquidate an investment.

Risk and Volatility

The scale and substance of private real estate investments make them inherently risky. Real estate is susceptible to economic downturns and recessions, especially during certain market cycles. And since they’re highly illiquid, investors may have a harder time unloading the assets to get out of risky circumstances.

External factors also contribute to the real estate market’s volatility. Interest rate changes, inflation, consumer confidence, and other trends can all negatively affect values.

Higher Capital Requirements

Private real estate investments are more exclusive simply because they require more capital funding. The minimum amount needed for the initial buy-in is often impossible for smaller-scale investors to meet. Many real estate investments are limited to accredited investors because managing them requires specialized experience.

Limited Transparency

Publicly traded assets like stocks are subject to regulation and reporting requirements. Though stockholders don’t have access to every single minute aspect of public company management, they get quite a bit of detailed information about company operations and earnings.

That’s not the case with private real estate opportunities. Such investments aren’t held to the same level of public disclosure as public commodities. Because of this, fund managers might restrict the information they give to the general investment pool, which can be frustrating for those who want to know more.

Longer Investment Horizon

The complex, large-scale nature of private real estate investing requires a not-inconsiderable time commitment. Returns on investment may not actualize for years after raising initial capital. As such, private real estate investing isn’t generally a suitable avenue for those focused on short-term growth or immediate gains.

Private Real Estate Funds

Rather than buying and managing a specific property, many investors put their resources into private real estate funds. Similar to mutual funds and ETFs, these financial instruments pool money from multiple investors. That capital is then used to provide capital for a range of real estate projects.

A real estate fund can instantly diversify one’s portfolio, spreading investments across different types of real estate properties across various locations.

These funds are typically run by experienced managers who are upfront about the characteristics and strategies of certain funds. Depending on how managers permit or limit exit strategies, they may offer slightly more liquid investments as well.

Open Up Your Private Real Estate Investment Playbook

Opportunities for private real estate investment cover a wide spectrum. Considering which ones to follow comes down to the investor’s general financial goals and risk tolerance.

Residential properties are popular, as they can provide rental income, steady appreciation (if they are in desirable locations), and less complicated lease terms.

Commercial properties, meanwhile, offer more sizable returns on investment, with a wealthier potential tenant base and more complex, longer-term lease agreements. Industrial properties represent the “biggest” private real estate investments. They frequently come with corporate tenants and decades-long lease terms.

Each type of private real estate investment has potential benefits and drawbacks. For this reason, due diligence is crucial in evaluating which ones to pursue. Research on location, income potential, market demand, property condition, financing options, and legal compliance will go a long way toward helping you make the right option.

When faced with such prospects, consulting with financial professionals with experience in private real estate investing can be highly beneficial.

Their guidance comes from years of working on large-scale investments. If you’re just beginning your private real estate investment adventure, make it a point to have a trusted financial expert in your support circle.

The post Private Real Estate Investing: Pros and Cons appeared first on FinMasters.

In this post:

• How You Make Money From Real Estate Investing
• 6 Ways to Start Investing in Real Estate
  1. Rent Out a Room or a Part of Your House
  2. REITs or Real Estate Investment Trusts
  3. Investing in a Rental Property
  4. House Flipping
  5. Real Estate Crowdfunding
  6. Online P2P Real Estate Lending
• Challenges and Risks of Real Estate Investing
• Final Thoughts

How You Make Money From Real Estate Investing

Real estate investment can produce two types of gains: value appreciation (growth) and rental revenue (income).

Value Appreciation

Real estate can rise in value. If it does you can eventually sell your asset for more than you paid for it. There are three main drivers for value appreciation.

• Overall market conditions. National real estate trends affect property values nationwide, and they rise and fall according to macroeconomic conditions.
• Local market conditions. Property values in specific neighborhoods can rise or fall according to local economic and demographic trends.
• The condition of your property. Investing in upgrades and maintenance can significantly increase the value of a property.

Rental Income

In this case, you invest in a piece of real estate, such as an apartment building. You operate it with the aim of collecting rent from tenants.

Apartment rentals are just one way to generate rental income. You can also generate a cash flow income from other types of real estate properties, such as commercial buildings (office or retail), warehouses, storage units, and rental houses.

Value appreciation and rental income usually move in sync with each other. Properties in desirable areas command higher rent and attract more reliable tenants. That makes the properties more attractive to buyers and moves the asset value higher.

6 Ways to Start Investing in Real Estate

Here are some proven real estate investment strategies. These methods can work effectively for beginners as well as for seasoned investors.

1. Rent Out a Room or a Part of Your House

If your goal is to create passive income, you may consider renting out a part of your home or a spare room. Longer-term rental contracts can provide a steady stream of income. Short-term rentals (such as through Airbnb) could mean fluctuating monthly returns as tenants come and go. This strategy may be more effective if you live in an area that attracts tourists or other transient visitors.

Because you already own the property, you may be able to make this investment without a large initial expense.

You may still have to invest in home improvements before you can expect to rent out your spare space at home.

Be mindful of the hidden costs, such as utilities, maintenance, and insurance.

Consider potential vacancy periods, especially if you’re borrowing to fund renovations.

All of these factors have an impact on whether it makes financial sense to rent out a room.

Research the costs of hotels or competing rental properties in your area to get an idea of how much you can charge.

2. REITs or Real Estate Investment Trusts

A REIT is a useful real estate investment vehicle when you want to avoid a large, capital-intensive real estate transaction. REITs are created when a trust or a corporation uses funds from a pool of investors to buy and
operate income-generating properties. You can buy and sell many REITs on stock exchanges, making them among the most liquid real estate investments.

Real estate investing through REITs is a simplified way to make smaller investments. 90 percent of the taxable annual profits from a REIT must be distributed to shareholders in the form of dividends. If you are seeking a relatively stable income from real estate, a REIT may be an option worth exploring.

If you want to devote a portion of your portfolio to real estate but don’t have the capital to buy a property, REITs can be a great option. They also allow diversification without excessive expense.

Investing 101: Real Estate Investing For Beginners

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3. Investing in a Rental Property

Do you have some DIY and property renovation skills? Are you willing to go through the continuous exercise of screening and managing tenants? If you answered “yes”, investing in a rental property could be a lucrative option.

You need to have a significant amount of working capital upfront to finance the property acquisition, and you’ll need to consider some potentially significant costs:

• Interest (if you acquire the property with a loan)
• Maintenance and upkeep
• Taxes
• Insurance
• Tenant screening
• Vacant periods

Rental property investing gives you an opportunity to earn a regular income as well as the potential for capital appreciation over time. Through judicious use of leverage (borrowing to acquire an investment that generates enough return to pay for the debt and interest), it is possible to create a solid income while maximizing your tax deductions for related expenses.

Consider the risks of overleveraging, high vacancy rates, and tenant problems before you go ahead. Remember that taxes and other cost elements can change, and maintenance expenses are not always predictable.

Some rental property owners choose to engage property management companies to handle tenants and maintenance. These services come at a significant cost, which can cut into your returns.

Worried about overleveraging? One way of mitigating the risk of investing in rental properties that grew in popularity over the past couple of years is house hacking: buying a property, living in one part of it, and renting out the spaces you don’t occupy.

4. House Flipping

House flipping is a form of active real estate investing. This may not be the best option for beginners who are not well-versed with the property marketplace or do not have the renovation and marketing skills that are often necessary in this form of investing.

In a sense, you can compare house flipping to stock day trading. House flippers typically buy and sell undervalued properties for a small profit in six months or less. In some cases, the real estate flipper may not even invest in fixing the property and may focus on properties that have an intrinsic value that is higher than the current buying price.

Property flipping requires agility and experience. If a hot market begins to cool, you could be stuck with your investment, while its related costs continue to snowball. You’ll need to have a keen awareness of national and local market trends. You’ll also need to evaluate how much repairs cost and how much they add to the property’s value.

5. Real Estate Crowdfunding

This is a digital form of real estate investing. Crowdfunding investors pool their funds to invest in a relatively large residential or commercial property. A number of reliable online real estate platforms offer this type of real estate crowdfunding opportunity to investors. Some amount of capital investment is still required, but it will be significantly less than what you may have to fork out to purchase a property on your own.

This form of investing can provide geographic diversification as well as project diversification, if you invest in several projects. However, you must take into consideration the management fee involved and the minimum lock-in period for your investment. You will take a passive role and have minimal input into management. That can be useful if you don’t have the skills or the time to manage a property. It can be a problem if the property managers make mistakes.

6. Online P2P Real Estate Lending

P2P or peer-to-peer lending is another virtual way to invest in real estate. When you make an investment through online P2P real estate lending, you are financing someone else’s project. To diversify your risk, you can make small loans to multiple borrowers and create a portfolio of real estate loans with potentially high annual returns. As a beginner to real estate investing, it makes sense to loan only to top-rated borrowers, unless you have a high appetite for risk.

P2P real estate lending investments can be placed in some retirement accounts, such as IRAs. This can bring significant tax advantages.

You may consider P2P lending as a part of your portfolio diversification strategy, but choosing this vehicle alone for your real estate investments may bring too much risk.

Challenges and Risks of Real Estate Investing

Real estate investing sounds simple, but simple should not be mistaken for easy. A large capital investment is usually required. The costs of financing investment properties can be significant. Real estate investments may be illiquid, meaning that they can take considerable time and effort to sell.

Considering the large size of the investment and its relative illiquidity compared to other asset classes such as stocks, your investment decision must be backed by astute market research.

Real estate investing is not something you can approach on a trial and error basis. Hope and luck are unlikely to deliver returns. Owning a rental property or operating as a home flipper carries risks. Your borrowing costs, repairs and maintenance, insurance and taxes are not going to wait if the market goes bad and you have a high vacancy rate. You’ll need the skills and knowledge to evaluate properties, predict market trends, manage your cash flow, and deal with tenants.

Risks of liability, risks of taking on too much debt, unforeseen repair and maintenance issues, changes in regulations, and macro-economic risks must be objectively considered before you take the plunge.

Never base your estimated returns from a property on “ifs”. Answer some tough questions before you start as an investor. “Will I survive if this property performs 30 percent lower than the current market trends?” “Do I have an exit strategy in place?” These are questions you’ll need to answer before investing in real estate.

Real Estate Investments: Final Thoughts

Real estate investment can be a powerful way to create wealth, but it usually involves more intricacies than stocks and mutual funds, and the investment size is often large. It’s not always easy to sell real estate investments and the costs can be considerable. An impulsive investment could leave you with a property with large continuing expenses and a declining value. You’ll also have to watch for real estate investment scams and real estate seminar scams.

As with any investment, you’ll have to consider opportunity cost: real estate can be a good investment, but is it the most profitable use of the money you have to invest? Consider alternative ways of investing in real estate with little money or other investment classes before committing to this, and decide what percentage of your portfolio you want to allocate to real estate investing.

Begin with realistic expectations and recognize that you won’t start building wealth overnight. Learn to identify and evaluate various real estate investment options and make well-considered decisions that match your risk tolerance and the amount you have to invest. Real estate investment can be a great way to build income and generate long-term value, but the risks are real, and avoiding them takes expertise and commitment.

Real Estate Investing For Beginners is a part of our guide Alternative Investments For Beginners. Read up on other popular types of alternative investments:

• Investing in Art: (When) Is Art a Good Investment?
• Real Estate Investing For Beginners
• Investing in an Online Business 
• Investing in Commodities
• Crypto Interest Accounts
• Investing in Collectibles

The post How to Start Investing In Real Estate: Six Top Strategies appeared first on FinMasters.

So before embarking on your next home improvement project, take a look at our list of 14 common improvements that won’t increase the value of your home. 

1. Converting Your Garage

The garage is often the go-to renovation choice when you want to add livable space to your home. The existing structure makes this option cheaper when compared to constructing an addition. 

Still, converting your garage is not cheap. The average cost of renovating your garage hits close to $10,000^[1].

With the average two-car garage landing at 360 square feet or more^[2], it may seem like adding this square footage to your living space would be great for your home’s value. But prospective home buyers might disagree. 

Garages, and the storage space they offer, are among the top features homebuyers are looking for^[3]. So converting your garage might actually hurt your home’s value, not improve it.

2. Installing Solar Panels

There has been a recent push to go solar, with incentives such as tax deductions, energy credits, cash rebates, and more. 

But solar technology is still relatively new, which makes the panels and installation pricey. As of 2022, the average cost to install solar panels is $20k after you factor in the federal solar tax credit^[4]. 

If you can afford to purchase the panels outright, they can add value, but as solar technology continues to innovate, those panels will become outdated. And the homebuyer may not want to hassle with the leaks and other issues that can arise with solar panels. 

Worse yet, if you resort to a lease program for the panels, you are sticking the buyer with an extra bill they may not want instead of adding value to your home. 

3. Luxury Upgrades

Upgrading your home with luxury items is fine, just don’t expect a future buyer to put the same value on the upgrades as you do. 

Here’s a cost comparison. This beautiful marble tile currently sells for $279 per 10 sq ft. So to remodel a 200 sq ft. kitchen with this flooring would cost $5580 for the tile and another $5k for installation. 

Alternatively, you could use a cheaper marble-style ceramic tile for closer to $380 plus installation. 

Is the buyer going to love the marble tile over the ceramic tile? Maybe. 

Is the buyer going to pay you an extra $10,000+ for your home because of the marble tile? Probably not. 

And it’s even worse if you only update one room with luxury upgrades. 

For instance, if you go with the luxury renovation of your kitchen, but your guest bath is outdated, this may put off the buyer. Your luxury kitchen renovation has only succeeded in highlighting the other problem areas in your house. 

4. Adding Onto Your Home (Overbuilding)

When you look at the selling prices for homes, it is evident that the more living space you have, the higher the home’s value. So it may seem like a no-brainer to construct an addition to your house. 

More space equals more money, right? Not necessarily.

Look at the other homes in your area. What are their sizes, room counts, etc.? For example, if the average home in your area is 3 bed 2 bath, trying to upgrade your home to a 5 bed 3 bath might make it harder to sell. 

Another downside to additions is that they cannibalize spaces like the garage, yard, etc. The absence of this space might be a deal-breaker for many buyers. 

5. Renovating Your Attic or Basement

Renovating or finishing out an attic or basement can be a great way to add livable space to your home. It can also be a costly project. 

These spaces often need a lot of work to bring them up to code as livable spaces. This includes extensive electrical work, ventilation, insulation, etc., not to mention the drywall, flooring, paint, cabinets, etc. 

The average cost to renovate attic land at $80,000^[5]. But the recouped cost is closer to $45,000. This means you are eating $35,000 in costs when you sell your home. 

6. Replacing Windows and Doors

When you are looking to save money on energy costs, replacing your windows and/or doors with energy-efficient products can be a great move. 

According to Energy Star, switching from single pane windows to Energy Star-certified windows can save you as much as $583 a year on your utility bills^[6]. 

This will be a great selling point for your home, but don’t expect to recoup your entire cost of installation and materials from the buyer. 

Instead, it might be better to view this upgrade in terms of how much it will save you on your utility bills rather than how much it will impact your sell price. 

7. Personalized Landscaping

Curb appeal is critical when selling a home. Nobody likes a house with dead grass and a rotten tree stump in the backyard. 

But a little goes a long way. Planting some greenery, even specific trees, replacing broken paving stones, staining the deck, etc., can be great ways to add value to your home without too much investment.

For instance, a professionally landscaped garden might cost $4000 plus an extra $3000 a year in maintenance^[7]. 

So while the increased curb appeal will help your home’s sell price, you won’t be able to recoup the years of maintenance costs. 

Additionally, your immaculate garden may alienate buyers that don’t have the time, skill, or money to maintain it. 

Or, if you go the opposite route with easy to maintain hardscape, you may alienate potential buyers with a dog or young children.

8. Adding a Media Room/Home Theatre

A media room/home theatre is usually equipped with surround sound, plush carpets, raised seating, a big screen, and all the other amenities you might want. 

But the price of building a home theatre is much higher than the cost of a movie ticket. Depending on the size of your space and the amenities you want, you could be looking at a few thousand dollars or upwards of $30k. 

This article by Thumbtack breaks down the costs associated with different home theatre systems.

Will this addition add to the value of your home? There’s no telling. Appraisers often just view the room as a livable space, and most potential homebuyers are not specifically looking for a media room. 

9. Adding a Sunroom

This can be a great way to bring a little of the outdoors into your home, but it won’t come cheaply. 

The average sunroom addition will set you back around $30,000 depending on the type of sunroom you want (i.e., solarium vs. traditional sunroom)^[8]. 

The return on investment for this project is pretty low. You’ll be lucky to recoup even half your costs when you sell. This is partly because this space is not considered “livable” and therefore is not considered part of your home’s square footage. 

Alternatives with a better ROI include building a deck or adding a screened porch.

10. Renovations that Sacrifice Space

Most renovations involve reworking an existing space unless you add a new section to your house. If your planned renovation does involve cannibalizing space, you may be hurting your home’s resell value. 

For instance, if you want a bigger master bath, you may need to sacrifice closet space, and as we already know, storage space is important to buyers.

Or, if you want to expand a bedroom, you may have to sacrifice space in an adjoining bedroom. This could result in 2 bedrooms becoming 1 bedroom and an office. Losing this bedroom is likely to have a negative impact on your home’s value. 

11. Swimming Pool

Adding a pool to your home can cost anywhere between $30,000 and $100,000, depending on the size and materials used^[9]. 

Likewise, the value of adding a pool will be dependent on your individual market. The more warm weather your location has, the more valuable the pool. It’s worth noting that pools saw increased ROI during the Covid pandemic (as did home offices).

But there are other costs associated with owning a pool, such as higher utility bills (water & electric) and cleaning costs. The average yearly cost of owning a pool can be as high as $5000^[10].

And, if your pool is not in immaculate condition when you sell, the costs to repair it will make a serious dent in your budget. 

12. Expensive Repairs & Invisible Upgrades

Repairs are a pain and can often be a blow to your wallet. For example, a new HVAC unit will cost you around $7000^[11], and changing out your water heater can easily hit the $3000 mark^[12]. 

And while having these recently installed/upgraded items is a good selling point, it might not result in a higher resell value. This is because buyers just expect these crucial systems to work.

But, if you put off the repairs and these systems aren’t functional, you can bet on the value of your home going way down. 

Similarly, invisible upgrades are also unlikely to get noticed. This includes updating your electrical panel, adding insulation to the attic, or replacing worn-out pipes. Worse yet, these upgrades are pricey, and the only ROI you’ll see is a decrease in your utility bills. 

13. DIY Projects

Have you ever watched an episode of Renovation Realities and marveled at the people trying to take on impossible DIY projects with nothing more than a hammer and Google? Yeah, don’t be those people. 

Yes, going DIY will save you a bunch of money on labor costs. But, if you don’t know what you are doing, you could make a mess of things. This can result in pricey and/or dangerous mistakes like code violations or taking out critical support structures. 

And once you find yourself in over your head, you’ll need to hire a professional to undo your mistakes and complete the project correctly. So, you’ll essentially pay twice. 

If you have a small project or are an expert (i.e., master electrician), then by all means, go DIY; otherwise, you’re better off hiring a professional. 

14. Minor Improvements that Won’t Increase the Value of Your Home

There is a whole host of other, smaller renovations that won’t break the bank but still have high costs and even less chance of adding any value to your home. A few examples include: 

• Installing high-end appliances
• Putting up wallpaper
• Making bold paint choices
• Adding texture to your walls
• Installing carpet
• Adding skylights
• Creating built-ins (i.e., an aquarium)

If you want these, go ahead: it’s your home. Don’t expect the value of your home to increase.

Many homeowners finance renovations with a personal loan or with a home equity loan or HELOC. Be sure to consider finance costs when assessing the cost of the renovation you’re considering.

Should You Make Improvements to Your Home?

Each homeowner wants to put their own stamp on the house they buy. This can be simple decorating choices, a fresh coat of paint, or even major renovations. 

There is nothing wrong with wanting to make some improvements. Renovations should be a way to make your house more livable for you. 

If you don’t see your current house being your forever home, then renovations need to be considered carefully. You’ll want to keep in mind how the future buyer will value your renovations and avoid home improvements that do not add value. 

If you don’t have plans to sell in the near future and the update is something you really want, something you are more than happy to spend the money on, then go for it. Make your house your home. Just remember that many improvements won’t increase the value of your home.

The post 14 Home Improvements That Do Not Add Value appeared first on FinMasters.

Why Invest in Real Estate?

Over the past 30 years, the average price of a family home has gone up by an average of 5.4% a year^[1]. The average rate of inflation over the past 62 years has been around 3.8% annually^[2]. Real estate appreciation – on average – is just a hair above inflation.

And when you consider that the stock market has averaged around 10% annually for the past 30 years, you realize that stocks have far outperformed the real estate market. So, why should you invest in real estate with little money?

Learn more: Eager to explore real estate investments? We’ve outlined the top approaches for those just getting their feet wet.

Stability

Real estate is typically a stable asset with little volatility. Of course, there will be exceptions (think the 2008 housing crash), but on average, it is very hard to lose all your money in real estate. The stock market is volatile, and if you aren’t prepared for the big ups and downs, it can be nerve-wracking. To see how stable the returns usually are, take a look at the following graph spanning the 53 years between 1963 and 2016.

Real estate investments can provide a source of cash flow in the form of rent. The incoming rent can be high enough to cover a healthy portion of your mortgage payments, reducing the overall cost of your investment.

Tax Advantages

Real estate offers many tax advantages to the investor, many of which aren’t enjoyed by stock market investors. For one thing, thanks to the current tax laws, real estate investors get to retain more of the income generated from their real estate investments. They can also benefit from many deductions as well as capital gains tax deferral strategies.

Security

Aside from stability, real estate provides security. In other words, a stock is a piece of paper that represents part ownership in a company, and if the company goes under, that piece of paper is worthless. A property is a physical, tangible asset that has utility beyond being an investment vehicle.

Even though stocks have a higher overall return than real estate over the long term, real estate has a higher risk-adjusted return. This means that when you account for the risk inherent in each investment vehicle, real estate comes out ahead.

Today, the retail investor has more options than ever before to invest in real estate. Whether you have $10 or $1M, there is an investment vehicle out there that will expose you to the real estate market.

These are sound reasons to put some money into real estate investments. And if you’re short on money, you still have investment options to consider

How to Invest in Real Estate with Little Money

Real estate investing has traditionally been limited to people who can afford to purchase and own property. This takes substantial sums of money or access to large loans at reasonable interest rates. That’s hard for people who don’t have great credit or overflowing bank accounts.

You can invest in real estate with little money (as little as $10). What’s more, you can make money from the purchase and sale of properties without ever having to put in a penny of your money.

Let’s look at different ways you can invest in real estate with little money. We will explore three different cases: You have no money to invest, you have $10-$999 to invest, and you have $1000-$10,000 to invest

Learn more: The right app can simplify real estate investments. Check out our insights from testing the top 5 on the market.

Investing in Real Estate When You Have No Money

Nothing is for free. So, if you don’t have any cash to invest, then you will need to bring something else to the table:

• Time and effort:  Any property will either need to be renovated or managed. For instance, if you’re flipping houses, then you need to fix the place up first.
• Special skills: These are skills used to spot a good investment, negotiate a good price, and so on.
• Another asset: If you own a home or another suitable asset, you can use it to secure a loan.

With those ingredients, you have several options to consider when investing in real estate with little money.

1. Wholesaling

Wholesalers are very similar to real estate brokers. They act as intermediaries between buyers and sellers.

Wholesalers will sign a wholesale contract with distressed sellers, promising them to find a buyer for the property within a certain timeframe. Wholesalers may even put down an earnest money deposit. In return, the seller can’t entertain any other buyers during the agreed-upon period.

For wholesalers, having ironclad contracts is key. It ensures that their deposit doesn’t get lost. It is also important to have a solid network of real estate investors to whom these properties can be sold. This is not to mention how wholesalers need strong negotiation and people skills, especially when dealing with a distressed seller whose emotions may be all over the place.

But most important of all is that wholesalers need to be able to assess the value of a property and gauge how attractive it would be to buyers.

2. Bird Dogging

Let’s say that you have the ability to spot good real estate investment opportunities, but you don’t have the other skills required for wholesaling. In this case, bird-dogging is for you.

Simply, bird-dogging is all about finding these golden opportunities and passing them along to investors. You can even pass them to wholesalers in return for a finder’s fee.

The higher the quality of your analysis, the higher the fee you can demand.

3. Leveraging your Primary Residence

Where you live right now can be the gate that introduces you to the world of real estate investing.

For starters, you can rent a portion of it. For instance, if you live in a 2-bedroom apartment, you can rent out the spare bedroom. As a landlord, you will have to go through all of the required steps, from finding and vetting tenants to getting insurance and ensuring the comfort of whoever is staying at your home.

If you want to buy a new place and you own your current residence, you can use your current home’s equity and borrow cash secured against it. This cash can come in the form of a home equity loan or a Home Equity Line of Credit (HELOC), and it can pay for your downpayment on a new investment property.

On the subject of loans against a primary residence that you own, you can also look into a cash-out refinance, which is a type of mortgage. You can pay the downpayment on a new investment property by refinancing the mortgage on your current home and taking out up to 80% of the equity built up in the real estate property so far.

Learn more: Turn your spare space into potential income: our in-depth review of Neighbor.com offers insights and takeaways.

Invest in Real Estate With Little Money: $10-$999

Most investments in this category will involve working with a group. You’ll pool your resources with those of others.

So, while you gain some things, you will lose others. Most importantly, you will lose control over what happens with the real estate investment. Instead, a specialized entity will manage the asset, and you will have to trust them to do a good job.

In some cases, you might even lose control over which properties are bought, and you will only enjoy the rewards (or losses) reaped by the entire real estate portfolio as a whole. Add to that, you will have to pay a management fee, lowering your overall returns.

Bearing that in mind, your biggest gain is that you will enjoy access to properties and investments that would have been unaffordable had you been on your own. These investments typically don’t require large inputs of time or effort.

Here are some of your best options to invest in real estate with little money ($10-$999)

Learn more: Real estate wisdom is just a book away. Dive into our recommended reads to elevate your investing game.

1. REITs

A Real Estate Investment Trust or REIT is a liquid way for the average investor to get into real estate.

REITs are shares in companies that invest in real estate. So, your shares will appreciate or depreciate depending on the performance of the company and its portfolio of real estate investments.

REITs combine the relative stability of the real estate market and the liquidity of the stock market. You can buy REITs for as little as $10, if not less, making it a great way to invest in real estate with little money.

For any company to qualify for REIT status, it needs to pay out 90% of its profits as dividends to its investors. Otherwise, the company would have to pay corporate income tax. So, REITs pay plenty of dividends but have a hard time growing their portfolios.

If you really want to diversify your portfolio, you should consider investing in an ETF consisting of different REITs. This would expand your exposure and make sure that your investment’s performance is more related to the real estate market as a whole rather than to any single REIT.

2. Crowdfunding Platforms

Even though crowdfunding platforms can be used to finance your real estate investment, we are going to look at things from the perspective of the person actually putting up the money (after all, you want to invest in real estate with little money, right?)

Online crowdfunding platforms let you combine your money with other investors to fund real estate developers and enable them to take on large projects.

One of the nice things about crowdfunding platforms is that, like REITs, you can invest as little as $10. For instance, companies like Fundrise and Groundfloor enable you to put your money into short-term loans.

There are a few caveats. For starters, when participating in crowdfunding, you need to do your own due diligence, especially as real estate developers don’t have to follow the same stringent disclosure requirements enforced on public companies in the stock market. The other thing to look out for is that some crowdfunding opportunities are only open to accredited investors, which applies to people whose income or net worth exceeds a certain limit.

Learn more: The first step to entrepreneurial success? Securing the right funding. Check out these five tried-and-true methods.

Investing in Real Estate With $1,000-$10,000

At this stage, you can actually buy your own real estate property if you can get the right loan for it. You would use your own money, the $1,000 to $10,000 sum, for the downpayment, and the mortgage will cover the rest for you. If you play your cards right, your investment property can help pay off the loan by generating a steady cash flow for you.

And while this option gives you the most control over the property, it is usually the most risky because regardless of whether your investment succeeds or fails, you will have to pay your loan off.

Learn more: Personal loans for home buying? It’s a topic of discussion in our article. See what we found out.

1. The General Requirements

The first and most important requirement is your credit score. With the right credit score, you can qualify for most loans out there and get favorable interest ratesA bad credit score can mean either a rejected application or an exorbitant interest rate that would eat at your potential returns.

There are other factors that any lender will take into consideration:

• Your income and employment status
• Your credit utilization (Ideally, it should be around 30% or less)
• Your co-signer or lack thereof
• Your debt-to-income ratio
• Your derogatory marks (previous bankruptcies, delinquencies, and so on)

A few years ago, when interest rates were near zero thanks to the pandemic, loans were cheap enough to make investing in real estate attractive. The average 30-year mortgage rate has hovered between 6% and 7% for most of 23, the highest level since 2008.

Let’s take a look at the different types of loans available to you. There are two broad categories of loans: Government loans and private loans. Government loans often offer lower interest rates and down payments, but there may be additional requirements.

2. Government Loans

The US government provides different types of loans for would-be homeowners and real estate investors. These loans involve some red tape, but if you qualify for one of them, it can make the investment that much more feasible.

These loans are typically made by approved private lenders but guaranteed by the government agency involved.

FHA Loans

The Federal Housing Authority provides these mortgages for people purchasing a primary residence, i.e., a property where they plan to live. That requirement limits their usability for pure investment properties.

While the average mortgage loan (the kind you’d get from a bank) requires a 20% downpayment on the property, an FHA loan may require a downpayment as low as 3.5%. FHA loans typically provide better interest rates than other options.

VA Loans

VA loans are given to veterans and their immediate family members, so you may not qualify for one. For those who do, you can get a mortgage on a house with a 0% downpayment so long as it will be your primary residence.

VA loans ensure great interest rates, lower closing costs, and can be used more than once. The primary residence requirement may still make these loans difficult to use for investment properties unless you plan to treat your residence as an investment or rent part of it out.

USDA Loans

The US Department of Agriculture provides low-interest mortgages through its Rural Development Office.

USDA loans have a set objective of serving underpopulated zones within the US, and they are available in towns that have less than 10,000 inhabitants. This may seem limiting, but almost 97% of towns in the United States satisfy this condition.

To qualify, you must show that your income is low to moderate. In other words, if you can’t get a traditional mortgage, then this might be the loan for you.

Learn more: The journey to homeownership as a self-employed individual is different; our guide simplifies every step for you.

Fannie Mae & Freddie Mac Loans

Fannie Mae and Freddie Mac are both private companies, they are also government-sponsored as their objectives and operations are endorsed by the government.

Long story short, both these companies fund mortgage lenders to make house financing more accessible. In return for this funding, these two companies set the guidelines surrounding different mortgage loan options.

So, why are these loans so popular?

For starters, they require a downpayment as low as 3%. This is not to mention how they offer fixed-rate mortgages for periods that can last as long as 30 years. Additionally, the other loans on this list are for primary residences, but Fannie Mae and Freddie Mac loans can be used for second homes, vacation homes, and rental properties. They provide loan limits that are higher than what the FHA loan program provides.

Who said you need deep pockets to step into the #real-estate market? Dive into smart, affordable ways in our newest guide.

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3. Private Loans

Government-backed loans usually provide favorable terms, but they can be slow and hard to qualify for. Here are several options to think about if you want to invest in real estate with little money.

Conventional Mortgages

A conventional mortgage is exactly what it sounds like. You borrow directly from a bank or an online lender. You will need good credit and a low debt-to-income ratio to qualify, but there will be no restrictions on your use of the property, making these loans ideal for investment properties if you can get them.

The obstacle, of course, is that you will have to pay a down payment and closing costs. Even if you have good credit and a low debt-to-income ratio, this can be challenging if you are looking for a way to invest in real estate with little money.

First-Time Homebuyer Assistance Programs

Many states and cities have programs designed to help people buy their first homes. If you previously owned a home but have not owned one in several years, you may also qualify.

These programs do not usually offer loans. Instead, they typically focus on helping buyers cover closing costs or a down payment. That assistance can be just what you need if you are creditworthy but don’t have ready cash.

These programs may require that the property be a primary residence.

Seller Financing

Seller financing involves getting a loan from the seller. Rather than demanding the full price of the property upfront, the seller can set up with you a payment schedule that can suit both of you.

This option is ideal when you can’t seem to get a loan through any other means.

A seller who helps you finance the purchase of the property will likely demand a steep interest rate, one that is larger than what a bank would have demanded. You may have to agree to stringent terms that dictate what happens should you default on your obligations.

Lease Options

In a lease option deal, the owner of the piece of real estate will charge you rent to use their property, and their rent will be higher than market value. In return, you will have the right to buy the property at a later date at an already predetermined price.

With a Master Lease Option, you not only have the right to do what you want with the property but can also rent it to other tenants. Of course, you will have to be involved in all the minutiae that plague landlords, including rent collection, property maintenance, and so on.

As appealing as a Master Lease Option may seem (After all, with enough tenants, your rent burden is lightened to non-existent), there are a few issues you need to be careful of. To begin with, you should opt for this type of lease option when dealing with apartment buildings or any other large real estate investment because this enables you to bring in more tenants.

A Master Lease Option can be very risky, especially if you can’t find tenants to occupy the property.

Hard Money Lenders

If you can’t get a conventional mortgage loan, another option to explore is a hard money loan. This is a loan that comes from either a single private individual or a group of individuals pooling their resources together.

Unlike most other lenders, hard money lenders don’t have onerous requirements when it comes to qualifying someone for a loan. In fact, they don’t place too much emphasis on the borrower and their credit score. Instead, they focus on the property itself and its potential for appreciation. 

The approval process of hard money lenders tends to be much faster in comparison to other types of lenders. The flip side of that coin is that hard money lenders also charge higher interest rates because they are taking on more risk than the average lender.

Learn more: Whether it’s for business, property, or personal needs, here’s your roadmap to securing a million-dollar loan.

4. Different Strategies For Investing in Real Estate with Little Money

There are several less conventional ways to invest in real estate with little money. They aren’t for everyone, but people do use them effectively, and they might work for you.

House Hacking

Several of the loans on this list only support people buying a primary residence, which is a place they plan to live in. So, how can you generate income from a primary residence?

One way is house hacking: You can buy a large place, such as a multi-family unit, live in one of those units, and rent out the remaining units. And if you have done your due diligence correctly, the rent can cover your mortgage payments.

After you’ve lived in the property for a while, you can leave it and buy a new property as a new residence using an FHA loan yet again.

The BRRRR Method

The letters in BRRRR stand for:

• Buy
• Rehab 
• Rent
• Refinance
• Repeat. 

Another less conventional method to invest in real estate with little money is to buy a property that needs some work and, hence, is undervalued. The seller may be eager to get rid of the place and willing to make a better deal.

You put in the work and remodel the place, boosting the property value. Once the asset is in good shape, you rent it out to tenants and start generating cash flow. After renting out the property, you can then refinance it, and seeing as it is worth more thanks to your remodeling efforts, you should receive a new loan that covers both the original price of the asset as well as any renovation costs.

Finally, rinse and repeat the above process to build a portfolio of real estate assets.

Obviously, this strategy requires plenty of understanding of the real estate market, along with remodeling skills and a high tolerance for risk.

There are several options out there that can provide loans for home remodeling, including:

• The HUD Title 1 property improvement loan.
• The 203(k) rehabilitation mortgage insurance program.
• The weatherization assistance program.
• Fannie Mae Homestyle Renovation loan
• USDA Section 505 Home Repair Loans and Grants.

The challenge with this strategy is that you have to pay the mortgage as well as the remodeling loan for a while before you start seeing rent income. For some, this can be onerous, which is why it is a costly strategy that can involve high levels of debt.

Learn more: Deciding between selling your home ‘as is’ or giving it a facelift? Dive into the pros and cons in our latest analysis.

How to Invest in Real Estate With Little Money: Which is the Best Option?

We have gone through several options to invest in real estate with little money, and not all of them will be suitable for you. You need to decide how much money you’re willing to invest and how much time and effort you’re willing to put in. Additionally, you want to be honest with yourself about your ability to spot investment opportunities as well as to manage and renovate properties.

There are external factors you need to consider. Your credit score plays a huge role in deciding which path you end up taking.

There is also good news. You can combine different methods and ideas from here to find the best path for you in order to invest in real estate with little money. For example, you could get a lease option, and when it is time to buy the property, you can use an FHA Loan, or you could take the simple path and invest in a REIT.

The key is to work through the menu of options and choose what works best for you!

The post How to Invest in Real Estate with Little Money appeared first on FinMasters.

1. Housing market conditions
2. Personal considerations
3. Time of year
4. Local factors

1. Housing Market Conditions

In 2022, the average cost of a home officially rose to over $400,000^[1]. If you’re looking for a home, you’ll need to understand how the housing market is influenced by three overlapping factors. Understanding these factors can help you determine the best time to buy a home.

Housing Availability

Like the cost of any consumer product, housing prices are governed by the basic laws of supply and demand. The more homes that are available, the lower the price will be for each one.

With more homes available, there’s also a greater likelihood that a house will sit on the market for longer than a seller might prefer. This scenario may prompt motivated sellers to drop their prices to compete in the real estate market.

Conversely, when housing availability is low, the price of each house will be higher. Buyers will feel this crunch when it’s time to make an offer and may get involved in a bidding war with other buyers who are competing for the limited housing options in their area.

Housing Prices

Housing prices are influenced by supply, though this isn’t the only factor that affects the price of each home. For instance, larger, newer homes tend to be pricier than smaller, older homes.

Similarly, if the seller has recently completed renovations, the asking price will likely be higher. Even a fresh coat of paint or new shrubbery can boost a home’s curb appeal and increase its selling price by 5% to 11%^[2].

To save money, some home buyers opt to purchase a fixer-upper and complete their own renovations. This can also be a path toward real estate investment, and today’s renovations can become tomorrow’s profits.

Mortgage Rates

In 2022, the U.S. Federal Reserve increased interest rates in an effort to combat inflation. When it comes to mortgages, interest rates are determined by a variety of external factors, including:

• The rate of inflation
• The rate of job growth
• The state of the U.S. economy as a whole

These external factors represent market conditions that you can’t change. But remember that your credit score and the type of loan you receive will also influence your final mortgage rate.

Timing the Market

Based on the housing market, when is a good time to buy a house? While the market isn’t always predictable, home buyers will generally have a better chance of securing a deal by:

• Waiting until home availability is at its highest
• Seeking a smaller or older home (or a fixer-upper)
• Applying for financing when the economy is strong

Not every home buyer can delay a purchase until just the right time. But those who strategically start their search during favorable market conditions will be better able to secure a home that fits their needs and budget.

2. Personal Considerations

How ready are you to buy a home? Having your personal finances in order can influence the price you’ll pay for your home. But before you start shopping, you’ll also need to consider your housing needs and long-term plans.

Financial History

Your personal financial history will be critical for determining your purchase budget, loan eligibility, and interest rate. Lenders will look at areas such as:

• Your debt-to-income ratio
• Your personal credit score
• Your savings (which can be used for a down payment)

Discover the credit score requirements for each type of home loan when purchasing a house.

Some lenders will even look at your work history to determine whether you have the financial stability necessary for repaying the loan.

If you’re thinking of buying a home, your first question might not be, “When is a good time to buy a house?”. But instead, you should ask “Do I have the financial means to afford a home?”

In some cases, it may be better to pay down debts or build your savings, which can improve your purchase budget or mortgage rate.

Housing Needs

You’ll also need to think through the must-haves your prospective home needs. These might include things like:

• Do I need a garage?
• Do I need a lot of yard space?
• How many bedrooms do I need?
• How many square feet do I need?
• How far am I willing to commute?
• What kind of neighborhood do I want to live in?

If you plan on starting or expanding your family, you’ll also want to factor in additional space for your children as well as your proximity to schools, parks, and other amenities.

The answers to these questions can have a direct bearing on the price you pay for your home. But more importantly, they can help you refine your search and expectations to proceed more strategically.

Long-Term Goals

When is a good time to buy a house? When your long-term goals are clear.

This is more than just understanding the decision-making factors listed above. It also relates to your long-term plans, which can influence whether now is the best time to buy a home.

For example, if you plan on putting down roots in the community, then now could be a great time to buy a home.

But if you plan on moving in the near future, it might make more sense to keep renting. Or, if you already own a home, you might renovate your existing house—which can increase its selling price—or focus on saving for a larger down payment once you relocate.

In most cases, home buyers should only commit to buying a property if they plan on remaining in the area long enough for the equity in their home to exceed the costs associated with buying and selling a home. Depending on your loan type, this can take several years.

3. Time of Year

Believe it or not, the time of the year can influence your home-buying experience.

Spring and Summer

In addition to bringing warmer weather, spring and summer tend to heat up the real estate market as well. Spring, in particular, brings out buyers in droves, often resulting in bidding wars in popular markets.

Buyers can land a better deal if they’re willing to wait until the end of the summer when motivated sellers are more apt to reduce their asking prices before fall arrives.

Fall and Winter

Fall and winter generally see a drop in housing demand. During fall months, homes may be left over from the summertime housing market, which can prompt sellers to drop their prices. Sellers who list their homes during the winter may be especially motivated, which can be great news for buyers looking for the lowest prices available.

All of this means that if you’re looking for a good time to buy a home, consider waiting until the weather gets colder when prices drop and there are fewer buyers competing for a home.

4. Local Factors

It’s easy to read articles about the state of the American housing market. But many times, your local real estate market will look markedly different from national averages. Real estate is an intensely local business.

For instance, the availability of homes in your area may cause home values to differ from the national market.

If your community has experienced a recent construction boom, you can generally expect to find a wider array of available homes, which can lower costs considerably. An economic downturn might increase the number of foreclosed homes, which can generally be purchased for less money.

Similarly, the state of your local economy can drive real estate prices up or down, and it may even prompt sellers to adjust asking prices accordingly.

The larger point is that your decision to buy a house should depend not just on broad economic trends but on local factors as well. It may be a good time for a person in New York to buy a home, but a home buyer in California or Texas may need to wait until their local market improves.

It’s always important to research your local market before starting your home-buying journey.

The “Best” Time to Buy a House

When is the best time to buy a house? The best time is when it’s right for you and your family.

It’s ideal to try to wait for the ideal housing market, but not every home buyer has that luxury. Staying flexible can help you navigate the confusing — and sometimes disappointing — real estate market and ensure that you find a home that fits your needs and your budget.

If you find yourself buying a home in an unfavorable market, you don’t need to feel as though the deck is stacked against you. Many mortgage lenders will work with you to get the best rates and terms available, and if all else fails, you might consider refinancing when the market improves.

The post When Is a Good Time to Buy a House? appeared first on FinMasters.

Zillow’s popularity is often driven in large part by an extensive database of properties and development features. However, some users prefer different sites, due to perceived weaknesses in Zillow’s user experience and interface (UX/UI) or preferences for the functionality of other sites.

If you’re not completely satisfied with the Zillow experience, for whatever reason, consider these eight alternative sites.

Zillow: Pros, Cons, and Things to Consider

Zillow is a real estate market website that was founded in 2006. With over 234 million unique monthly users^[1], it is the most popular real estate site on the web. It’s still not the only one: here are some Zillow alternatives to consider.

The Zillow Group brand also includes other real estate brands and affiliates, including Trulia, StreetEasy, and others.

Pros of Zillow

Like many real estate sites, Zillow helps sellers and buyers in a number of ways.

One of the primary upsides of Zillow is the way it makes pricing visible and somewhat transparent to buyers, sellers, investors, and interested parties. By giving access to pricing information, Zillow helps users verify and confirm the pricing of both specific homes and similar homes in the area, or comps (short for comparable properties).

Whether you’re looking to buy, sell, or rent, Zillow also offers a huge database of homes to browse by location, as well as robust filtering tools. Refine your search to hit a specific number or range of bedrooms or bathrooms, type of home (i.e., house, townhome, apartment, condo, etc.), and a host of other features. You can also sort your results according to price, date of listing, how recently the listing has been revised, and more. And if you’re home shopping with a friend, spouse, or partner, you can tag certain features and share homes with those features remotely.

Until quite recently, Zillow didn’t let users hide a specific property listing. If you had already viewed a particular house and decided it didn’t fit your needs, it would continue to pop up in your results for that search. However, this was apparently remedied in a recent update.

Another useful feature of Zillow is that for some geographical areas, Zillow-owned houses are open for viewing by home shoppers, even without an agent showing up to walk you through them. You don’t need an appointment and can unlock the front door through the Zillow app.

Finally, despite any shortcomings, Zillow has the ultimate benefit for shoppers and sellers of being free to use. You can also use its tools to share listings with others and learn more about tax and mortgage payments, school proximity, and more.

Cons of Zillow

Zillow is popular and effective, but there are still reasons to look for Zillow alternatives.

Among Zillow’s drawbacks is the questionable accuracy of Zestimate, its proprietary valuation tool, which relies on sometimes-inaccurate tax records. The price it displays can make it harder to price and sell a specific property.

Zillow also charges subscribing agents a fairly steep fee for better placement of their listings. The site can also display agents other than the listing agents on a specific property’s page, making users think that the non-listing agent is familiar with the home and is the best choice for requesting a showing. In fact, only one is the listing agent; the others pay Zillow for the privilege of being listed and may know nothing about the home or neighborhood.

Finally, there are reports of limitations to the Android app’s editing functions. If you want to upload new photos to your listing, for example, you’ll have to use an iPhone or the site’s desktop version. This issue might be addressed in future updates.

8 Best Alternatives to Zillow

If you’re looking for Zillow alternatives, you have plenty of options.

1. Redfin

Redfin is a top contender among Zillow alternatives. The site offers sellers a 1% listing fee, instead of the national 3% average. They also offer the specialized Redfin Premier service for selling high-value properties, which provides a direct connection to top agents.

For buyers, the Redfin app simplifies home searching and even lets users draw a radius on a map for the app to search within. If you find a home that interests you, you can book a tour right from the app. Redfin also offers tools to help you figure out your mortgage, tax, and insurance payments based on your input.

Redfin was originally a brokerage and still employs a group of real estate agents whose compensation is determined in large part by the ratings they receive from Redfin users. The company also rebates part of the agent’s commission to the purchaser.

Redfin doesn’t offer quite as much detail about the neighborhood and surrounding areas for specified homes as Zillow. If you close a deal as a buyer or seller you can expect to pay a competitive commission to the agent that handled the transaction.

2. Realtor.com

Realtor.com presents a more basic and less fully-featured user experience than Zillow, Redfin, and some other sites. Despite this, the site offers some robust search options.

For example, you can search for rentals in a particular neighborhood from a property’s listing. Each property’s result page also displays the area’s noise level rating, so if finding a quiet area is important to you—for example, if you work from home during the day—you’ll be able to evaluate each potential result accordingly. You’ll also get an assessment of flood risk and other environmental risks and even advice on decorating and home improvement.

If you keep seeing a home you’ve already rejected, you can hide it so you can focus on more relevant properties.

Some users report glitchy experiences when using the Android mobile app. If you click on an agent’s name for a particular listing, you’re not necessarily being taken to the listing agent’s contact information. Instead, the site allows any local agent to pay for a listing.

3. Trulia

Trulia was bought by Zillow for $1.5 billion in 2014. This site provides a wealth of information for users in search of a new home or apartment, including nearby restaurants, and reviews from other users. There’s an affordability calculator and you can even get a review of local legal protections for LGBTQ+ residents.

You can also set alerts for new listings that match your search criteria. Each listing also provides a direct link to the listing agent.

Downsides include a complex process for creating listings for properties being sold by the owner. Some users have reported receiving notifications for properties that aren’t good matches for their specified searches.

4. Homes.com (Formerly Homesnap)

Homes.com, previously known as Homesnap, is owned by real estate data provider Costar, which purchased the site in 2020. It’s a strong offering for realtors, but perhaps not the best choice for users in search of homes to buy or rent. However, where available, the site’s user interface provides strong filtering options to help you refine your search.

Its coverage is spotty or nonexistent in some areas, but the amount of information it provides for each listed property is impressive thanks to direct integration with the Multiple Listing Service (MLS). Each listing provides the contact information and messaging link for the listing agent. The site also pulls in information from other sources, including property tax records, census results, and more.

5. Foreclosure.com

Foreclosure.com is a specialized real estate site that—as its name would suggest—lets users search foreclosure properties by city, state, or zip code. It also includes properties that are in pre-foreclosure, as well as homes owned by municipalities, in bankruptcy proceedings, and offered as short sales. The site offers a comprehensive user education center, with helpful content on using the site and real estate investing in general.

In addition to homes in foreclosure and other types of economic distress, users can search for “cheap homes” in specific areas. You can filter your search by total sales price—e.g., “under $60K”—and evaluate properties for investment potential as well, including estimated rental prices.

You can sign up for a free seven-day preview of the site. Beyond that, you’ll need to pay about $10 a week or $40 a month.

6. NeighborhoodScout

NeighborhoodScout is a bit different from other sites on our list in that it’s not a real estate market site. Rather, you can use the site to evaluate a particular area based on a number of different factors. That data can then help you further evaluate a specific piece of property in that area and decide whether to purchase or rent it.

NeighborhoodScout can tell you what languages are spoken in the neighborhood you select, as well as what transportation options are available to residents, what residents do for a living, the average value of single-family homes there, and how much tenants pay in average rent, among other data points. A paid subscription will give you access to more granular data including demographics, crime rates, and public school information, among other things.

7. FSBO.com

FSBO.com is a popular flat fee MLS (FFMLS) site for owners who want to list their homes for sale without paying hefty commissions for listing agents. However, you’ll still have to pay to use the site for listing your own FSBO home. Current package prices range from $100 to $400.

The company works by pairing users with different brokers (based on location). Because the broker’s experience and skill level can vary wildly, your experience with the site as a seller might be very different from that of another user.

Users who are looking for homes to buy can find great deals on FSBO.com since owners/sellers using the site might be willing to accept discounted offers in order to close a sale quickly. However, it’s not the most popular site, with one recent survey finding that only 12% of home buyers look at FSBO.com listings.

8. Xome

Xome is a full-service real estate site that is especially valuable for users interested in buying a home through an auction. It provides detailed listing information as well as financing tools and statistical neighborhood information and makes formalizing contracts a breeze with e-signing tools.

Xome offers one of the biggest databases of properties available for purchase through auction. You can view properties first and then receive notifications when other parties submit a bid on the property you’re keeping an eye on.

There aren’t a lot of user reviews for the mobile app version, and while the company offers nationwide listings, there are gaps in coverage.

The post 8 Zillow Alternatives for Real Estate Owners, Buyers, and Investors appeared first on FinMasters.

We prepared a list of the best books on real estate investing that will answer all these questions and more.

Best Real Estate Investing Books

We separated books into categories, each dealing with a different strategy of investing in real estate. We’ll recommend you two books for each of these categories:

• Mindset
• Property Flipping
• Rental Properties & Airbnb
• REIT Funds

The first two books on our list will make you think like a professional real estate investor. These books demystify the investment landscape and make sure you’re aware of the basic principles to become successful.

1. Rich Dad Poor Dad

by Robert T. Kiyosaki

A list of the best books on real estate investing would not be complete without this book. The book Rich Dad, Poor Dad is a best seller in investing and personal finance. One of the key lessons from the book is that we should have more assets and fewer liabilities.

As an example of an asset, it uses real estate investment which, if you do it right, generates consistent passive income. If you are introducing yourself to managing and investing your finances, this is a great book to start.

Read our full book review | Read key ideas on Blinkist →

2. The Millionaire Real Estate Investor

by Gary Keller

Do you think you can only get rich if you have a considerable amount of money to invest in real estate? Are you struggling to believe in yourself? Do you need an initial push to invest in real estate?

If you answered yes to any of these questions, you should read this book which will help you with all these questions and teach you good principles you can apply in real estate investment.

Property flipping is a very popular way of making money with properties without holding them for the long run. The next two books on our list will give you a great framework to evaluate, buy, rehab, and sell residential properties and avoid typical mistakes that can be costly.

3. The Book on Flipping Houses

by J Scott

The Book on Flipping Houses: How to Buy, Rehab, and Resell Residential Properties is a no-fluff book with solid information about flipping houses. It covers the financial requirements, where and what to buy and how to find deals. Furthermore, it introduces a flip formula to ensure your investment is worth it, negotiating tips and due diligence.

If you are planning to buy a property and then sell it with profit in a short period instead of renting it, this book is a great investment.

7 Best Books on Real Estate Investing

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4. The Book on Estimating Rehab Costs

by J Scott

A lot of your profit flipping a house comes down to how much you spend in its renovation. It’s a scary topic and costs can vary widely. If you choose the wrong contractor or buy very expensive materials, it will take a big toll on your profits. It’s therefore important to strike a good balance in property renovation to keep costs under control.

The Book on Estimating Rehab Costs gives you the framework and methodology you need to invest in real estate rehab. After reading this book, you will be able to evaluate renovation costs.

If you have no knowledge of construction and contracting costs, the book will explain how you can react to quotes and be comfortable in managing them. However, if you are knowledgeable, then the book will give you a consistent and efficient method to renovate properties with investment in mind.

Buying properties to rent out long term or short term is an excellent way to generate meaningful passive income. The focus here is to buy properties at a price that makes sense, when taking into consideration the rent you will receive from it. The two books below are the best guides you’ll find on these subjects.

5. The Book on Rental Property Investing

by Brandon Turner

The Book on Rental Property Investing covers in detail all the decisions you need to make before investing in a property. On the location topic, it lists twelve parameters you should evaluate before deciding to invest.

For rental property success, it lists five key points that you can use as a process to invest in a property. However, it doesn’t enforce that process as the only way to invest in rental properties.

It also covers other strategies such as building wealth through single-family properties and it encourages the reader to choose the strategy that works best. The writer’s passion is quite visible, so you are likely to be inspired after reading this book.

6. The Turnkey Revolution

by Christopher D. Clothier 

The Turnkey Revolution is a how-to manual on buying turnkey rental properties. This eBook has practical explanations and examples, making it clearer to understand the concepts.

It covers the basics such as explaining what a turnkey rental property is and why you should invest. Furthermore, it covers more advanced topics like the steps to buying and guidance on decision making.

Real Estate Investment Trusts (REITs) are an alternative way to investing in real estate – without owning a property. REITs have lots of advantages, but it is a complex topic to master. The book below is a great choice to build a strong foundation in REITs.

7. The Intelligent REIT Investor

by Stephanie Krewson-Kelly and R. Brad Thomas

The Intelligent REIT Investor is an introductory book on REIT investment. The book starts with the basics, explaining what a REIT is and why you should invest in REITs. Furthermore, it goes into all the details of how to invest, how to analyze REIT performance, and describing the different types of REIT properties (health-care, office, residential, etc).

Conclusion

These are the best books on real estate investing in 2023 that you can read. There are different ways to do real estate investing, such as buy to let, buy to sell, or not owning properties but benefiting from their cash flow via REITs.

In our list, we covered the different possibilities and included books that give you the tools you need to be a successful investor.

These books enable investors to better understand real estate in order to make better investment decisions.

If you enjoyed this article about the best books on real estate investing and would like to be notified of new content going forward, please sign up for our newsletter.

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Knowing how to buy a foreclosed home can save you money, but that doesn’t mean it’s easy. You’ll need to be prepared for the different processes, legalities, and financing options involved with buying a foreclosed home, as well as the need to make improvements and repairs.

Before you begin exploring buying a foreclosure property, make sure you understand what foreclosure is, how the process works, and how to go about finding, financing, and closing a deal on a foreclosure purchase.

What Is Foreclosure?

A mortgage or deed of trust on a home is a secured loan that’s used to finance the purchase of that property. A secured loan is one that’s backed up by something tangible that a lender can then claim and sell if the loan isn’t paid. The property “secures” the money that was loaned to the purchaser.

Foreclosure is a legal process by which a mortgage lender takes back all rights to a piece of property when the borrower fails to pay the mortgage on the property. Once the lender has secured those rights according to the state’s requirements, it can then sell the property to recoup its losses. Smart real estate investors can take advantage of those sales to acquire property at discount prices.

The Foreclosure Process Explained

In the U.S., the legal process of foreclosing on a piece of property is determined by state law, and so the specifics of the foreclosure procedure vary from state to state. These procedures may be categorized as judicial, non-judicial, or some mix of both, and are guided by varying deadlines and timeframes.

Generally, foreclosure involves five separate stages, although they may be called by different names:

1. Late or Missing Payments

The process begins when the lender fails to receive timely payment for one or more months. The lender sends out an informal notice to the borrower requesting payment. If the borrower then misses another payment, the lender may issue a more formal (but still personal) notice called a demand letter.

During this time, the lender usually will work with the borrower to catch up on late or missing payments, in hopes of avoiding the expense and effort of filing a foreclosure action.

2. Legal Notice

When the borrower’s delinquency extends to anywhere from three to six months (depending on the lender’s policies), the lender will file a formal legal notice in the designated public office for the county in which the property is situated. This notice might be termed a lis pendens or a Notice of Default, depending on the state’s customary practice. The purpose of the notice is to let the public and more specifically the borrower know that the property is at risk of being reclaimed through a foreclosure action.

3. Pre-Foreclosure

After the lender issues the legally required notice, the borrower is given a grace period, usually between one to six months. Pre-foreclosure is an extension of time during which the borrower and lender are free to negotiate a settlement. That settlement can be based on a short sale or making catch-up payments to pay off the delinquency in full. Failing that, the foreclosure process will continue to the next phase.

4. Auction

Before the auction takes place, the lender must post a public notice on the property and also in a newspaper, typically, as well as give notice to the borrower of the time and date of the auction. In some states, the borrower has the right to redeem the property and save it from being sold by paying the full amount owed before the auction begins. Qualified buyers must come up with the full sales price in cash. Alternatively, the lender may allow the borrower to surrender the property through a deed in lieu of foreclosure.

5. Post-Foreclosure

If the property doesn’t sell at auction, the lender retains title to it and it’s thereafter known as “bank-owned” or “real-estate owned (REO)” property. In order to recoup their losses, post-foreclosure lenders may list the home for sale, possibly using a site such as Zillow, or sell the property through a liquidation sale or auction.

The Benefits of Buying a Foreclosed Home

One of the biggest benefits of shopping for a home that’s somewhere in the foreclosure process is the bargain pricing that usually accompanies such a listing. In many cases, a foreclosed home is priced significantly lower than its nearby “comps”, or comparable homes. Because most foreclosed homes are sold “as-is,” the sales price is somewhat discounted to account for the lack of repairs to any existing damage. The costs compared to renting might prove very attractive.

This is true for homes in many stages of the foreclosure process. In the pre-foreclosure phase, you are often negotiating with homeowners who are pressed for time and need to sell the home before more drastic legal and financial consequences occur.

If the property has already been claimed or seized, you may save even more, assuming you have the funds ready to pay the price to redeem the property. Most of the parties involved in attempting to unload foreclosed homes that have already been seized have no desire or interest in prolonging their involvement, so purchasers can benefit from that advantage. 

Risks of Purchasing Properties in Foreclosure

While the potential savings of buying a foreclosed property is undoubtedly a highly attractive draw, there are some risks as well. It’s important to understand what those risks and potential drawbacks are before you commit to carrying through with a purchase.

• Property repairs: That as-is discount often means maintenance and repair issues that you’ll have to fix at your expense.
• Angry (soon-to-be) former owners: Losing one’s home to foreclosure is understandably a highly emotional event for homeowners, some of whom may let their anger show by damaging the home or removing appliances.
• Heavy competition: Foreclosure properties are popular, and you’ll face competition for quality homes. Bidding wars are not uncommon, which can quickly eat up any savings you might have anticipated.
• Professional competition: Many foreclosed homes are bought by investors or by companies looking for rental units. They search for properties systematically and make cash offers. They can be difficult to beat.
• Long legal processes: In some cases, slow response times and exacting legal requirements can make a foreclosure sale drag on for weeks and weeks.

Being aware of these risks will help you evaluate a potential purchase more closely and make the best decision for you. 

5 Different Kinds of Foreclosure Purchases

There are five different types of foreclosure property purchases that you can pursue. Each kind of purchase takes place in a slightly different context and may be governed by differing procedures and rules.

1. Pre-Foreclosure

During the pre-foreclosure phase, the homeowner has a high degree of motivation to sell the property and avoid the negative impact of foreclosure proceedings. If you can purchase the property at this stage, you can avoid some of the risks stated above, since legal proceedings have not yet been initiated.

2. Short Sale

A short sale of a property means that the mortgage lender will accept a lower price for the property than the full amount owed on that mortgage. Buying a home in a short sale is similar to any regular property purchase, with the exception that the seller’s lender must approve the terms. This can lead to a long response time, stretching out the timeframe for the closing.

3. Sheriff’s Sale

Once the property has been formally placed into foreclosure proceedings, the sheriff of the county in which the property is located may include it at a courthouse auction. The highest bidder on the property wins the auction and is contractually bound to carry out the purchase.

4. Bank-Owned

If the sheriff’s auction does not successfully sell the foreclosed home, the lender then holds the title to the property. Bank-owned properties are then marketed and sold by real estate specialists employed by the lender, who typically list them for sale on their own and other real-estate websites.

5. Government-Owned

If a home was financed through federally-guaranteed loans (such as the Federal Housing Administration, or FHA, or the Department of Veterans Affairs, or VA), then the U.S. government becomes the title holder after foreclosure. These properties are sold by registered brokers, and if you want to purchase one of these homes you’ll have to work through one of them. You can find them listed on the Department of Housing and Urban Development (HUD) website.

Types of Loans You Can Use to Buy a Foreclosed Home

When purchasing a foreclosure home it’s important to make sure you’ve either got sufficient cash on hand or a firm offer of financing for the property in place before you officially place a bid. That’s especially true at sheriff’s auctions but securing financing beforehand will also help speed up the process of closing on a foreclosed property no matter what stage of proceedings the property’s currently in.

To finance a foreclosed home, you have a few options to consider beyond private banks and mortgage lenders, who may not like the idea of extending financing for a property that’s about to be seized or is already in foreclosure.

FHA’s 203(k)

To help encourage banks to finance foreclosure properties, the FHA created the 203(k) loan program, which guarantees those loans and charges the borrower a premium via mortgage insurance to offset that guarantee. The advantage of the 203(k) is that it allows a purchaser to request additional funds for necessary repairs in one mortgage product.

USDA

Buyers and investors can also use a USDA Mortgage Program loan to finance the purchase of foreclosure properties. These loans do not generally require the purchaser to make a down payment, which can offset the funds you’ll need to make necessary repairs. You’ll need to provide documentation and proof that the property meets the agency’s minimum guidelines as well as make sure you complete repairs before closing.

VA

VA home loans may also finance a foreclosure purchase. You must meet the agency’s minimum property requirements, including a roof with no major defects, the residential nature of the property, termite- and fungus-free, and other rules that help ensure the property is safe and habitable. If you or a qualifying family member are a veteran of the U.S. armed forces, this might be a worthwhile financing option to explore.

HomeSteps

The Federal Home Loan Mortgage Corporation, or Freddie Mac, purchases loans from lending institutions, packages them together as securities and then sells them to investors. The HomeSteps program it offers provides financing for individuals who want to purchase one of its owned properties.

This program is currently available only in a few states: Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas, and Virginia. Qualifying purchasers in these states can skip purchasing mortgage insurance, which makes the HomeSteps loan cheaper on the whole than a 203(k).

Where to Locate a Foreclosed Home to Buy

In order to find the right foreclosed property to buy, you’ll need to know where to look. That can pose a bit of a challenge for those new to foreclosure properties. Look for these types of properties with the following resources (and for the widest list of candidate homes, use as many of these resources as possible):

• Websites include real estate sites such as Zillow, Foreclosure.com, and HomePath by Fannie Mae^TM, as well as bank and lender websites.
• Print publications such as specialized real estate magazines and circulars or local newspapers.
• MLS (multiple listing service) listings may not spotlight the foreclosure status of the property, so also look at the listing’s copy, including its extended property description.
• Local real estate agents are increasingly retained by lenders seeking to offload distressed homes and often have the inside track on foreclosure listings that may not be otherwise available.

If you’re looking for a foreclosed home a capable real estate agent with expertise in your target area will probably be your best ally.

Get In Early on the Deal

Sometimes it’s easiest to find out about nearby foreclosed homes through informal channels. Let your colleagues, relatives, and friends know that you’re interested in buying a foreclosed home. Often, people who aren’t involved in the process are among the first to learn of distressed properties, even before the foreclosure proceedings begin.

Foreclosed homes have one huge advantage: they are usually much more affordable than other homes in the same area. To gain that advantage you will have to navigate the sometimes complex process of finding and financing a foreclosed home and closing a deal.

It isn’t easy and you may have to try for several homes, but if you can pull it off the savings can be worth the effort!

The post A Beginner’s Guide to Buying a Foreclosed Home appeared first on FinMasters.

What Does It Mean to Sell Your Home As-Is? 

An as-is sale means that your home is being conveyed in its existing condition, exactly as it currently is. That means any flaws, problems, or repairs that might be needed will fall to the buyer to fix. You may sell to another individual or to a real estate investor or company. 

Consequently, as-is sales typically come with lower sales prices. That lower price reflects the reality of the deal, whereby your buyer will take on the cost of repairs, while simultaneously relieving you of that burden. You can combine an as-is sale with an all-cash purchaser to close fast and get out from under the burden of owning and maintaining the property. 

Legally, you’ll still be required to disclose certain conditions to potential purchasers. These requirements vary from state to state, but usually include items such as lead paint, defects in your plumbing or HVAC systems, and any flooding history, among other items. It’s important to confirm these requirements with a real estate professional before you try to sell your home.

Pros and Cons of Selling a Home As-Is

Selling your home as-is saves a lot of time and you can typically get to a successful closing much more quickly. This can be a persuasive benefit if you’re battling a deadline to get to your new home—for example, if you have accepted an out of state offer of employment or you’re beginning your retirement and will be downsizing. You’ll also save money on those repairs and improvements you don’t have to complete. This improves your upfront cash flow when you may likely need it for relocation costs. 

On the downside, your sales price will be lower. You may also find yourself working with a smaller pool of potential purchasers because the ultimate buyer will need to take on additional work to update the property. 

Spruce Up vs. Sell As-Is: 7 Factors to Consider 

The decision of whether to sell your home as-is or to spend the energy and money involved in making significant upgrades for a traditional sale can seem overwhelming. That’s especially true if you’re facing pressure to wrap the sale up quickly to move on to the next phase of your life. Consider the following seven factors before you make a final decision. 

1. The Current State of the Market

If you’re selling in a buyer’s market, that means that available home inventory in your area exceeds the number of potential buyers in the same area. When potential purchasers have this kind of available inventory from which to choose, they’ve got the edge against those sellers. Conversely, in a seller’s market the shrinking inventory isn’t sufficient to meet the demands of local buyers. Those buyers then become more willing to extend consideration to homes that aren’t in the best possible condition. 

If you decide to undertake extensive improvements in a seller’s market, you’re risking a reversal or cooling off of the local market, which will decrease the potential sale price your home can command. Currently, the U.S. market generally is still a seller’s market, although rising interest rates may cool off demand further. 

2. Condition of Homes for Sale Near Yours

Your home will be competing for buyers with all the other similar homes for sale in your area. These are called comparable properties, or comps for short. If your home’s comps are in much better shape than yours, that tends to suggest you’d have to work on your home if you want a similar closing price. Evaluating the local comps will help you get a better feel for the market and where your home fits in. 

3. Potential ROI on Your Planned Improvements

Many home improvements come with a high ROI, or return on investment. Projects such as updating siding with vinyl or fiber-cement, replacing windows, improving security with new features such as steel-reinforced front doors, and necessary upgrades to your bathroom and kitchen typically offer a high ROI and attract more interested buyers. 

Other projects, such as putting in a jet bathtub or installing a skylight in a bedroom, can actually turn some purchasers off your property entirely. The key to making the right decisions is to check with your local real estate agent who can advise you on local market expectations. 

4. How Significant Your Home’s Improvement Needs Are

Major issues that need significant repairs to fundamental systems, such as plumbing or electrical repairs, can repel otherwise interested buyers. When you have the time and money to get these repairs done, you’re likely to entertain more offers of a higher value. By the same token, if there are structural problems that might impact safety, even the most interested and willing buyer is going to struggle to find a mortgage. 

On the other hand, if your home is in fairly good repair—even if it’s looking a bit outdated and in need of aesthetic upgrades—you might want to entertain the idea of an as-is sale. In these sales, homeowners can safely let these kinds of minor improvements go without losing significant buyer interest. 

5. Your Current Resources to Manage Improvements

Figuring out how much to spend on preparing your home for sale can be a complex decision, too. Do you have the resources on hand to manage a big list of improvements to your property right now? Think beyond cash flow alone to the physical and mental energy and the sheer time it takes to manage substantial home improvement projects.  

6. Whether You Need to Close a Sale Quickly 

Consider any external deadlines at play in your housing situation. If you or your partner accepted a job offer in a different location and need to move by a certain date that’s not too far off, or if you’ve already moved and simply need to consolidate households for your own peace of mind, a quick sale can be important to you. In that case, go for a cash offer on an as-is sale. 

7. How Open You Are to a Lower Sales Price

There’s no question that an as-is sale, particularly one backed by a cash offer, is likely to yield a lower sales price than you’d otherwise get. That’s a fact that is simply dictated by the financial realities of the situation. If you’re prepared to accept that lower price, knowing that you’ve saved considerably on the expenses of upgrades and repairs, then an as-is sale might be right for you. 

Best Improvements to Maximize Sales Price

When you’re creating a list of improvement priorities for your home before listing it for sale, it’s important to consider two separate but equally important interests:

1. Your potential ROI for each proposed improvement: Some improvements cost more than they’ll add to your home’s value and might not be worth undertaking this close to a sale. Remember that home improvement projects often go over budget.
2. Whether you’re selling as-is or not: If you’re going the more traditional route, you might want to take advantage of more extensive projects (many of which also offer a higher ROI). 

Given these two major factors, you may want to prioritize low-cost and simple aesthetic updates such as painting and improving landscaping for an as-is sale. You’ll also want to look at major repairs that, if not addressed, might render the home uninhabitable.

For other sales, your options for upgrading your home are more extensive. Stick to projects with solid ROI that help you create the best possible blank-slate showcase home, remembering your purchasers want to be able to project their own tastes and preferences onto that canvas. Remember that some home improvements won’t increase the value of your home. Choose neutral decor elements and emphasize decluttering and removal of personal items. 

How Much to Spend on Preparing Your Home for Sale

With a tight budget and time constraints creating additional pressure, you’ll want to choose which repairs and upgrades make the most sense. That list will vary depending on your circumstances and the local market. However, you can safely ignore certain improvements that don’t typically yield a strong enough ROI to make the cost and effort worthwhile. Those projects include the following. 

Some Cosmetic Issues

Painting and cleaning up your landscaping don’t cost a lot, but they usually boost your home’s appeal to potential buyers. However, other purely aesthetic projects are more complex, requiring a significant investment of time and money. There’s no need to replace bathroom tiles that aren’t damaged but just look old or dated, or polish out lots of minor scratches in your hardwood flooring. 

Sidewalk and Driveway Cracks

Small hairline cracks are very common, especially in places with earthquake activity and loose soil. If it’s significant enough to trip someone and cause a fall with injuries, that should be addressed. Otherwise, you can safely leave them as they are. 

Replacing Outdated Decor

If your window treatments are looking ratty or distressed, you could replace them for a few hundred dollars. Or you could simply take them down and clean the area up. It helps open up the space and saves you money in the process. 

Replacing Old Appliances

Old appliances in contrasting finishes that look worn, broken, or poorly functioning can really date your kitchen. However, replacing them with top-of-the-line up-to-date models is an unnecessary overspend. Instead, look for second-hand appliances that are in solid shape, or lower-cost new models. 

Trying to Bring Your Home Up to Code

Sometimes building code violations can implicate safety issues, and those should always be addressed. However, in many cases, the code violations listed in your home’s inspection report won’t need to be upgraded. They may be grandfathered in if they were included in the home before those code requirements were added. And in any case, the buyer can always address those issues later, if they like. 

Improving Your Home Over the Local Average

It might seem counterintuitive, but making your house stand out too much from the neighborhood often won’t net you a sales price high enough to justify the work. Strive to create the impression of a well-made, clean-slate home that meshes well with its neighborhood and nearby homes. 

Adding a Sunroom

If you have the budget to add a sunroom, consider a deck or patio instead. Sunrooms don’t typically recoup the necessary investment, while decks and patios add considerable value. Stage it as an outdoor living or cooking/eating area for the biggest positive impact on potential buyers. 

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