Investing
Are fixers a good idea in bad areas?
Are condos a good investment? (1)
Are Condos A Good Investment? (2)
Are condominiums risky to buy?
Are one-bedroom condominiums a good investment?
What do you think of a vacation home as an investment?
Is equity sharing a good idea?
What about Real Estate in an IRA?
What is the return on new versus previously owned homes?
Where do I get information on home market stats and trends?
Where do I get information on housing market stats?
Investment Property Loans
Where do I get information on REITS?
How do I project rents on a rental?
Where do I get information about being a landlord?
Where can I get information on writing leases?
What do you think of get-rich-quick real estate schemes?
Are fixers a good idea in bad areas?
It depends. Distressed properties or fixer-uppers can be found anywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood.
Many experts recommend that before you make such an investment, first find the least desirable house in the best neighborhood. Then do the math to see if what it would cost to bring up the value of that property to its full potential market value is within your budget. If you are a novice buyer, it may be wiser to look for properties that only need cosmetic fixes rather than run-down houses that need major structural repairs.
Are condos a good investment?(1)
Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the past few years than when they first came on the scene in the late 1970s and early 1980s, experts say.
While there are lots of reports about homeowners association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past.
Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters and first-time buyers in expensive markets.
Are Condos A Good Investment? (2)
While single-family homes have been the preferred investment by many home buyers, changing demographics are helping make condos more popular, especially among single home buyers, empty nesters and first-time buyers in high priced markets.
Using appreciation as a measure, condominiums in many areas have held their value as an investment, despite economic downturns and problems with some associations. In fact, experts say that condos have appreciated more in the past few years than when there were first introduced in the late 1970s and early 1980s.
The condominium community has worked hard in recent years to overcome image problems brought on by homeowners association and developer disputes as well as any construction-defect litigation. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past.
Remember, as with any home purchase, you should research the neighborhood and development prior to buying. In the case of condominiums, it is very important to ask questions and research the homeowners association to learn about the possibility of any detracting issues.
For additional information on condominiums:
Community Associations Institute
1630 Duke Street
Alexandria, VA 22314
(703) 548-8600
The Condominium Bluebook
Branden E. Bickel
B&B Publications, San Francisco, CA
1993
Are condominiums risky to buy?
While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not lost value, say some experts. And with high prices in many urban markets and more single home buyers in the market than ever before, the market for condos is strong.
As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer). The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes.
Other resources:
- Community Associations Institute, 1630 Duke St., Alexandria, VA 22314; (703) 548-8600.
- "The Condominium Bluebook," Branden E. Bickel, B&B Publications, San Francisco, CA; 1993.
Are one-bedroom condominiums a good investment?
One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But in high-cost markets, such as Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any time in history, there is more demand for one-bedroom condos.
What do you think of a vacation home as an investment?
You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits.
Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible.
Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house fewer than 14 days a year, or 10 percent of the number of rented days - whichever is greater.
You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.
Is equity sharing a good idea?
Equity sharing is not as popular in a slowly appreciating real estate market as in a rapidly appreciating one (when equity investors are easy to find).
Nevertheless, a form of equity sharing called tenants-in-common partnerships is becoming more popular, particularly in high-priced markets. First-time buyers are the most interested in TIC arrangements because it gives them a way to buy property collectively with an unrelated partner.
Loan underwriting standards are more complicated in TIC deals because lenders have more than one party's financial situation to assess. But many standard loan programs do apply.
What About Real Estate in an IRA?
Seldom does your financial advisor recommend Real Estate as an option for building your IRA portfolio. Yet, a real estate purchase can be a very creative, and sound way to maximize building it's value. We are well versed in what guidelines you must follow and have great resources at hand to help you consider making a real estate contribution to your retirement fund.
According to the experts at Quantum Advisors, specialists in this area of investing, most investors are not offered these options within traditional IRAs. The following excerpt from the white paper "Personalized Retirement Planning Using Real Estate Investments" is reproduced with permission. To view the entire article, click here, and for more information about IRA real estate investing, please visit their website at Quantum Advisors.
"You can't use IRA money to buy your own residence, or any other property in which you live. It must be investment property. But when you retire, you can direct your IRA to turn the property over to you as a distribution, at the current market value. Real estate investing through an IRA opens up a huge range of investment alternatives for people who are knowledgeable about real estate investing, or who work with knowledgeable advisors, sponsors or brokers.
Investing in real estate for your retirement may serve as a means to diversify your retirement portfolio to hedge against the cyclical changes in the stock market, economy and bank and government-based investments.
Why Real Estate belongs in a retirement accountThere are four basic reasons that real estate belongs in a retirement account:
- Real Estate offers predictable income.
- Real Estate offers potential increases to your capital investment.
- Real estate has a low correlation with other asset classes.
- Real estate is in your control.
- A bonus. Today, another reason is on the minds of Americans; your particular real estate is an unlikely terrorist target."
Excerpt reproduced with permission, "Personalized Retirement Planning Using Real Estate Investments", Copyright 2004 Jeff Moormeier and Bill Humphrey
SOUNDVIEW REALTY specializes in identifying properties that would suit your IRA investment needs. Please contact us with your questions - we're happy to help.
What is the return on new versus previously owned homes?
Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy.
One survey by the National Association of Realtors shows that resale homes do have an edge over new homes. The trade group's figures show the median price of resale homes increased4.3 percent between 1999 and 2000, compared to 2.8 percent for new homes in the same period.
Where do I get information on home market stats and trends?
A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of Realtors, most of which are continuously compiling such statistics from local real estate boards.
For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in 4200 Koppernick Rd #40, Canton,Mich.48187; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 763-2422. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.
Where do I get information on housing market stats?
A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of Realtors, most of which are continuously compiling such statistics from local real estate boards.
For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 763-2422. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.
Investment Property Loans
Buying an investment property can be a great vehicle for investing your money. You may want to purchase rental property for the purpose of increasing your wealth, developing income or saving for retirement. Securing a mortgage for an investment property is a bit different than for a primary or secondary residence. Due to the wide range of programs that are available, it is best to involve your lender in your thought process as early as possible, to ensure an acceptable financing program is available, as well as to help identify the price range for your investment property purchase. You may have heard about parents that buy a home for their children to stay in during their college years, later selling the investment and using the proceeds to offset the education costs. This is sometimes referred to as a "kiddy condo". An FHA mortgage makes this possible.
Qualifying Qualifying for an investment property mortgage is very similar to the standard process of qualifying for a home loan, with one additional consideration; the rent income that is expected from the investment property you plan on buying. The expected rental income is generally set (for lending purposes) as part of the appraisal process, in some special cases a two-year rent history of the subject property is also requested (information the seller provides). Once an expected rent amount is determined, 75% of that number can be used to offset the proposed mortgage debt for the purpose of qualifying for the new mortgage (debt-to-income ratios).
Incremental Costs You can expect to pay a higher interest rate or higher closing costs for an investment property mortgage. This is a function of the increased risk factors associated with a non-owner occupied mortgage, and the resulting charges from the investor (Fannie Mae, Freddie Mac, or some other private investor for alternative programs). These charges can show up as discount points in the transaction. You should also have the option of premium pricing these costs to avoid extra out-of-pocket expenses.
Turning Your Current Home Into an Investment Property One idea that may be worth considering as you evaluate your investment property plans is turning your current primary residence into an investment property. This allows you to keep your current financing in place, perhaps even tapping the current equity in your home for the purpose of buying your new primary residence, without paying the higher rates/closing costs associated with an investment property mortgage.
Understanding the income and appreciation potential for the properties you are evaluating is critical in making smart investment property purchases. Please talk with your lender or Realtor, who can help educate you about these considerations.
Conventional Investment Mortgage Programs Fannie Mae and Freddie Mac have specific rules concerning down payment, available LTVs, loan amounts and credit requirements. Conventional loan approvals for investment properties are often rendered by an automated underwriting system. Fannie Mae and Freddie Mac offer fixed rate, adjustable rate and interest only mortgages for investment properties.
Alternative Investment Mortgage Programs This category offers additional investment property financing solutions. The programs include a full selection of mortgages that provide for the limitations imposed by conventional mortgages. These alternative solutions are stated income, stated asset, no documentation and 1st and 2nd mortgage combinations that allow for a higher LTV. Because of the many limitations, it is very important that you talk with your mortgage company about your plans before you start identifying potential investment properties.
Where do I get information on REITS?
Ask for information on real estate investment trusts, or REITs, from the National Association of Real Estate Investment Trusts, 1875 Eye St, N.W., Washington, DC 20006; (800) 362-7348.
How do I project rents on a rental?
If you are buying a rental income property and applying for a loan to do so, the lender will require an area rent survey by a certified appraiser. The amount a landlord can expect to receive in monthly rent largely depends on what the property has rented for in the past, the condition of the building, its location and the current housing market.
Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as property insurance, taxes, regular maintenance and repairs.
Where do I get information about being a landlord?
If you are a landlord and have questions, contact:
- National Multi-Housing Council, 1850 M Street, N.W., Washington, DC 20036; call (202) 659-3381.
- National Apartment Association, 21 N. Union St., Suite 200, Alexandria, VA 22314; (703) 518-6141.
Where can I get information on writing leases?
Landlords can turn to several good books for legal and management advice. Some contain sample forms for the tenant's move-in condition checklist, owner's notice of intent to enter an occupied unit and warning notices, for example.
Resources:
- "The Landlord's Troubleshooter," Robert Irwin, Dearborn Financial Publishing, Chicago; 1994.
- "The Landlord's Law Book: Rights & Responsibilities," David Brown and Ralph Warner, Nolo Press, Berkeley, Calif.; 1991.
What do you think of get-rich-quick real estate schemes?
Most real estate experts say there is no such thing as getting rich quick in real estate. But there's no end to get-rich-quick programs presented to the public as alternative methods of buying real estate.
Some are reputable while others depend on your financial circumstances to work. A handful are simply scams.
Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly.
Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are.