Real Estate Market

There are distinct advantages to real estate investment despite the millions of dollars investors have made in the stock market. In fact, investing in real estate for profit is one of the most popular approaches to generating additional income in the United States today.

In this article, we’ll consider just a few examples to illustrate why careful and intelligent real estate investment might make better sense to an investor than stocks. Before we get started, though, it should be mentioned that investing in real property is not a bed of roses without risk, and does include several downsides worth understanding.

Real Estate Investment Downside

1. Liquidity – Real property typically cannot be converted to cash overnight. Whereas stocks can be sold with a phone call, the process of liquidating equity in a real estate investment can take months.

2. Slow Market Reaction – Real property has a slower reaction time than the stock market and therefore requires more patience on the part of investors. Whereas the ups and downs of stocks are in real time and thereby allow you to gauge your gains or losses minute-by-minute, this is not the case with real estate investing. You might have to wait months (probably years) before you discover the real worth of your investment.

3. Less Certainty about Market Value – The stock market is more efficient when it comes to market value than investment in real property. When you purchase or sell a stock, for instance, you can be sure that the price was indeed the “correct” price for that stock on that day and at that time because the existing price for the stock incorporates and reflects all relevant available information about the company such as earnings. This is not the case with real estate value. The buyer and seller must discover the correct value on their own, whether it is too high or too low. This, of course, is why experienced investors research the local market and use real estate investment software to run and rerun the numbers.

Real Estate Investment Upside

1. Leverage – Real property allows you to borrow money to make the purchase; generally not something you can do when buying stocks. Moreover, the stock market, by law, limits the amount of leverage (margin) you can use to buy stock whereas there are no such limits with real estate. You can purchase investment property with a small amount of your own money without any constraint other than a lender’s willingness to fund the property.

2. You Can Purchase under Market Value – It’s generally tough to find “under valued” stock on a regular basis, whereas-especially in this troubled economy-you can purchase properties at discounts far below market value if you dig deep enough.

3. You Get the Benefit of Depreciation – One of the beauties about investment property is the tax benefit you get through depreciation deduction (or “cost recovery”). Defined as a loss in value to a property over time as the property is used, depreciation is a non-cash tax shelter deduction in full compliance with the tax code in which the government allows you to assume that the buildings (not the land) are wearing out over time and becoming less valuable, thereby permitting you to take a deduction for that presumed decline in the value of your asset.

4. Market Conditions are Localized – Whereas a downturn in the stock market could affect everyone involved wherever they live, barring a national collapse of the economy, home values might drop in one city without affecting property values in other cities. This enables you to protect yourself with a “geographically diversified” portfolio of property investments to hedge against this type of event.

6. You Can Control Property Value – Investment property is unlike other investments because its value is mostly controlled by the investor. With some non-superfluous capital improvements and/or diligent property management, investors regularly increase the value of their investment properties. This is not the case with stocks.

Okay, you get the idea. Investing in real estate is a smart and profitable alternative to the stock market. As stated, real estate investment is not a guarantee to riches, and certainly requires more insight and effort than the “gurus” would have you believe. Still, if done correctly, real estate can prove to be one of the smartest investments you could ever make.

I know, you have staying up at night and have seen all these great infomercial on how to make a million dollars buying real estate and now you want to try. Maybe you have even gone one step forward and even paid for a seminar but just not sure how to apply it to our local market in Los Angeles. Well I hope if any that you have come to the realization that for the most part they are all based on the exception and not the rule. At least that was my conclusion.

I paid and attended the Robert Allen seminar years ago, my instructed was from Florida and had apparently great success in buying property and then flipping in Florida. The only problem is that in the City of Los Angeles you really didn’t find property priced so low. Florida like Vegas and other parts of the country at times has had so much inventory that you can pick someone up at a ridiculous price.
Los Angeles is slightly different in the sense that inventory to population ratios is always low. For example I ran a search for bank owned property yesterday and there were 135 single family in the City of Los Angeles, considering the population is 3.9 million ranging from $ 199,000 to $ 6,500,000 that doesn’t seem like a lot of property.

So what should an new investor do?

1) First pick a few areas that you want to focus on.
2) Work with an agent
3) Secure finance
4) Make sure you have seen at least 25-30 property in a specific area
5) Make decision fast

Why pick a few areas? Like in everything else is pays to be a expert instead of a generalist. You need to know the numbers in you selected areas.

Work with an agent. Agents get paid buy the seller no you so in essence you have a high caliber assistant working for you for free. I rather get a great deal that save a few bucks in commission.

Secure finance. If you don’t have a pre-approval or cash you have nothing. This is the most important tool you have to structure a deal. Pre-qualify is not going to work.

Make a decision fast. If you have done your homework this should be easy. You need to know your stuff. You need to be able to come to a conclusion very quickly based on the inventory and pricing you have seen.

Self Invested Personal Pensions (SIPPs) have gained an increasing amount of interest in real estate investments from pension holders over recent years. The concept of SIPP plans was originally introduced in 1989, creating a ‘hands-on’ approach for pension holders to make full decisions of how and where their pension is invested. For real estate to be eligible for SIPP approval, the properties are required to undergo strict criteria approval, ensuring greater security as an investment option.

Pension Benefits

The development of SIPP plans have enabled integration and flexibility for pension holders to determine how their funds are invested, enabling control over the resulting returns. Traditional pension plans have often been limited in diversification, where investment options were entirely controlled by the fund managers.

The introduction of SIPP plans has created the opportunity for under-performing investments to be changed at the request of the pension holder, maximising the return potential. The flexibility of a SIPP offers many distinctive investment advantages, avoiding the problems associated with traditional plans that may be trapped into financial losses during periods of economic downturn.

Property Management Benefits

Investments into a wide range of properties can be obtained through property based investment funds. Real estate investments through SIPPs can also be purchased through property funds, where a diverse selection of property investments are selected and managed through field experts. This option allows for expansive return potential and lowers the risk factors involved.

Acting as an individual investor will enable the SIPP holder to benefit from personal control over the pension fund. Owning investment properties through a SIPP fund avoids the inconveniences of mortgages, complicated legal issues, high capital outlay and overall property management issues.

Tax Benefits

Tax benefits for property investments through a SIPP offer excellent opportunities for real estate with an absence of capital gains and inheritance taxes. Rental income from SIPP property investments is also devoid of taxes, while the rental income is paid back into the SIPP plan enabling the pension to further increase.

Contributions towards tax relief for SIPPs often follow the same regulations as traditional personal pensions, yet variations may occur in different countries. The full details, restrictions and requirements can be obtained from a tax advisor or financial advisor.

Personal Benefits

Personal control over the investment direction of the pension plan is one of the main benefits that differentiate a SIPP from a traditional pension. The flexibility of SIPPs has assisted in the growth of interest for the new options in pension management. The freedom to select assets either personally or with the advice and assistance of a financial advisor ensures that all pension holders, whether experienced in investments or not, are able to benefit from the advantages of SIPPs.

Although there is a restriction of up to 50% of the fund value to be used for investments, business colleagues, partners and other SIPP members can make joint investments allowing for a sizeable pooling of funds.

Investing in real estate through a SIPP offers excellent advantages for flexibility and control over personal pension plans. Although there are many tax and personal advantages, management fees are likely to be charged.

The property purchased through the investment fund may not be available for personal use, as the property will effectively be an asset of the pension fund. Both pension funds and the property to be purchased will be required to have authorisation from the Financial Services Authority (FSA). Full details and advice should be obtained from a pension advisor or a tax specialist to receive advice tailored to individual requirements.

You ever wonder why, if you drive through the heart of any major city, when you look up at the skyline, you will always find a bank’s name at the very top of the tallest of buildings? Right or wrong, banks and other lending institutions have always profited off of society’s lack of understanding “the financial savings and loan system” and cash flow management secrets to get out of debt, increase equity, build assets and create wealth for themselves.

For instance have you thought about how the banks borrow your money as it sits in your checking and savings account and pay you less than 3% for using your money as cash flow, yet you will go to that same bank and apply for a credit card and you pay 28% or more to use their money as cash flow?

You see, we have been conditioned to bank like consumers and not bank like the bank. We have been conditioned to:

1. Use accounts that don’t earn interest (Checking account is a prime example)

2. Make payments that are mostly interest (mortgages, credit card, closed end loans, etc.)

3. Letting our money sit in low to non-interest earning savings accounts (savings, money market, etc.)

4. Use credit cards in a crisis – nowadays credit cards are used as cash in non crisis situation

It appears to me that what we’re perpetually being schooled to do with our money is most beneficial for the financial institutions. They have their earnings in the forefront of their advice to their customers. You and only you have your own best concern at heart so it is imperative for you to make the effort to understand banking principles, cash flow management strategies and concepts so you can do what the banks do, not what they tell you to do.

If you managed the cash flow of your real estate investments to acquire assets and build wealth like the banks manage the cash flow of their investments to acquire assets and build wealth, do you think you can build and empire and put your name on the top of the tallest of buildings? Heck yeah!

Banks have always used real estate cash flow management strategies different than general public knowledge to get out of debt, increase equity, build assets, create wealth and build real estate empires. You can use these same strategies to harvest the same results.

But you must first cast aside the conditional thinking and consumer banking strategies you are so accustomed to practicing. Managing your real estate cash flow like a consumer will only get you minimal success – if any success is reached at all. To apply cash flow management secrets for maximum success, you have to throw away your consumer banking hat and put on your bank banking hat. In other words, in order to get out of debt, increase equity, build assets, create wealth and build a real estate empire your kid’s kids will enjoy, you must learn to bank like a bank.

Greater Noida is one of the most upcoming townships of Delhi NCR (National Capital Region). In recent times, the real estate sector of the region has witnessed a boom due to its primary location and other advantages. Properties are bought in the city for both investment and self-use objectives. The proximity of Greater Noida to Noida, the commercial and IT hub is further an added advantage for its growth. There are a lot of people taking up jobs in Noida and thus Greater Noida serves as a means of accommodation to them. They can rent well furnished apartments or flats in Greater Noida to reduce the commuting distance.

The uplift in Gr. Noida property came about due to a number of reasons. When the rates of property in Delhi became unaffordable, people started to look for regions close to Delhi that could offer housing at lower rates. Also, the commercial sector in Noida began to develop at a phenomenal speed with many companies settling down there. Both these reasons directly led to the development of Greater Noida as the next hot spot for both residential and commercial activities.

The increasing demand for housing has been well captured by the builders and property developers. the city is soon to see various townships, many more commercial headquarters and a lot of infrastructure development. Also, there are a number of tourism and entertainment projects under development in the city. Greater Noida is emerging as one of the largest industrial and education hubs of India. It is, in fact, a site for some of the events of Commonwealth Games. The pace of above developments acts as a catalyst in flourishing the property market.

The strategic location and greenery of the city is attracting all the more people to lay foundations of their homes and industries. The demand for property in Greater Noida has reached such a pinnacle that supply seems deficient, resulting in a hike in rents and property prices. Also, authorities play a crucial role in keeping the environment unsullied by not allowing industries to set polluting industries in the area. With the increase in costs, many high quality establishments for the residential sector are surfacing in the city. This high value is given a boost further by improving the infrastructure in the form of wider roads, refined drainage system and perfect underground cabling. As if this wasn’t enough, many world class shopping destinations are opening up, ultimately attracting more investors to the city.

The prices of property in Greater Noida have been growing ever since it won the attention of buyers and investors. In Greater Noida, the property rates are between Rs 2,400-2,800 per sq ft while land rates range between Rs 16,000 – 22,000 per sq m. The premium and well-settled sectors of Greater Noida include Alpha, Beta, Gamma, and Delta followed by sectors like P3 and Swarna Nagri with slightly higher prices.

One of the best features of life in Gr. Noida is its improving connectivity to some of the key cities like Noida, Delhi, etc. An international airport is coming up in Greater Noida that will help in elevating its global appeal. Also, after Noida, Greater Noida will also be connected by Delhi’s Metro Railway. Next in the line is The Taj Expressway; giving access to the Taj Economic Zone, the Aviation hub and the International Airport being developed along the expressway. In order to create awareness on environment and to encourage tourism in the city, the setting up of a Night Safari is also proposed.

With all the above developments taking place, Gr. Noida has become one of the most sought after destinations for both residential and commercial purposes. Being an Education Park, a premier tourist spot, largest industrial hub, etc and with a Formula One circuit, an 18 hole golf course called the Jaypee Greens, etc. coming up, what more can one ask for!

Being a real estate investor is even more difficult with today’s market. It may look promising for investors because when the “bubble” burst, there are many deals out there to be had. BUT it’s also the worst of times to be in real estate investment.

Yes, housing values have come down drastically and there are lots of foreclosure and bank owned properties to choose from, and it’s also the worst of times because it’s very difficult to get financing for new investors.

If you review the financing rules that went into effect in August of 2008, they have for the most part made many people “un-financeable.”

A new marketing strategy is required to succeed. Lets go over the new rules of marketing to succeed.

Rule#1: Stated Income Loans Are a Thing of the Past

“Stated income loans” which were also referred to as “liar loans” by many, are probably responsible for many of the foreclosures happening across the USA. These loans were set up to allow the self-employed to qualify for loans without having to use tax returns to document income.

New bank loans now, have to be completely documented. I bet that many people cannot qualify to refinance their rental property because many self-employed people don’t show enough income on their tax returns.

Rule #2: US Government has put limits on the number of Properties you can finance

Many people think that they should be able to have as many financed properties as they could qualify for, as long as you factor in your debt and income in the debt to income ratio. Wrong!

Fannie Mae and Freddie Mac have eased up a slightly on this rule. The amount of properties you may have financing for is between five to 10( previously four) if you fully document your income, assets and employment. The other criteria is that you must have a credit score of 720 or higher and have cash reserves equal to six months’ worth of payments for every property you own. Guess what, for those of you who are self-employed, the limit won’t matter, because you can’t document six months’ payments in cash for every property owned. Gotcha on that one!

Because the government tells professional real estate investors that they can only own five to 10 income producing properties at a maximum, this limits them, much like telling a cab company, for example, that they can only have five to 10 cabs on the street.

Rule #3: You May Not Take Cash Out Of Properties for At Least 12 Months, Even If They Were Bought with Cash

Freddie and Fannie now say that a property has to be held for at least 12 months before a “cash out” refinance could be done. Example: If you bought a house with cash, used a line of credit to rehab it up, and then you rented out the property, you cannot get a loan on the property to take cash out. That means, you may not refinance just to pull cash out and moving on to the next deal.

Rule #4: You May Not Refinance a Property Held in an LLC

Freddie and Fannie say you may no longer refinance properties held in limited liability corporations unless they’re returned to “personal name” holding and held there for six months.. NO more asset protection this way. Ouch!

What sense does this make, because the loans aren’t made in the name of the company LLC, that have no personal guarantees, that owners could walk away from. These types of loans are in the investor’s names, and were “quit claimed” after LLCs were closed. Is this a governmental assault on real estate investors? Is this the end of “bargain-basement” real estate market investing? In other words, does this mean the end of real estate investing? NO.

Real Estate Investors are very entrepreneurial and they will always look for ways to get things done. If you can’t get financing the old-fashioned way, then you have to have a new way of doing business. What does that mean? The answer comes in the form of Bulk REO Property Investing. Bulk REO Property investing is a very simple, yet profitable business, of quick-turning distressed Bank REO property for a huge fee.

If want to get an edge on the market, you must consider investing in the short sale real estate market. However, there are a few things to remember when investing in the short sale market. The smart and savvy investor always gets the mortgage deed before he begins working on the property. He also knows his way around the lenders, and can influence the BPO in his favor. These small steps will put you ahead of the investment market and have you dealing like a pro in no time.

Many freshman investors completely bypass the deed and go straight for sale. This is a crucial part to your investment because many things can happen. Consider the deed your security for closing the deal. It prevents sellers from backing down, or trying to re-negotiate the deal.

Once you have secured your mortgage deed, it’s time to deal with the bank. Remember when purchasing a short sale real estate investment, you are purchasing the mortgage directly from the bank at a discount. Thus, the bank has the final say in whether or not get the house.

Lenders can tell right away if you are a newcomer to the short sale market. The last thing you want to disclose is that you are an investor. That sends up immediate red flags to the bank and essentially kills the deal. When you phone the bank, tell them you are a buyer or working with a buyer. Request the short sale packet and leave it at that. If they begin to probe further, stick with your initial story.

After completing your short sale packet, the lender will most likely request a hardship letter stating why the current homeowners cannot make the mortgage payments. Addition information may be requested including current bank statements, income verification, and other useful documents proving hardship.

The last vital part to make the most of your short sale investment purchase is the BPO. A BPO, or broker price opinion, is the opinion of a real estate agent on the fair market value of the home. This is where you haggle a little bit. The lower you can get the BPO to come in, the better off you are. Essentially, you want to real estate agent’s professional opinion to claim that the home of interest is worth as little as possible.

Consider investing in larger-priced homes as well. Lenders will give you a greater discount if you invest on a property with a mortgage over $500,000. The best part is you won’t spend a penny more than if you invested on something valued at a lesser amount.

Being a new short sale real estate investor can be frustrating. It takes a few properties to really get you warmed up to the market. However, these few tips will help you become one of the craftiest short sale investors in the business. Just remember to always ask for the deed upfront, never disclose to the lender that you are an investor, and work with your real estate agent to get the best broker price opinion.

Any short sale real estate investor knows one of the largest challenges faced is dealing with the lender. The short sale process is lengthy, especially when an investor has to work with more than one lender to agree upon a price suitable for all parties. Three parts of the process that are often over-looked are the initial contact with the lender, putting together the short sale packet, and negotiating the figures. If you come to the deal prepared, then the process will go smoothly and the investment will work in your favor.

Contacting the lender can make or break the deal for a short sale real estate investor. Your initial call should be to the Loss Mitigations Department. It may take you several tries to get to a live person who can help. Customer service can direct you if there is no direct number. Make sure when you finally reach the right department and establish a main contact person, you obtain all the information including full name, direct contact line and extension, and hours they work.

Always work in a professional manner with the bank and never raise your voice or make accusations. It will be frustrating because the banks have a large over-haul of short sale real estate and foreclosure properties with a dwindle number of staff. Come to the conversation prepared. Banks can sniff out a new investor right away and you don’t want to ruin your chance for success. Have a list of questions you want to discuss and writing materials handy.

Never disclose that you are a short sale investor. The lender is most likely to turn you away if this information is present in the initial conversation. Tell them that you are a buyer or buyer’s representative. If they ask any questions, reiterate that you are a buyer.

After your first phone conversation, the lender will mail out a short sale packet. Filling out the packet completely and sending it back in a timely manner is highly important. Don’t skip steps or leave out important documentation because the bank will put your loan package at the bottom of the pile and forget about it. The bank will most likely request materials such as:

- A cover letter stating your offer price

- A hardship letter explaining why the homeowner cannot afford the mortgage

- Market value estimation

- Repair estimations

- Income statements from the homeowner

Once your short sale packet has arrived at the lender, they will order an appraisal of the property, or broker’s price opinion. The BPO usually comes back within ten days and will give you a price to negotiate around. The bank will try to get the offer as close to the BPO as possible. Thus, you want the BPO to come in your favor. Sometimes this is out of your hands, but this doesn’t mean you can’t get the bank to go below the BPO.

Remember, it is important to come into a short sale real estate investment deal knowing what you are up against. Always have patients with your lenders, fill out all paper work correctly and submit it with the appropriate documentation, and negotiate around your BPO.

Understanding how to negotiate your short sale can get you a steep discount on your new home. It is important to handle the sale professionally from beginning to end. Directly contacting your loss mitigations department, providing all the necessary documents, and negotiating around your appraisal will assure that your short sale goes smoothly and you walk away with the home you want.

1. Finding the right home- Many websites are dedicated to short sale and foreclosed homes. Search within your specified criteria and locate a home that is the right match for you. Never settle for the first home you come across.

Connecting with a homeowner who is more than three months behind on payment will put you at a distinct advantage. By this time, the homeowner has already received a Notice of Default. It is unlikely that they will make good on payments, and the lender wants to salvage any losses.

Also, look for homes that are in need of great repair. Lenders are more apt to give deep discounts for distressed homes.

2. Contacting the Lender- Your initial contact with the lender is crucial when working with a short sale. Call the bank and locate the Loss Mitigations Department. This may take several calls because many banks have different names for this department. It’s a good idea to have more than one listing in mind in case the first listing proves unsuccessful.

Once you have established contact, inform the lender that you are representing the homeowner. Never disclose that you are an investor.

Be prepared with all the basic property, homeowner, and sales information.

Your goal is to get a short sales packet, or workout packet. Once this is sent to you, fill it out completely.

3. Handling the Paperwork- Upon completing the short sale packet, the lender will request that you mail with it several documents:

a. A hardship letter explaining why the homeowner can no longer afford payments on the mortgage.

b. The preliminary HUD-1 settlement statement shows all of the funds coming into and out of the sale.

c. Income documents including two years’ income tax returns, four months’ bank statements, and two months’ paystubs.

4. Negotiating the Price- Your lender will order a BPO, or broker price opinion. This is when a license’s real estate agent assesses the value of the property. You want the BPO to work in your favor because the low the appraised value, the less you pay for the short sale home.

It is a good idea to hire a private appraiser to evaluate the cost of repairs on the home. If your home shows excessive disrepair, the lender is more apt to give you a discount on your home.

By following these steps, you will handle your short sale like a professional. Remember to connect well with a homeowner in distress, be patient with your lender, and get a BPO that works in your favor. Once you understand the process of a short sale, it can become a very profitable niche market in which you invest.

Even if you are not preparing a formal offering a disclosure of risks is a good idea on an offering. This disclosure includes many standard items and should be carefully modified to be project specific based on project due diligence. Below is Standard List of Risk Issues to Address and Customize based on due diligence results:

• Economic Uncertainty
• Competitive Environment
• No Operating History and No Profitability
• No Recurring Revenues
• No Financial Statements for Company;
• Cash Flow Projections do not Reflect any non-cash tax deductions
• Affiliates and Related Party Transactions
• Common Management
• Need to Attract and Retain Key Employees
• Need for Additional Funding
• Potential for Dilution of Interest in Company
• Nonvoting Interest
• Lack of Public Market
• Unregistered Stock
• Illiquidity
• Absence of Distributions Dilution and Company Valuation
• Speculative Investment
• Nonexclusive List of Adverse Changes that Would Adversely Affect The Investment by Subscriber
• Availability of Information

Some of these may not apply to your project and should be dropped. Some of these may require specific statements for your project. In either case, the risks should be modified to reflect your project. Additionally, this list should not be considered absolute. If you have more, they should be added. Additionally, a simple list like the one provided above is not enough. The prudent principal will begin with the fully explained risks (such as we provide as a low cost downloadable product). For example, the full disclosure for “economic uncertainty” will state something like the following:

Economic Uncertainty

The Company’s success will depend upon factors which are beyond the control of the Company and its management and cannot be predicted accurately at the current time. These factors include, among others, the following: (a) general economic conditions; (b) increased competition; (c) increased cost of operation; and (d) inflation.