Real Estate Investing: Single Family Home vs. Condo

From Fox Business:

If you’re considering getting into the landlord game, you might wonder  whether it’s best to buy a single family home or a condominium.

Many people say to stay away from condominiums because of all the issues with  homeowners associations, and they have a point. However, single family homes  have many issues, too, so don’t make up your mind so quickly.

Here are several things to consider in this “Rumble in the Investment  Property Jungle.”

Round 1: Investment returns

When you’re buying an investment property, the first thing you should do is  pencil out your real estate deal to see if it has fair cash-on-cash investment  returns. As a general rule, you’ll find that single family homes typically have  lower cash-on-cash returns than condominium properties. So a fair deal on a  single family home might be a cash-on-cash return of 3 to 5 percent, while a  condominium might have 4 to 7% returns. The condominium will probably take this  round, but every property is different, so you need to pencil out your specific  deal to understand the returns.

Round 2: Tenant turnover

Every time your tenants leave, you’ll need to re-rent the property. And it’s  a lot of work! You have to advertise, take calls and emails, show the property,  draft a lease, do a credit check, move the old tenant out, move the new tenant  in, etc. And even if your old tenant left the place in perfect shape, you still  need to fix minor issues, probably paint and maybe have the carpets cleaned.

Smart landlords know that you make the most money by keeping your tenants as  long as possible. Apartment/condo units typically turn over every other year,  while single family homes typically have much longer tenancies of three to five  years. Clear winner on this round: single family homes.

Round 3: HOA vs. non-HOA

The biggest complaint about condominiums is dealing with HOAs and HOA fees.  And while there are many HOAs that are in terrible financial, legal and  operational shape, there are also many that are well-managed and in very good  shape. HOAs can have strict rules, and if you or your tenant breaks them, you  have to deal with the fallout. But those rules also keep harmony in the  neighborhood and stops tenants from parking inoperable vehicles, appliances,  etc., in their yards as might happen with a single family neighborhood. No clear  winner here.

Round 4: Ongoing maintenance and repairs

As a single family residence owner, you would need to schedule and handle all  the exterior issues — roofing, painting, landscaping — which is going to take up  a lot of your time and energy. These are all tasks the HOA would handle in a  condo community. Overall, it’s much less work owning a property in an HOA — and  that’s why owners pay HOA fees. It’s a condo “KO” on this issue!

Round 5:  Value increase

Many people believe that single family homes go up in value more than condos,  but there really isn’t any conclusive proof of that. Most real estate, in a  general vicinity, is going to appreciate about the same 2 to 3% per year over  the long term. So you should exclude this one as a consideration. For building  wealth, forget the appreciation and instead go for the better cash flow as noted  above in Round 1.


So those are some of the items to consider. Either one can be a great  investment, or a terrible investment, depending on what you purchase, how much  due diligence you do before your purchase and how well you manage the property.  Do a lot more research and talk to property owners, and then you can figure out  how you will win the heavy weight championship of real estate investing!

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How to Determine How Much Home Can You Afford

From Fox Business:

Interest rates are low and home prices have plummeted from their 2008 highs,  making it an ideal market for homebuyers. But before even starting the hunt,  every buyer needs to determine exactly what they can afford and how much they  will need for a down payment.

While a down payment is sure to be in the thousands, 90% of new mortgages are  government-backed FHA loans, according to Bob Walters, chief economist at  Quicken Loans, that only require 3.5%-9% upfront, compared to the standard 20%.  Veteran Home loans or VA loans sometimes finance the entire home purchase and  don’t require a down payment.

“Most clients that apply for an FHA loan put down the lowest available down  payment of 3.5% to 5%. This is the major advantage of an FHA loan,” say Noah  Brown, a mortgage loan originator at American Mortgage Group. Keep in mind that  if you don’t put down 20%, you’ll likely have to pay for private mortgage  insurance on top of your mortgage payment until you have enough equity in the  home.

Calculating How Much Home You Can Afford

When you get pre-approved for a loan, the lender will tell you the maximum  you can borrow based on your debt to income. Most banks set the debt to income  ratio at 45% to 50%, which means you’re debt can’t exceed 50% of your income.  Once your debt to income ratio is determined, the bank will tell you how much of  a home you can afford.

Experts warn buyers that just because they are approved to borrow a certain  amount, it could be more practical to borrow less to have more flexibility with  other lifestyle spending. If you like to eat out every night, enjoy weekly  shopping trips or have an expensive lifestyle buying the maximum house you can  afford could leave you strapped for cash. “Some clients may not feel comfortable  with a debt-to-income ratio of 50% and thus look for a lesser value home, with  the knowledge of what they can afford / qualify for,” says Brown.

Once you know what you can afford, next you need to figure out the down  payment amount and how to come up with it. According to Brown, you should never  use the majority of your assets to for your down payment—putting 20% down  instead of 25% will leave some emergency funds in the bank.

Collecting funds for the down payment also varies by financial situation.  According to Walters of  Quicken Loans, the majority of people use money  from their savings account or from the sale of a previous home as the down  payment.

If you don’t have adequate savings for the payment, you can tap your 401(k)  or IRA, although experts warn you could be hit with significant penalties for  withdrawing early. Most lenders allow a portion of the down payment to come from  a gift as long as it’s a gift with no strings attached. “Lenders want to make  sure it’s a gift and not a loan,” says Walters. “They don’t want an over  leveraged client.”

You can not charge your down payment or otherwise borrow money through an  unsecured loan because they will increase your debt-to-income ratio.

There are non-profit companies that offer eligible buyers assistance in  buying a home. For instance AmeriDream, a non-profit focused on helping people  find affordable housing, helps people with low and moderate incomes buy homes by  offering down-payment assistance. Buyers who are approved for an FHA loan, but  don’t have the money for the down payment can apply for the AmeriDream down  payment assistance.

The Nehemiah Program, which is a down payment assistance program that offers  help to buyers who qualify for an FHA loan. With this program there are no  limits on income or assets.  For a list of down payment assistance programs click  here.

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How to Negotiate a Lower Home Price

From Fox Business:

A home is the biggest purchase most Americans will make in their lifetime, so  getting a good deal matters.

While playing hardball to get what you want at the price you want, you risk  over negotiating and being left empty handed. Here are five tips to secure the  home of your dreams without breaking the bank.

Keep Emotion Out. Experts advise treating a home purchase as a business  transaction, and avoid getting emotionally attached to a home which eliminates  any leverage during negotiations.

“You have to treat the transaction as a business decision,” says Michael  Corbett, Trulia’s real estate expert and author. “The minute you get too  emotionally attached to this house, you are dead in the water.”

Be Realistic. Yes it’s a buyer’s market, but sellers are still looking  for reasonable offers.

According to Brendon DeSimone, a Zillow blog contributor, the final sale  price of a home always boils down to the motivation of the buyer and the seller. “If the seller really needs to sell the home, they’ll be more likely to  negotiate on price. Likewise, if the buyer absolutely loves the home, they’ll be  willing to make an offer close to, or at list price,” says DeSimone.

Making an unrealistic offer could result in a seller refusing to deal with a  buyer.

Know the Market. Understanding the current state of the real estate  market in the desired area will aid a buyer’s negotiations.

DeSimone recommends buyers know how long the house has been on the market,  how much the price has dropped and how many times, how many deals have fallen  apart and how many similar homes are for sale in the vicinity.

Corbett says the agreed to selling price doesn’t matter if the comparables in  the area are lower. For instance, the final price may be $400,000, but if  comparable houses in the neighborhood are going for $380,000, there’s little  chance the buyer will get a mortgage for $400,000.

“Often times one of the big issues even if the price is negotiated is they  can’t get the bank to agree,” he says.

Find the Seller’s Motivations. Corbett says knowing the seller is just  as important as knowing the market and the house when trying to lower a home’s  asking price.

To glean a seller’s motivation, Corbett suggests checking out the home’s  selling history.

For instance, if there have been previous offers in escrow that have fallen  through, a seller might be more willing to accept a lower price than someone who  put their house up for sale last week.

Offer Non-Price Perks. To make a lower price more attractive, buyers  can offer other perks like a quick inspection process, or paying in cash. Cash  offers mean the seller doesn’t have to wait for a mortgage to get  approved.  A quick inspection/due diligence period is also an enhanced  negotiating tool.

“Instead of the usual two weeks, try to get [the inspection] done in one  week,” says DeSimone. “If you have a contingency to get a loan, have your loan  broker fully document your file and send a letter along with your offer stating  so. Having your file fully documented up front saves time during escrow.” Even  offering a quick close may be enough to get the seller to accept your offer.

On the flip side, buyers willing to meet the asking price but are low on  cash, can ask the seller to pay the closing costs or throw in all the  appliances. Last-minute perks could mean the difference between a deal closing  and falling apart.

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New Home Sales Rise More Than Expected in April

New U.S. single-family home sales rose more than expected in April and prices pushed higher, further evidence the housing market was turning the corner.

The Commerce Department said on Wednesday sales increased 3.3 percent to a seasonally adjusted 343,000-unit annual rate after a 332,000-unit pace in March.

Economists polled by Reuters had forecast sales at a 335,000-unit rate in April. Compared to April last year, new home sales were up 9.9 percent.

The data, coming on the heels of a report on Tuesday showing home resales hit a two-year high in April, suggested the housing market recovery was gaining traction.

It also highlighted the economy’s underlying strength, even though job growth has slowed in recent months. The weak housing market has been the Achilles heel of the economy’s recovery from the 2007-09 recession, as falling home values restrain consumer spending.

Signs of life in the housing market were also bolstered by a 0.7 percent rise in the median price of a new home last month to $235,700 from March. Compared to April last year, the median price was up 4.9 percent.

Despite the improvement in sales, the housing market continues to be hamstrung by an oversupply of used homes on the market – especially from foreclosures, many of which sell well below their market value.

While the inventory of new homes on the market rose 1.4 percent to 146,000 units last month, it remained near record lows. At April’s sales pace it would take 5.1 months to clear the houses from the market, down from 5.2 months in March.

New home sales last month were buoyed by a 28.2 percent jump in the Midwest. Sales in the Northeast rose 7.7 percent, to the highest level in over a year, while in the West sales soared 27.5 percent. Sales were down 10.6 percent in the South.

New home sales account for about 7.6 percent of the overall housing market and face stiff competition from the used home segment despite low levels of stock.
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Money-Saving Tips for Your First Home

From Fox Business:

You’ve just closed on your first house? Congratulations! During this process,  some of your older friends and relatives may have mentioned how expensive home  ownership can be.

You may not want to hear it, but they’re right. The National Association of  Realtors reports that median existing home prices in early 2012 are hovering  around $163,000 — a serious investment for most. But beyond this, owning a  house can start a landslide of expenses, planned and unplanned, that can savage  your budget.

But smart choices made during your move-in period can not only save you cash  at the outset, but also set you up to save for years to come. Here are a few  tips to help you manage your expenses wisely:

Go cheap on appliances

Chances are, your house is missing something critical. A refrigerator,  perhaps? Washer and dryer? The weeks between closing and move-in are a great  time to hunt for appliances with a level head and a tight wallet. Research  lower-cost models on neutral review sites such as Consumer Reports, and look for  discounted refurbished items or floor models. Many stores sell these items with  guarantees similar to new items. And pass on any additional warranties — self-insuring  with savings is a better option if you can manage it.

Form a posse … of handymen

You may have a home-warranty policy, paid by the seller, that lasts through  the first year of ownership. With these services, you call one number to arrange  repairs or replacement of broken items that came with the house. Here’s the big  “but”: Your previously-owned items (that 10-year-old washer that worked great in  your apartment but just flooded your new laundry room, for example) aren’t  covered. Neither is damage you cause yourself.

Also, a year goes by quickly. You should do your best to prevent  costly home repairs, but begin building a list of trustworthy service people  — plumbers, handymen, electricians — as troubles occur. Then, when your  outdoor faucet explodes during a particularly bad winter, you don’t have to call  the first (and probably priciest) company you find.

Save on starter items

Yes, you’re going to need to buy stuff for your new place. Whether you need  more lamps, extra chairs or serving platters for that awesome housewarming  party, these expenses can add up quickly.

Before heading to Target or a department store, try your local thrift stores.  There you can add to your house inexpensively, and later buy your dream decor  when the pressure is off. If you prioritize tucking your money into a savings  account with a high interest rate, you may be able to afford those perfect items  sooner than you think!

Meet your neighbors

Who knows? You might end up in one of those neighborhoods where muffin  baskets show up on your doorstep. If they don’t, make an effort to introduce  yourself to the neighbors anyway — and get to know them. In a pinch — when you  need someone to watch your cats or want to cut  costs by carpooling — you may find helping hands. Will you like all of  them? Probably not. But having a few good friends on the block can save money  and headaches.

Your older friends and relations are right: Home ownership is expensive.  However, making a few smart decisions after your purchase can turn your first  house into your dream home — and not a money pit.

The original article can be found at Money-saving  tips for your first home

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