Two Wise Acres » Real Estate Investment Resources

Why the Stimulus Bill is a Boost for Real Estate Investors

Rob — Wed, 18 Feb 2009 18:40:28 +0000

If you invest in real estate, I sure hope you’ve been following the Stimulus bill as it makes its way through Congress. Yesterday President Obama signed into law The American Recovery and Reinvestment Act, and it contains a provision that could help a lot of investors. Here’s how CNN described the provision I’m talking about:

Homebuyers: First-time homebuyers who purchase this calendar year get an $8,000 tax credit which does not have to be repaid like a similar measure last year. This phases out for people making more than $75,000 individually or $150,000 jointly. “First-time homebuyer” is defined as someone who has not owned a home for the past three years. Cost: $6.63 billion.

You should be aware that buyer’s will have to repay the credit if they sell the home within three years. Otherwise, they never have to pay the money back. Now that’s a big benefit for first-time homebuyers, but it’s also a big benefit to real estate investors. Let me give you some background into our investments, and then I’ll explain how we intend to use the first-time buyer tax credit to our advantage.

As we’ve written before, Mike and I invest in single family homes located in the mid-West. All of our homes we currently own were purchased from HUD. The deals we’ve gotten range from good to great. Our last investment is a perfect example.

Last year we bought a three bedroom one bath home on a slab for $41,000. The home is in a good school district and a reasonably safe neighborhood. It’s on about .2 acres with a fenced yard and carport. We put about $23,000 into the home. This included painting the house inside and out, a completely new kitchen and bathroom, and a lot of other cosmetic work. With a total investment of about $65,000, we have a property worth $90,000 to $95,000.

Our original intention was to flip the property, something we never do. All of our other homes are on a lease purchase deal, which I’ll explain in a minute. For our new property, we put it up for sale with a broker, and it just sat there. Like so many other properties on the market, we got little interest from potential buyers. But we did get somebody interested in a laease purchase deal, which we ended up taking. Here are the terms:

Lease-purchase fee: $2,400. This fee is non-refundable, but is credited against the purchase price of the home if and when the tenants exercise the option to buy.
Purchase price: $94,900. We always set the purchase price at the high end of the market, but never above what the comps will support.
Term: 3 years. The tenants have three years to excersie the option, and the purchase price never changes, even if the market goes up (or down for that matter).
Rent: $1,045. We often include a yearly rent escalation clause in our long term agreements, but we didn’t here.
Rent Credit: $100. Every month the tenants pay rent on time, they get a $100 credit toward the purchase price of the home. That means that over three years, they can earn a credit of $3,600. Add to that the lease-purchase fee, and they have a $6,000 down payment on a $94,900 home.

We financed all but $3,000 of the total cost of the home, over a 20 year variable rate loan that adjusts once every five years. Our current interest rate is 7.5%. So even with a 20 year note, we have immediate cash flow of about $300 less maintenace costs.

So let’s get back to the tax credit. Assuming our tenants would be first time home buyers and have income within the allowable range, they qualify for an $8,000 tax credit if the buy a home before Decmeber 1, 2009. Simply put, they have every reason to buy now, if they can.

So our plan is simple. We are preparing letters to each of our lease-purchase tenants laying our the terms of the tax credit and how it would affect the purchase of the home. We also have mortgage brokers they can talk to as well, if they’d like. The key here, however, is to get the letters out now so that the tenants have time to think about their decison and to do the necessary planning if they indeed want to buy.

The first time homebuyer tax credit really does offer a great opportunity for buyers. And we think many of our tenants will want to take advantage of it. If they do, we end up selling the property without a real estate agent fee for a fair price. We can then do a 1031 exchange into a new property that, in the present market, can be had for a great price.

GreatSchools.net: A Tool to Evaluate Public Schools

Rob — Wed, 12 Dec 2007 13:10:48 +0000

Renters and buyers alike rank schools high on their list of criteria when searching for a home. Mike and I own one investment property in a neighborhood that is split between two school districts–one good, one not so good. The value of the homes and the rents they can generate vary significantly, even within the same neighborhood, depending on which of the two school districts the house sits in.

Recently, I came across an online tool that can help you determine the quality of schools. It’s called, simply enough, Great Schools. Great Schools allows you to search for schools by city and state, and then select the school you’d like to research. Each school is rated on a scale of 1 to 10 based on a comparison of the school’s standardized test results to state-wide averages.

Great Schools also offers ratings of, and comments about, individual schools provided by other readers of the site, and an overview of state-provided information about the district, including teacher qualifications and student-teacher ratios.

65+ Online Tools and Resources for Real Estate Investors

Mike and Rob — Mon, 03 Dec 2007 10:00:22 +0000

Real estate investors need to calculate property values, determine rents, manage tenants, and track finances for all of it. Here is a collection of resources that we hope will help you do it.

Real Estate Values: Whether buying or selling investment property, you have to know the market. Here are some resources to help you determine the value of your real estate.

Real Estate Forms: Real estate investing is 9 parts financial, 1 part legalese. While you should never assume that a form contract has been properly drafted, they can represent a good starting point when drafting legal documents. Here are some resources to help get you started.

Property Foreclosures: Foreclosures mean discounted property. Here are some sources to find them.

Government

HUD Homes
Fannie Mae
Federal Deposit Insurance Corporation
HomeSales.gov
The Department of the Treasury / IRS
Small Business Administration
US Army Corps of Engineers HAP Properties
United States Department of Agriculture
United States Marshals Service

Bank Foreclosure Listings

Other Foreclosure Listing Services

Rental Ads: If you’re renting, here’s where you can find your next renter.

Mortgage/Financial Calculators: These are some tools to help sort through the 9 parts financial.

Productivity: Lots of sources of information. Here’s one tool to organize it.

Terabitz

Rent Comparables: It’ always difficult ot find true rent comparables. We’ve found exactly one resource that purports to provide comparable rents for your market (47. Rentometer.com), and we’re afraid it isn’t that great. Also, check out our article for an alternative approach.

1031 Exchange Services: It’s not how much you make; it’s how much you keep. These resources provide information and intermediary services for 1031 exchanges to help you keep more.

Tenant Screening: You may like the cut of that prospective tenant’s jib (whatever a jib is), but just to be sure, a credit report and background check might be in order. Here’s where you can get them.

Information and Resources for Managing Rental Property: Management–the bane of the individual real estate investor. Here are some resources to make it a bit less burdensome.

So that’s our list. If you know of an additional resource that real estate investors might use, please leave a comment, and we’ll check it out.

Latest Additions

True to our word, we’ve checked out and are adding the following to the list at our reader’s suggestion. You can return any time and check out the list as we update it by clicking on the Tools and Resources tab at the top of the page.

RentVine (Rental Ads)
RentMarketer (Rental Ads–A Gateway to post to multiple rental listing sites)

Free Templates For Snazzy Real Estate Brochures

Rob — Mon, 12 Nov 2007 10:29:02 +0000

After Mike and I bought our first investment property, one of my tasks was to create a flyer to advertise the new rental. I spent hours formatting a flyer in Excel to include pictures of the property and a description. Mike then spent hours editing what I had spent hours writing. (I don’t edit Mike’s edits because he would just spend additional hours editing it back the way he had it.) It turns out there’s another option that would save even more time than kicking Mike to the curb.

Microsoft’s website offers free Excel-based brochure templates for real estate. Many of the templates are designed with the real estate agent in mind, but you can easily adapt them for investor-offered homes for rent, lease-purchase, or sales. Here are some of my favorite templates available from Microsoft (clicking on the image will take you to the Microsoft page where you can download the template):

You can find more free templates from Microsoft by clicking here.

What’s Your Home’s Walk Score?

Rob — Mon, 05 Nov 2007 13:44:09 +0000

How “walkable” is your home on a scale of 1 to 100? I recently ran across a tool at WalkScore.com that ranks any address based on proximity to restaurants, shopping, grocery stores, movie theaters and the like. WalkScore provides a quick snapshot of one criteria that might be important for house and apartment hunters alike, with 1 being motorized transport only and 100 being an apartment above the megaloplex. Of course, any address in L.A. is set to default at 1 out of respect for the culture.

My current home received a gas-guzzling walk score of 15 out of 100. Not very good, but exactly what I expected. My former apartment in Boston, on the other hand, earned a walk score of 92. The site not only provides a walk score, but also a map with icons showing the distance to various public conveniences. Here’s what the map looks like for my former address on Beacon St. in Boston:

Walking to Fenway. That was the life!

A New Real Estate Widget for the iPhone

Rob — Thu, 18 Oct 2007 11:07:53 +0000

There are two kinds of people in the world. Those that own an iPhone and those that want to own an iPhone. Sadly, I fall into the latter category. For those of you fortunate enough to own an iPhone, and for those wannabes who, like me, will one day own an iPhone, Housefront has developed a new real estate widget.Getting the widget is easy. Simply point the iPhone Safari browser to the following address: http://www.housefront.com/widgets/iPhone. This address brings up a search portal that allows you to enter any address to get the estimated value of the home and other information such as the number of bedrooms, bathrooms and square footage. Using Google maps, the widget also shows you an aerial view of the location of the home. Using HouseFront’s Send to Cell feature, you can also forward information about a home to another cell phone.Mike, I think we need to use the profits from our ever growing real estate empire to buy two iPhones.

RottenNeigbor.com–A New Way to Check Out the Neighborhood

Rob — Thu, 20 Sep 2007 11:00:11 +0000

Did you ever wonder what the neighbors were like near a rental property you wanted to buy? Well, a new Google Maps mashup RottenNeighbor attempts to answer that question for you. Simply enter the zip code where the property is located, and a map with clickable push pins shows you where families have entered information about their neighbors. Completely reliable? Probably not. Worth checking out before making a big investment in a property? Yes. I should caution you, however, that many of the entries are really crass.I wonder if there are any complaints on here about Mike? Hmm, let me check . . .

Government Foreclosure Websites

Mike and Rob — Tue, 28 Aug 2007 11:20:52 +0000

Foreclosures offer an opportunity to buy rental properties at a substantial discount. We buy many of our rental properties from HUD, and the number of available foreclosures from all sources is growing. Here are a list of resources for both government foreclosures and bank owned properties:

Government Foreclosures

Bank Owned Property

Home Value Websites

Mike and Rob — Tue, 28 Aug 2007 10:39:47 +0000

Determining a home’s value is a critical step in the process of buying and selling real estate investment properties. To help you in the process, we’ve assembled a collection of free websites that offer instant home values. Many of these websites also offer a lot more information that you may find helpful in your search for great investment properties. For example, many show maps of the home’s neighborhood along with recent comparable sales or listings. And they provide some helpful information about the home, including sales history, tax assessment, size and school district. So here’s the list, and we will add to it as more websites become available. And if you know of a website we haven’t included, please let us know.