Mortgage

Mobile Home Investing: Not What You May Be Thinking

by Brandon · 0 comments

 

This is a post (the second in a three-part series) by John Fedro of MobileHomeInvesting.net. 

In my last post here at RealEstateInYourTwenties.com, I introduced myself, teased you with my simple cash-flow generating secret tool, then KAPOW!! – completely threw you a curve-ball by divulging my money-making strategy is investing in small, individual, easy-to-close mobile homes in and out of mobile home parks. I need to be brutally honest with you for the next minute…

Before we get into the meat of a cash-flow deal (next post) and talk about where all our money is made, you have to understand why sellers will sell you their unwanted mobile homes for such low prices; and conversely, why buyers will pay over retail prices for the same mobile homes. Much like any j.o.b. – you must understand your product, market, and all the players before you may truly thrive.

1. Understand Your Target Homes:

The mobile homes that will make you the most money are often times not the ones you would first believe. In a nutshell 3 bedrooms almost always outsell 2 bedrooms, and clean mobile homes always outsell mobile homes that need repairs. But what else… If you have been in real estate for any length of time you understand that it is not the cleanest or largest homes that make the most money but it is the more motivated sellers that you are truly after. The more motivated the seller, often times the more lucrative the deals end up becoming.

2. Understanding Your Buyers:

Approximately 80% of your end-buyers that call from your “Mobile Home For Sale” advertisements will not have the cash or approved credit to pay you all-cash for your mobile home. Another way to say this is that most mobile home buyers can make you a move-in payment and monthly payments for the sales price of the home. Understand that there is an ocean of buyers looking to buy a home with monthly payments instead of paying with all-cash.

What about buyers with all cash? These buyers are out there but in far less supply than buyers with some cash and great job history. Go where the demand is… payment buyers.

What about bank financing? Bank financing is very hard and restrictive to obtain especially concerning mobile homes on rented land such as inside a mobile home park.

There is a large segment of American society that are credit-conscious, hard-working and honest folks that would love to stop renting and finally own a mobile home of their own. If you choose to sell a home for all cash you are competing with all other sellers looking to sell their properties for all cash; driving home prices lower and lower. If you choose to accept monthly payments for your mobile home you can likely find tenant-buyers eager to pay over retail price for the value/opportunity to own a beautiful home.

3. Understanding Your Sellers:

My real estate investing business changed forever when I began to see my sellers for what they really are; fragile, scared, vulnerable, friendly, and selfish human beings. Let’s step outside the relationship that we typically have with mobile home and traditional real estate sellers and realize that each is a unique soul with his or her own set of skills, ambitions, loves, fears, and wants.

So what does all this mean for you: In a nutshell sellers are real people in real situations. Some sellers need to sell today, and others can wait weeks, months, or even years before becoming desperate to sell. Again some sellers are at the end of their ropes, while others have enough savings/income to ride out whatever situation is requiring/pushing them to sell. By being a mobile home investor in your area you may close deals and generate cash-flow by knowing your market and knowing what buyers will pay.

In my next post here at Realestateinyourtwenties.com you will discover an simple method to help ensure you underpay for every mobile home you purchase.

 

Impact a life daily,

John Fedro

John@mobilehomeinvesting.net

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

eBook Now Available!

by Brandon · 12 comments

Hey everyone!

After many days of writing and editing, my first eBook has arrived and I’m giving it away for free! Yep, just as a gift for hanging out at Real Estate In Your Twenties.

And yes, you can still get the eBook free if you are thirty, forty, or a hundred years old!

Simply add your name and email to the box below!

Also, let me know your thoughts about the book!

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

How to Quickly Analyze a Single Family Home for Investment

by Brandon · 10 comments

Looking for the “right” home to buy can take a lot of time and effort, especially when trying to comb through the hundreds or thousands of deals that are on the market today. It is important not to waste time and maximize your efforts (see my last post on the 80/20 principle).  The following is the quick mental math that I use to analyze a single family home quickly and decide if it’s even worth looking into.

First, I only look for homes in areas that I am financially comfortable with. So, if I am not comfortable with the average sale prices, rent prices, days on market, etc of a given area – I learn that first. I live in a fairly small community, so it is fairly easy where I live.  If you live in a large area, like a major city, you should be focused on a small area that you can fully wrap your mind around. Never invest where you don’t know the market.

Second, I determine how much it is going to cost me to rehab the place. This is a VERY loose number, and generally just use $10,000 for a small paint/carpet turn,  $20,000 for a medium turn, and $30,000 for a major remodel. This includes labor, material, closing costs, and holding costs.

Third, I look at the purchase price and add the repairs. So, if I found a house for $65,000, and it needed $10,000 in repairs, I use the number $75,000.

Fourth, I then take that final number and knock off two “zeros”. This gives me a good estimate of my monthly mortgage payment with taxes and insurance. So $750 becomes $750 per month. I know this is a bit high, but I like to be conservative.

Fifth, I add a few hundred for vacancies, repairs, etc. So I might say this property is going to cost me on average $1000 per month.

Finally, I just need to know what the average rent will be. If the average rent, on the low side, will give me $200 per month in cashflow, this is probably a deal worth looking into. If not, I’ll move on. Additionally, if the total cost I would have invested in the  the property is $20,000 less than it’s value, then I will also move forward.

I believe any property needs to have both positive cashflow and good equity. There are too many good deals today to buy something that doesn’t have both.

That’s pretty much my quick and easy strategy to sort through all the listings to find a gem. I do this whole process in about thirty seconds per home, and it has worked great for me. Obviously, if I decide to pursue it in more detail I will learn exactly how much repairs are going to cost, what the mortgage will be, and more. This is simply a very quick way to sort out 90% of the deals and only focus on the ones that might be good.

 

image credit: NNECAPA

 

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

How To Qualify For A Mortgage: Three Key Numbers

by Brandon · 0 comments

So you want to buy a house.

Unless you have all cash, you are going to need to obtain a loan – called a mortgage.

So how do you get a mortgage?

Whether it is for an investment, a personal home, or any other reason – mortgages in today’s market can be tricky and difficult to obtain. However, mortgages are not a mystery and the rules are fairly straightforward when trying to obtain a mortgage. This post is going to look at the top three different areas that a lender is going to analyze before saying “yes!” to your mortgage request.

  1. Your Credit –  This is most widely known and the easiest of the bunch to understand. Your credit score is a number given by one-of-three private scoring companies. Your score is determined using computer-driven algorithms that take into consideration the amount of debt you have, the amount of late payments you have had, the length you have had that debt for, and several other factors.   A credit score can range between 300-850.  Lender’s want to know they are making a safe investment lending you money, so before applying for a mortgage, make sure your credit is at least 640. The higher your credit score, the lower you will pay on your loan.
  2.  Your Debt-To-Income:  This number is a ratio that looks at the amount of monthly debt you have compared to the amount of income you make. In other words, a lender looks at all the loans you have (credit card minimum monthly payments, auto loan monthly payments, other mortgages minimum monthly payments, etc) plus the monthly payment on the new loan and divides it by the total gross income you make per month.  For example, if I have a $300 car payment, $100 in credit card payments, and I am looking to pay $800 per month on my new mortgage, my total debt would be $1200 per month ($300+$100+$800).   If my total gross (before taxes are taken out) income for the month is $3800, my debt-to-income ratio is $1200/$3800 or roughly 32%.   In order to qualify for a mortgage, make sure your total debt-to-income percentage is below 50%, but ideally below 40%.
  3. Loan-to-Value: The loan-to-value (also called LTV) is another ratio that looks at the amount of the loan you are trying to get compared to the total value of the property. Generally speaking, the difference between the loan amount and the value is going to be your down payment. For example, if a property is worth $100,000 and you put down 20% and obtain a loan for $20,000 – the “loan-to-value” would be 80%.  This number is also important when you try to “refinance” a home.   What is an acceptable LTV? It differs widely between lenders and programs, but for a normal loan lenders do not like to loan at higher than 80%.  However, if you use an FHA loan (a loan guaranteed by the US Government), you can get up to 96.5% loan to value.

If you fall within the guidelines of the three areas above, there are still several other features that a bank will looks at before giving you money. For one, they like to see consistency at your job. If you recently (within two years) changed jobs, getting a loan can be much more difficult. Also, if you have never used any “credit” before, obtaining a loan can be difficult as well. Finally, remember that each lender has different programs and even within the same programs some mortgage professionals are simply much more competent and can help you get the loan you want.  If you are interested in buying a home for yourself, your first step is to talk with a mortgage professional. The meeting is always free and you will learn exactly what you will qualify for.

 

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

How To Buy Real Estate When You Are Broke

by Brandon · 16 comments

Buying real estate costs money. However – it doesn’t have to be your money.  With the right mix of resourcefulness, creativity, and knowledge you can buy real estate with no money of your own. Don’t believe me? I speak from experience! Nearly every single property I have ever purchased has been without any money from myself.  The following are seven strategies that can help you buy real estate without spending any of your own money.

  1. Use Hard Money– hard money lenders are private individuals who loan on property based primarily on the value of the property (read my post on Hard Money Lenders here).  Although lenders have been tightening their standards in recent years, they still will generally lend 100% of the purchase price and possibly even repairs if the deal is good enough. They need to feel secure in their investment, so if you only need $50,000 for a property that is going to be worth $100,000 – you may not need to put in any money. Just remember though – lenders are going to be conservative on their values so don’t overestimate the future value.
  2. Use your Home Equity – Do you already own your own home? Did you know you can pull out equity in the form of a Home Equity Line of Credit (usually a variable but low interest rate) or Home Equity Loan (usually a fixed interest rate but higher) to use to buy an investment? Not only is this money relatively cheap to borrow, you may also be able to deduct the interest on your taxes (but see a CPA for details).
  3. Use a Partner – Do you have knowledge, motivation, and skill but lack financial resources? You are in luck! Much of the professional world has financial resources but lack knowledge, motivation, and skill! Use your networking skills to find others who have the missing piece in your strategy and become partners. Make sure that everything is spelled out clearly up front and everything is in writing.
  4. Raise Private Money: Similar to a hard money lender, you may be able to find wealthier individuals who want to earn more on their investments than the stock market or a savings account can pay. Many real estate investors will offer their clients a set 12-20% return on their investment, secured by a lien on the property. This creates security for the private lender and funds for the real estate investor. A true win-win.
  5. Use a Lease-Option –  A lease-option is a strategy used in real estate to buy homes from homeowners without actually taking legal ownership. Instead, the real estate investor signs a long-term lease with the house owners as well as signing a legal “option” to buy the property at a specific price in the future. The owners are not legally allowed to sell the property until the option period is up, and the investor gets to lock in his future purchase price as well. The investor can then easily rent the property out for cashflow or find a buyer to sell his “option” to.
  6. Buy properties “Subject-To” – Buying a home using a “subject to” strategy involves actually transferring legal title from the old owner to the new investor – without paying back the original mortgage that the old owners had.  While the bank may not appreciate not being paid back, as long as payments are continued to be made, usually the bank will either never find out or never care. This strategy is a bit riskier, but as long as you have a backup plan, it is perfectly acceptable.
  7. Use a Combination – Finally, you can mix and match using any of the above scenarios. Perhaps use a hard money lender to purchase the property and use a partner to refinance into a thirty year fixed mortgage after the repairs are done? Or perhaps use a lease-option until you can raise private money to cash out the sellers?

As you can see, there are a huge variety of ways to buy real estate without sacrificing your own money. If you are resourceful and the deal is a good one, you will have no problem buying real estate without any money of your own. Don’t let “I’m too broke” become an easy excuse not to invest.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

To Flip or Not to Flip: 5 Reasons NOT to Flip a House

by Brandon · 2 comments

We love the flipping reality tv shows. Shows like Flip That House, Flip This House, Property Ladder, and a dozen other television shows have been popular over the past several years (remember Armando Montelongo?)  The abundance of these shows has made “flipping” properties appear to be the only real estate method worth talking about these days.  However, is flipping really better than a long term “buy and hold” strategy?

For those new to the business, “flipping” a home is the process of quickly selling a property for quick profit.  These homes are sold within days, weeks, or several months.  Many times the home is quickly remodeled with new paint, flooring, appliances, and more. On these television show, the “flippers” often make tens of thousands of dollars over the course of several weeks.

In contrast, the “Buy and Hold” method of real estate investing involves purchasing a home (hopefully at a low price) and holding that property for a long number of years, collecting both monthly cashflow and future profit.

While both methods can produce income for investors (and I have done both over the past five years,) I am a firm believer in having as many “buy and hold” properties as possible.

Here are five reasons why buying homes for the long-term is more beneficial than flipping:

  1. Residual Income: When you “buy and hold”, you create monthly income versus a one-time payment.  When you stop “flipping”, the income stops. When you stop acquiring homes to “buy and hold”, the income on the properties you already own continue to come in.  True wealth is only found when your money is earning you money, rather than your labor earning you money.
  2. Tax Benefits: House “flippers” pay a much higher tax rate than long-term investors. Additionally, “flippers” can become classified by the IRS as “dealers” of real estate, thus subjecting their income to regular tax rates and self-employment tax (Social Security, Medicare, etc). Long-term investors pay only long-term capital gains tax (or often not using a 1031 Tax Exchange) and income tax on the monthly cashflow (which is generally largely or completely written-off with deductions.)
  3. Agendas: A house flipper is subject to numerous outside agendas that affect if and how success is found. Hard-money-lenders, private investors, future buyers, partners, and others all have an agenda and their best interest at heart. When you buy-and-hold, the main agenda is your own.
  4. Whims of the Market: When flipping a home, you are hoping that you can sell the home quickly, which is largely based on how the market is functioning in your town. Are there far too many homes being sold, causing yours to sit for months or years? When you hold a property long term you are not dependent on the whims of the market. You are able to sell only when it is advantageous to sell.
  5. Risk: When you flip a home, you have monthly carrying costs such as the loan payment, taxes, insurance that will add up each and every month until the home is sold. Additionally, there is the chance that there will be unforeseen costs that arise when repairs are being performed.  Both these items can blow the budget and eliminate any chance of making a profit. When you buy a home for the long term (and manage effectively), you can balance out your risks over a long period of time, lowering the chance of losing money and maximizing your probability of building serious wealth.

With that said, I do want to emphasize that flipping a home is not always bad.  Often times flipping a home, when done properly, can add a sizable amount of cash to your wallet – which can be added back into future buy-and-hold investments.  As the phrase goes, “it takes money to make money”. While I am a firm believer in the concept of using “other people’s money”, it is always easier to use your own.  I believe in flipping a home only when you lower your risks considerable. Blindly purchasing a home in hopes of selling it quickly for mass profit is not only stupid, but dangerous to your financial future.  Next time I am going to talk about how to lower your risk when flipping a home.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

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