Ellicott City Realtor Catonsville Realtor

Thursday Q & A - Your Maryland Real Estate Investing Questions Answered

Q:  How are you able to have a full time job and manage multiple Real Estate Investments?

A:  Before you ever get started in Real Estate Investing, the first thing you need to do is have members on your team.  These are people with expertise and knowledge in their field that are aware of your goals, and are willing to help you reach them.

This might give you an idea of what your team should look like:

Real Estate Professionals
Title Company
Appraiser (until you gain experience)
Property Management Company

Legal Consultants
Attorney
Insurance Advisor

Financial Consultants
Mortgage Banker
Financial Advocate
Accountant

Contractors
Engineers / Contractors
Home Inspector
Handyman

Support System
Partner, Spouse, Family
Business Owners
Other Real Estate Investors 

Q:  How do I get started in investing in Real Estate?

A:  We're all getting blasted with emails about how to invest, particularly in foreclosures.  It doesn't matter what type of investment you choose to do - the offers are out there on the TV, radio, email....

Before you spend any money on books and cd's and videos and memberships and subscriptions....give me a call.  I'll share with you my knowledge, experience and expertise for free.  No obligation.  No commitment.

Why would I do this?  To spare you the headache, heartache and expense of going down the wrong path.

Q: Isn't investing in Real Estate risky?

A:  It can be, depending on your experience and knowledge, and how you choose to use it.

One of the first things I ask myself is "What is the worst case scenario, and can I live with it?".  Take a good, hard look at what the worst case scenario might be.  It might mean paying a monthly payment on your own because you don't have a renter, running out of rehab money and possibly getting a partner, underestimating costs, and the worst of the worst:  being foreclosed on.

Your best ally or advisor when looking at the worst case is someone with experience - someone who's been there, someone who's done that.

Q:  I'd like to invest, but doesn't being a landlord mean a lot of work and headache?

A:  Being a landlord may not be easy.  There can be problems with people, and there can be problems with your building.  As for people, there are several ways to get good tenants:

            Good credit
            Good income
            Good references
            Good criminal background checks

Do this up front, and the likelihood of having problems later is much less. As for the building, do routine maintenance and when you have a problem, fix it right, not cheap.

Take time to do things right the first time, or make time to do it again.

Q:  How can I invest when I don't have any money?

A:  It's never about the money - it's always about the deal.  (If you've been reading this series, you already know this).

If you don't have money, spend time instead.  Educate yourself about value, and on how to find a deal.  It's never been the case that I've found a really good deal and couldn't get the money.  I've always been able to find partners with money when I didn't have any.

My motto is:  50% of something is always better than 100% of nothing.

Q:  Tim, don't the Realtors keep all the good investment deals for themselves?

A:  As Realtors, we go through more to purchase a home than any other investor would.  If  we're working with a Seller client, we have to treat them honestly and ethically.  If we're working with a Seller we don't know, we have to disclose in writing that we (the Buyer) are licensed Realtors.  In a case where we are purchasing a property from a Homeowner, we have to go over the comps and discuss how much other homes in the area are selling for, unless we want to get sued later.  We also go over closing costs, and any other information that is beneficial for the Seller client, because we must give them the same treatment we would give any other Seller, and because our license is always on the line.

This isn't law, just the way I choose to do it.

If you were an investor trying to purchase an investment, would you first take the time to explain to the Seller what he could get for his commodity if he put it on the open market?

So......with our practices in mind, do you think we necessarily get the best deals?

If you'd like more information about Real Estate Investing, I have a free twelve week seminar, beginning February 18.  For more information, click here.

Question:  How do you find a great deal in this market?

Answer:  This is a very common question that I am asked all the time.  And my answer may surprise you - You may not need to find a great deal.

Whether a deal is "good" or "great" truly depends on why you're investing in real estate to begin with, versus the deal itself.  In order to evaluate if buying a property is a good investment for you, you have to identify your goal.  Is your goal:

• Cash flow
• Equity
• Write-offs
• Retirement
• Vacation Home

...I could go on and on, because there are plenty of reasons to buy real estate.  Keep your goal in mind when searching for your "great deal".

Consider our investor from last week:  He wanted to buy a home now and keep it for 17 years so that he would have enough through equity and appreciation to sell the home to pay for his kid's higher education.  He needs to find a "great deal" where the positive cash flow could be minimal or break even.  His renters would pay the mortgage, and the home would appreciate.  For him, this is the bottom line of his great deal.

But consider another scenario.  For someone who wants good, positive cash flow today - why would he buy the same property as the first investor above?  For him, that is not a great deal.  That deal provides no cash flow.  This investor needs to look at small, multi family homes that provide rental income.

Bottom line for real estate investing - you  will hear me say this over and over.  Know what it is that you want to do, and look at all of the ways to make it happen.

Stop looking for the "great deal".  Unless you know your goals, you're not going to find it.

Q:  Is it a good time to buy an investment property?

A:  It could be a good time depending on what your financial goals are.  Whether it's a Buyer's Market or a Seller's Market doesn't matter as much as the deal itself.  Will the deal meet your goal, whatever that may be.

For example, you've just had a baby.  You're thinking ahead, and you ask yourself how am I going to pay for this kid's college?  Here's something to consider:  You purchase an investment property now to rent.  Naturally, you'd like to have positive cash flow, or at least break even.  You never want to lose money.

Consider that your baby is not going to college for 17 more years.  If you purchase a property for $150,000, at 3% per year appreciation, that would value the property at $247,000 in 17 years.  You'll get the standard tax deductions for owning a rental property over the next 17 years, but look at the equity position that you'll be in by the time your baby graduates from high school:  Rents will have appreciated over the 17 year period, while your principal balance has decreased.  At a mortgage interest rate of 6.0%, after 17 years you would owe approximately $97,000.  Do the math - what's your equity?  Roughly $150,000.

At that time, you could sell the property and cash out to use the money.  Or you could refinance the property and take out money to pay for school.  Even if you don't have enough equity to pay for all of the schooling, you've given yourself a good head start.

So is it a good time to purchase a rental property?  What do you think?

If you'd like more information about Real Estate Investing, I have a free twelve week seminar, beginning February 18.  For more information, click here.

To submit your Real Estate Investment Question, click here.

Currently, I am working with several Investors that are looking for a property to rehab and rent, or to rehab and sell.  Of course, they're looking for a good deal - not a steal, but something with a good return.

When people hear the term "REO" - what does this mean to most Purchasers?

            -"Could be a good deal."

            -"The bank's just going to let it go."

            -and other thoughts along this line

However, my experience has been that REO's in our market are selling not in 30 days, or 60 days, or 6 months.....but A week.

Are banks purposely undervaluing? Maybe.  Why would they do this?  A lower list price and the term REO attracts Buyers' attention, and thereby multiple offers.

In my opinion, that seems to be what's happening in our area right now.  There are 2 properties here locally that were REO that my Investors put offers on, and both sold within a week.

In speaking with the Agents, both properties had multiple offers, and the offers were extremely good.  To read between the lines, the bank got over list price.

If the Buyers were Investors, then they must be banking on the market coming back, and coming back strong.  If the Buyers are Homeowners, I can somewhat understand.  However, in doing market studies on these two properties, both homes needed extensive repairs.  Most Homeowners are not interested or have the wherewithal to do this kind of work.

Investors beware - in our market, competition is still fierce.

It's Fall...

The weather is nice...
The leaves are changing...
It's football season...
The Ravens are winning...
And...

The pests are out.

Here is a tale of my very pesty week:

Bed Bugs:  Literally, a pain in the (fill in the blank).  I thought this was just a saying, or a made up term.  But they're for real, and they really do bite.  Getting rid of them is a major deal.  It's not something I could do on my own - I had to call an exterminator.  My tenant had to discard his mattress and pillow, bag up all of his clothes and move out for two days while his apartment was bombed (just an extermination term).  Cost of the chemical treatment:  $400.

Cigarette Beetle:  Another tenant called to tell me that there are termites swarming all over her apartment.  I call my exterminator...AGAIN...and asked them to inspect the building and deal with it.  (By the way, I didn't think termites swarmed in the fall and I asked my exterminator about this.  Much to my surprise - they do.)  A termite treatment is likely to cost $600 or more.  However, I was elated to find out it wasn't termites.  It was a bug I'd never heard of:  the Cigarette beetle.  They're nasty bugs too, smokin' Marlboro reds, and always leaving butts behind.  Once again, my tenant had to move out.  The apartment was bombed.  Cost:  $150

Unnamed Pest:  My final call of the week was from a tenant who said he had rats.  He had a newborn and was worried the baby might be bitten, and it was a health hazard.  Once again, I sent out my exterminator and it turned out they were a very small breed of rat called........mice.  One thing worth doing with mice is to seal openings in your exterior with spray foam.  Pay particular attention to plumbing lines, electrical lines, exhaust ducts, garage door seals, and any other small openings.  In this case, I had my exterminator handle the removal.  Cost:  $300.

Pest Free Fall:  Priceless
By the way, if you need the name of a great exterminator, give me a call.

 Has anyone else had a pesty fall?  Tell me your bug stories.

PS - If you're interested in how last week's situation with the heat pump turned out, send me an email.  I'll reply with the happy ending.