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Make Money While in School

A great way for young adults to get started buying their first home is by using the FHA “Kiddie Condo” Loan Program. This type of mortgage allows a person to co-borrow with a blood relative (eg. parent, grandparent, sibling, etc.) who helps qualify for the loan using their income or assets. Both borrowers take title to the property and sign for the loan.

There are three big advantages to using this type of loan.
1. A low down payment (as little as 3.5% of the purchase price compared to the typical 20% investment rate).
2. A lower, owner-occupied interest rate on the mortgage vs the higher investment property interest rate.
3. Helps the new borrower establish a solid credit rating.

With a Kiddie Condo loan program, at least one borrower must occupy the property as his/her primary residence, but extra bedrooms could be rented out to help cover the cost of the mortgage payments. This is a perfect way for a college student, recent graduate, or anyone unable to obtain a loan on his/her own to buy their first property with the help of a family member. I’d like to point out that this doesn’t have to be a condo; it can be a townhouse or single family home .

The tax benefits, such as deducting mortgage interest and real estate taxes on a Federal Income Tax return, can be divided among the owners, according to who pays the expense. See your tax advisor for details.

If the owner occupant has little or no credit there still may be options. The Federal Housing Administration (FHA) has long permitted mortgage lenders to establish a borrower’s credit history through nontraditional means, including the compilation of performance on rental payments; utility bills; telephone and cellular phone services; cable television service; payments to local stores, etc. Make sure to speak to a lender about the details

Right to Withhold Rent

It’s the 1st of the month and you get a call: “I’m not paying!”

Rental properties in Florida fall under Chapter 83 of the Florida Landlord Tenant Law. As mentioned in an earlier post, it is highly recommended that both the Landlord and Tenant take the time to review the laws before committing under a legally binding contract. In it you will find that there are specfic duties and procedures that MUST be followed to protect yourself in the event a dispute were ever to be taken to court.

One such issue that you’ll encounter involves the Tenant Right to Withhold rent. According to the Chapter both the Landlord and Tenant have responsibility to properly maintain the premises. On one end the Landlord has the right to provide a safe environment for the tenant and on the other the Tenant has to maintain it. Chapter 83 states that the Landlord must comply with the requirements of applicable building, housing, and health codes. It states that Landlord should maintain the roofs, windows, screens, doors, floors, steps, porches, exterior walls, foundations, and all other structural components in good repair and capable of resisting normal forces and loads and the plumbing in reasonable working condition.

Unlike a hotel, the Tenant also has responsibility to maintain their share:

(1) Comply with all obligations imposed upon tenants by applicable provisions of building, housing, and health codes.

(2) Keep that part of the premises which he or she occupies and uses clean and sanitary.

(3) Remove from the tenant’s dwelling unit all garbage in a clean and sanitary manner.

(4) Keep all plumbing fixtures in the dwelling unit or used by the tenant clean and sanitary and in repair.

(5) Use and operate in a reasonable manner all electrical, plumbing, sanitary, heating, ventilating, air-conditioning and other facilities and appliances, including elevators.

So what should a Tenant do if they believe that it has come to a point where the threat of withholding rent must be used? In a situation where the landlord has failed or refused to do repairs, rendering the leased premises (this is important) wholly untenantable, the tenant may withhold rent after notice to the landlord. The tenant shall serve the landlord, in the manner prescribed by s. 83.20(3), with a written notice declaring the premises to be wholly untenantable, giving the landlord at least 20 days to make the specifically described repair or maintenance, and stating that the tenant will withhold the rent for the next rental period and thereafter until the repair or maintenance has been performed.

Once the landlord has completed the repair or maintenance, the tenant shall pay the landlord the amounts of rent withheld. If the landlord does not complete the repair or maintenance in the allotted time, the parties may extend the time by written agreement or the tenant may abandon the premises, retain the amounts of rent withheld, terminate the lease, and avoid any liability for future rent or charges under the lease.

In the end it’s best to resolve any issues as amicably as possible. Tenants want a place that they can enjoy and call home and Landlords would love nothing more than to keep a long term tenant. If things do hit a bumpy patch however hopefully this helps to at least give a direction to follow.

Don’t Get Scammed

A growing concern that I’m observiing is a growth in scams targeting the rental market. It was suprising to me just how effective they are. In this post I just wanted to share some of the most common ones in circulation. Please be on the look out for these and just remember that if it seems to good to be true…..it probably is:

1. The Popular Home or Apartment

In this insidious scam, the “landlord” will list a home or apartment at an unbelievably great price. They’ll feature photos of an adorable place with the desired amenities. Of course, they’ll have dozens of people respond to the ad and most will want to snatch it up before it’s gone. This landlord is all too willing to please everyone too. In fact, he will collect deposits, first and last month’s rent, and other fees from anyone who’s interested – and then skip town.

The problem comes when all the renters try to move in and discover it was never the landlord’s to rent in the first place. In one case, such a “landlord” walked away with $60,000 in collected fees from potential renters from a single apartment. A slight variation of this scam occurs when the crook rents a house or apartment with the intention of re-renting it to dozens of people.

2. The Middleman

Sometimes the story is that the owner of the home or apartment is sick, out of the country, or otherwise unavailable and his friend is helping out by renting the place for him. This is called the middleman scam because renters never come into contact with the real owner of the property. If they did, they would quickly realize the property isn’t even for rent!

After a renter pays the deposits and rent, the “friend” disappears and the renter is out the money and still has no place to live. This scam can also be pulled off by people overseas. They do it by finding a photo of a cute house, then listing it for rent. They target people relocating to a new city or town who can’t physically check out the house and won’t know it’s not located in the area claimed.

3. The Over-anxious Renter

Rental scams don’t just target renters. They target landlords too. The most common is the typical Nigerian scam where a person will agree to rent a house or apartment and then send the landlord a check or money order for the deposits, rent, and fees. After the check is sent, however, they realize they “accidentally” sent too much and tell the landlord it’s put them in a financial bind. They ask that the excess be wired to them right away. What the landlord may not realize, however, is that the check or money order is no good. Whatever money they wire the scammer will be their own money, never to be seen again.

Video Tutorial: Estimating Repairs on a Property

Nailing down the right process for estimating repair costs on a property is an important step to master when investing in real estate. TV shows can many times gloss over this step because honestly it’s not sexy.  True investors will tell you however that they look at dozens of properties before picking the right one.

To help further illustrate the process I found this step by step video produced by Than Merrill where he does a walk through, room-by-room of a property that he recently acquired.  I hope this helps provide a realistic look into what it takes:

Pro Forma vs Actual Data

In the hunt for cash flow, the value of investment properties, in particular multi-unit properties, are directly related to how much income/profit it produces for its owner. Unfortuantely, it’s often in the seller’s best interest to provide numbers that are more “appealing” than they are accurate; for example, a seller may give high estimates of rental income or neglect to mention certain maintenance expenses to give the impression that the property is more valuable than it is.

A key part of your job is to make sure you have the best information available when doing your financial analysis.

So how do you do that?

Well, while you may rely on “pro-forma” data from the seller to narrow down your search and begin discussion on a property, you must ensure that before you actually close on the deal that you get actual data about income and expenses. You should ask to see previous years tax returns (schedule E reports will be a good source), property tax bills, maintenance records, etc. Hopefully all the actuals will prove similar to the pro-forma data you had previously been given, but don’t be surprised if it doesn’t. Remember, the seller is trying to make a sale, and will often get creative to make the numbers seem better than they are.

In addition to getting actual data from the seller, you should do your best to ensure there are no surprises if you were to buy the place. For example, when was the last time the property was assessed for taxes? If it was a while ago, and values have increased significantly since then, it’s possible that the property will be reassessed very soon, and property taxes will increase.

Another example is a property showing unusually low vacancy rates. What are they doing to keep the tenants there? Does the tenant pay on time? When does the lease expire? Is there a high quantity of maintence to be uncovered once they vacate?

Remember, even small changes to the income and expense numbers can mean big changes in your bottom line.

In the end data reduces risk.

What would Warren Do


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If you came to Warren Buffet and asked him where to spend your investment capital he would actually encourage you to invest in Real Estate. In particular, single family homes.

Here’s what he said:

“If I had a way to buy a couple 100,000 single family homes and a way of managing them…I would load up on them”

Pretty powerful coming from one of the wealthiest minds on the planet. Here are some other key points he made

1. I would take advantage of the low rates and lock them in for 30 years: The beauty, he points out, is that because of the recent collapse the advantage is with the consumer on two fronts. A) If you were in a higher interest rate scenario (assuming you purchased before the climax of the market) you could refinance and get the lower rate. B) If you’re lucky to lock in a rate and the rates rise (assuming you don’t have an ARM) the bank is stuck with the opportunity loss making it a very attractive asset class

2. If I were a young investor and had the chance of buying your first home or investing in stock I would buy a house: It’s a leveraged way of owning a very cheap asset. What makes it even better is that people will literally help you pay it off (i.e. rent)

Flip or Flop: 5 Things you can learn

So I’ve got to admit that I’m a little late to the party on this one. Over the last couple months I’ve been getting calls from people suddenly interested in flipping houses. I’m always curious to know what someone’s “Big Why” (as Gary Keller would say) or big motivation for getting into investing and more and more people would mention seeing a couple on HGTV.

Since every month there seems to be another reality show I didn’t pay much attention. Last night however I finally took a second (30 minutes actually) to sit down and see what the fuss was about and Yeah I can see the appeal. In case you’ve been under a rock like me here’s a synopsis:

Married couple Tarek and Christina El Moussa (and their little daughter) are trying to make a living flipping distressed properties. They buy, fix & resell Orange County homes for a huge profit!

The show is filled with it share of ups and downs and the it’s hard for the audience not to fall in love with them. This is definitely the couple that you would want to invite over for dinner. They don’t yell and scream like the other guy and honestly their just plain likable.

So are they really that good? Does he really flip homes? Where’d he get the money from? I had to find out…

Here’s 5 things you can learn from Tarek:

1.STUDY, STUDY, STUDY:

All I do all day everyday is study and buy real estate. I am starting to learn more about construction. I went to auctions all day for weeks to study how the process works. I got into real estate when I was 20 so I have extensive knowledge of property value. You make the money when you buy, not when you sell.

2.LEVERAGE:

I started flipping in 2008. I decided I wanted to flip houses so I approached a friend of mine that was 10 years older who owned a mortgage company and instead of blowing his money he invested it, very smart business man that can see opportunity. I knew nothing about how to buy at auction. He said we could flip one together but first I had to prove I knew what I was doing. I had like 30k from stocks but we had to come up with 60k. We borrowed against credit cards to cover the difference, very scary. So we bought and flipped our first place, a condo, and after all costs I made a net profit of $13,000.00 that is above 20 percent roi in 90 days which is 80 percent annualized. My partner was happy so he said let’s do it again.

3. YOU GET WHAT YOU PAY FOR:

I interviewed contractors and went with the cheapest, terrible mistake, you get what you pay for I learned!!!!! I spent 6 miserable months with a job I can do today in 30 days. At the end of all that work I made $6,000.00. Partner was not so happy. The deal was, he put up the $ I did the work. The good thing now is that my construction team is good and honest and one contractor, Battres construction, runs all my jobs. It takes a good team to be successful. It took years to put my teams together.

4. LEARN AS YOU GROW:

In 2008 I did 3 flips, 2009 4 flips. It got better and better every time. My partner said he would give me a huge opportunity based on my proven track record with him. He said if you can find the deals he can find the money. In 2012 we flipped 17 houses. Last year by mid 2013 we had closed 14 year to date and had 17 either listed, under construction or in escrow. We are on track to do 50 this year, of course I have hired my 5 best friends to work for me so the growth has been great

5.WEALTH IS IN THE HOLD:

I started a new business about 8 months ago buying rentals. I have purchased 11 so far with creative financing. I buy them cash than I get a blanket loan(1 loan) against 5 properties at a time at 10 percent interest at 65 percent Ltv. Even with the high rate I cash flow because I only buy really good deals

Over all these folks seems genuine and I definitely encourage you to take a look at the show. You can’t learn everything by watching it and you’re not supposed to. It’s entertainment! Nonetheless if it inspires you to a take a leap of faith and believe in yourself than that’s great too. In conclusion, I’ll leave you with one more quote from Tarek:

So bottom line I was a kid from Buena Park and got into real estate at 20, made a lot of money, than lost it all. The difference is, I never stopped making payments, I have dercent credit. When I couldn’t afford the payments I sold the items. I never short sold or had a car taken away, I sold everything. I had a 90k Mercedes and an escalade and a beautiful home. I sold my cars and bought a Honda civic, that was a day I will never forget. I have worked for and earned everything I have and have learned valuable lessons along the way. Please watch and I hope you enjoy the series!

How to Buy a Rental Property in the Next 90 Days


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If you haven’t discovered it yet you’ve got to take a look at a neat rising site called Bigger Pockets. What I love about this site is that you’ve got a community of people who all have a general love for not only real estate investing and building wealth, but helping others do the same. There is just too many great things to list but I’m sure from time to time I’ll mention them in our series. For now view this video and visit BiggerPockets.com. You can thank me later 🙂

Don’t be “That Guy”!!

At least once a day I get a call from an “investor” who doesn’t really have a criteria but would like for me to send them a “deal”. Naturally my response is to ask them “What is a deal to you, what type of return do you need, do you follow a specific cap rate or Cash-on-Cash return requirement, if so what are you basing that on, what type of property are you looking for, what amount of capital do you have to invest, does your lender (or funding partner) have a criteria, how long do you intend to hold it,……..

As you can see there is a lot more to consider when looking for a “deal”. Most people are really what I call Speculators. They fill up on HGTV Flip shows, slug beer and dream of riches with their friend (who exaggerates second hand information) and seemingly hopes to succeed for the most part on gut feelings. This is a recipe for disaster. A disaster that we all experienced in the collapse of 2008. Rather than play the innocent victim I looked around the crowd of people and picked out the folks that not only survived the market but thrived. It was in those individuals that I learned that success is not by chance. Successful people do specific things.

Gary Keller, co-founder of Keller Williams and writer of one of my favorite books~The Millionaire Real Estate Investor~defined a Speculator in the best way. “Speculators aren’t afraid to take action; in fact, they love action to a fault. These are the high rollers, the thrill seekers, the lottery lovers, the gamblers. They confuse risk taking with investing, and their risk tolerance may border on risk numbness as they pursue their dream of a big, fast payday. The trouble is that speculation is by definition a matter of taking above-average risks in the hope of achieving above-average returns. It’s buying something on the basis of its potential selling price rather than its actual value. Look it up—Speculators bet on the come.”

Don’t be “That Guy”. Stop being a Speculator….become an Investor!

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Welcome to the Sealy Team Property Management Blog!

We provide property management services to communities in Tallahassee and surrounding counties. Whether you want to find a new place to live or need a rental filled, when you’re here, you’re home!

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