Home buyers in these markets have the upper hand

It continues to be a sellers' market in many areas of the country, but that doesn't mean buyers everywhere are out of luck.

The top housing markets for buyers are Philadelphia, Chicago and Cleveland, according to a report from Zillow. In these markets, inventory tends to be strong and homes stay on the market longer and often experience price cuts, which gives buyers more bargaining power.

Miami-Fort Lauderdale, Providence, Detroit and Pittsburgh also made the list.

"There is a definite feeling that things are easing," said Skylar Olsen, a senior economist at Zillow. "We are heading toward better balance. Buyers will be able to take a little more time this year compared to last year."

She added that there are some areas within the buyers' markets that can still favor sellers.

Tight inventory throughout the country helped push home prices up 4.5% in January from the year prior, according to the S&P/Case-Shiller U.S. National Home Price Index.

But homes in the top 10 buyers' markets are selling for nearly 4% less than the list price on average, according to the Zillow report. In sellers' markets, buyers get an average discount of less than 1%.

On average, homes in the top sellers' markets sell nearly 43 days faster than homes in the top buyers' markets, according to Zillow.

To determine the rankings, Zillow analyzed sale-to-list price ratios, the number of price reductions and days on market in metro areas across the U.S.

"Where the sale-to-list price ratio is low and discounts are high, many listings go through formal price cuts and it generally take longer to sell homes," Olsen said.

Olsen said that many of the buyers' market cities have had a slowdown in growth, and didn't experience the tech and energy job booms. "Top buyers markets were generally in areas that were once founded on manufacturing jobs, which have slowed and not returned in earnest."


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Tips For Successful Real Estate Investing From HGTV's Scott McGillivray

Most people don’t turn to a home improvement TV host for financial and retirement advice, but Scott McGillivray is more than your typical TV handyman. Watching him in his ninth season of Income Property, and as co-host of the new show Flipping The Block, you only get a glimpse of the businessman, author and real estate mogul who is changing the way people think about creating wealth.

In an interview with Scott, I challenged him to be candid about real estateinvesting and whether it’s really something everyone can do and right from the get-go he set the record straight.

“Of course it’s feasible but you can’t create an income suite in 30 minutes like we do on the show,” remarks McGillivray.  “If you think that,” he added, “you’re in for a bit of a surprise.”

A mantra he shared throughout the interview was, “Real estate investing is get rich slow, not get rich quick,” which is echoed in both his work ethic and business model. “What I tell people is I’m the type of person who is willing to work hard to make a little more,” he said. “I like being able to control my own financial future. Some people may be willing to put their money in an investment where they get some passive return and hope for the best. I’m a bit more of a control freak and like to pick and choose where it goes and have a say in how fast it grows by working harder at it.”

We talked about the real estate market crash and how financing isn’t what it used to be. McGillivray made an important distinction, noting that the opportunity in real estate has to be treated like a business.  Before the market bust, “people were putting money into a pre-construction home that they hoped was going to be worth more money when it was finished. That’s not real estate investing, that’s called speculating and I think the confusion between a real estate speculator and a true real estate investor has given the whole business a bad name.”

In McGillivray’s opinion, trying to figure out whether you’re buying during a boom or a crash is fairly irrelevant. “A successful real estate investing model shouldn’t just have one way to make money. My business model has up to four different ways to make money… and the number one indicator I look for is not market value but positive cash flow… and that calculation is completely different.”

“Using cash flow as an indicator to whether a property is a good investment or not helps protect a buyer from being stuck in a scenario where not only is the value not there, they’re actually losing money.” He illustrated his point with a personal example. “I have properties that aren’t worth what I paid for them in 2006, however, I’m still making money because I calculated the positive cash flow beforehand, knowing they are still paying down the mortgage today.” Different ways to make money with no pressure to sell.

Click here to listen to Scott McGillivray’s three keys to successful real estate investing, along with what he describes as his hardest job, what it’s like to be famous, and what he enjoys when he’s not working.

Scott has been a real estate investor for over 15 years and has experienced hot and cold markets, as well as those that are just getting warmed up. “In the last year and a half, I have a seen a massive trend in the amount of interest people have in generating wealth through real estate. I have been doing live events for seven years and attendance was low when the market turned south. But recently I was in L.A. and I spoke to 3,000 people in the audience… it was standing room only.”

Generally speaking, McGillivray finds the millennial audience (18-35) to be curious, and the 35-65 year olds more serious about it as an income generator. He finds this age group the most prepared and motivated to start doing something because of triggers such as the need for extra savings and income for retirement or seeking financial alternatives to help put their kids through college. “It’s a reality check,” said Scott. “They’ve seen their investments go down and may have seen some equity in their own property go down at some point, and now they are thinking, ‘I need to do something different.’”

His advice is simple: “If you want to do this – do this! Don’t just talk about it… learn about it… and think about it. You actually have to do it. It’s very hard for people to take that final step because there are a million excuses not to try something different because everyone is scared and they have their comfort zone.”

A starting point can be as simple as renting a room in your house. “I know a lot of people who, for example, rent a room to a foreign exchange student. And that’s a great way to bring in some income. Other people create an entire income suite in their home and rent it for even more money. Then you have those who to take it to the level that I enjoy, which is strictly real estate investing: purchasing a property, finding tenants, and reaping the rewards of the long-term investment.”

While the results he creates on his shows may be both profitable and inviting, every project he has taken on hasn’t been a success. “I have done maybe 30 or 40 flips and I made money on maybe 80% of them. The other 20% maybe broke even or even lost some money on them.”
He adds that “It’s not how hard you fall, but how quick you get back up.” He admits that failure is part of any successful business and that you have to include setbacks as part of your overall plan. “There will always be a month of vacancy here or there so you can’t expect to have a perfect track record.  Mistakes are there to tweak you and make you better… to keep you on your toes.”


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How To Sell Lease Purchase Deals To Landlords & Sellers

People sell their homes for various reasons. Some of which include, but are not limited to:
Job transfer.

Making two mortgage payments.

Trade up to a bigger home or better neighborhood.

Tired of managing properties.

Moving in with a significant other.

Divorce.

Lost job or income and can not make the payments.

Physical problems with the property that they do not have the ability or time to repair.

Etc...

  MOTIVATION is the key when dealing with Landlords/Sellers. If you can find out what motivates people, you can strike a great deal with them. Your goal is to find out what needs they have and satisfy them.

  If they are a landlord and are sick of renting out that house and fixing leaking toilets at two in the morning, you can offer them something that will fill their needs. You can offer them a friendly way of selling that property over time for a price they can live with and with none of the landlord hassles. I spent the last nine years as a landlord and to be honest, there were plenty of times that if one of you called me up and offered to take all of my properties off my hands I would have jumped at the chance.

  Landlords are a key source of deals. Many landlords are not as sophisticated as you might think. Many of them inherited their properties or just have homes that they had trouble selling so they decided to rent them out. The key when dealing with landlords is to let them know from the beginning that you just want to help them solve their problems and make some money in the process. Make them understand that it is a one-sided partnership. You are agreeing to do their work and still give them the money that they want for the property. If it doesn't work out in a year or two, they can have their property back plus keep the option money. If they rent it out, they will still have to worry about replacing the carpeting and painting when it turns over. They really are in control of the process.

  Let them know the advantages available to them. The reality is that what you are doing is limiting the landlord's risk and at the same time accomplishing what a real estate broker and property manager would. You are taking a small part of the monthly rent and making a small percentage of the total sales price at the end of the deal. If the house doesn't sell, they get to keep what you have into it.

No real estate broker in the country would do for them what you can.

  I define selling as the art of fitting a persons needs to a product or service and educating them on its utility. I suggest that when you approach a Landlord/Seller that you project a sense of confidence that you know that this is what will work for both them and for you and that you explain the benefits. I find that in order to build trust between the person I am selling to and myself, I need to discuss the drawbacks. If you do not talk about the drawbacks, the Landlord/Seller will spend hours trying to find out how this deal might be bad for him.

You want him to know right up front what the drawbacks are and then you can discuss these issues together and work out solutions.

  We are all in this business to make money, but you will find that if you come off as trying to make a buck, you will look like a swindler. I like to think of myself as a creative problem solver. I do take pride in helping other people solve complex problems and so far have been able to make some cash in the process. When people call me on ads or signs that I have out, I immediately go into a mode of discovery. What does this person need? What do they have? What is keeping them from getting what they need? What do I have that can help in this situation. Sometimes I talk to someone and find out that their best answer does not involve me. In those cases, I let them know what I would do if I were them. I know that I probably lose deals that way, but I know that I have built some good will and will get referrals down the line from some of these people.

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How To Protect Yourself In A Lease Purchase Deal

 You’re holding a cashier's check made out to you for $5000.00. You also hold in your entrepreneurial hands a contract that will generate $250.00 per month Positive Cash Flow. The deal even gets better; it's someone else's property and you have minimal liability with no Tenant & Toilet problems. You call home and tell your significant other to get ready; you're going to do the town and he/she is really proud of you! Yes, life is good! You have just created, negotiated and achieved your first Lease Purchase deal of your real estate investor career and now you can envision many more deals of the same kind.

  How did you do it ?

  You got with the program, worked hard and went out and found a nice 3 bedroom / 2 Bath Home, you know the one with the white fence around it. You have Negotiated the deal so you make money at the beginning of the deal, the middle and at the end. You now control it for the next two years with just one month rent out of your pocket. A Tenant Buyer will be renting to own from you in a Sandwich Lease and placing $5000.00 as non refundable Option considerationin to your pocket. A Sandwich Lease is simply when you rent and control another's property for a specific period of time with all the terms of the purchase pre-negotiated. If you have quality contracts with a specialized assignment clause you may rent this property to another. You should always profit immediately or upfront with what we call option money (a non refundable amount of money paid at the initiation of the deal), have positive monthly cash flow and a possible note or cash when the option is exercised (purchased). !

  Congratulations, you now control the property without the title changing hands and you can sublet, assign, transfer or convey any rights which you have to a third party. Not bad, huh ? Only here comes Murphy's Law...................

  The Bad News.

  There are many ways your Lease Purchase deal can go wrong UNLESS you take some of the following steps to protect yourself and the deal.
Option Money: Always get enough non refundable Option consideration upfront. Nothing beats making money upfront, but better yet getting a substantial financial commitment from your tenant/buyer reduces the likelihood of a problem. Don’t do a Lease Purchase with a Tenant/ Buyer unless they can commit a minimum of Option Money (3 to 5 months rent or more). Remember we want to finance like a tenant and invest like a investor.

Contracts: Don’t use generic real estate office or stationary store Lease Purchase contracts. Have a good contract drafted by a competent real estate investor or attorney. It should contain the verbiage that will protect you. I use 7 different and specific Lease Purchase Contracts in my transactions depending on my strategy or position in the deal.

Memorandum: Record a Memorandum of Option. This document can be recorded simply and inexpensively and can offer tremendous protection for your rights in the property. You can file these documents at your local Registry of Deeds where the mortgage has been recorded.
  Example: The seller tries to sell the same property to another person without you being notified. The memorandum clouds the title and the owner is not able to sell the property without dealing with you first.

Credit Check on Tenant/Buyer & Owner: Check the credit of the buyer and the seller. Know as much as possible about the people you're doing business with - knowledge is power.

Preliminary Title Check: Do your homework and check out the owner and the property with one of the commercial property on-line services available or better yet contact your local Title company or a professional researcher for information. Do your due diligence.
Open Escrow: Open escrow and have escrow instructions issued at the onset of the transaction. It will create a paper trail and show the intent of the parties in the event of a legal challenge.

  Special Tip: Try to always use your Escrow/Title Company or Attorney in these matters. It just makes sense to work with people with whom you have established a business relationship. They might just look out for you.

Deed: Have the owner place the deed into escrow as soon as possible. In the event you or your Tenant/Buyer wish to close, there will be one less delay.

Payment Account: Set up a direct payment account with an escrow company, title company or a bonded/established accountant or firm to pay the bank, taxes, etc.

Insurance:

A. Have the Seller make you the loss payee on the insurance policy (if you can).

B. Require the Tenant/Buyer to have renter’s insurance.

Property Inspection: Do a property inspection/walk-thru with the Tenant/Buyer and use a complete inspection form that the Tenant/Buyer can sign.

Note: Take a camcorder video of the property with the Tenant/Buyer and have them sign and date the tape.

Honesty: Be upfront and honest in your dealings with all the parties. Hopefully, in turn, they will reciprocate and you will all enjoy a Win/Win deal. Let the seller know that you will be subletting the property to qualified Tenant/ Buyers.

  Final Thought: The best way to protect yourself in any Lease Purchase is to deal with all the possible problems before they occur, this is part of the Negotiating process whether with the Seller or the Tenant Buyer. Most real estate investors fail not because of lack of knowledge concerning a strategy, but rather they do not know how to Negotiate. Negotiating is a "Million Dollar Skill" and most people do not know how to do it on a consistent basis, but if you ask most people they have convinced themselves that they are a top notch Negotiator is every avenue of their life. My challenge to you is to take account of your life, success leaves clues; if your business/investing is not successful or your just trending water- you do not how to Negotiate adequately. Don't loose your upside potential to anyone or anything.

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8 questions to ask before investing

The recent strong growth in property prices across many cities in Australia has no doubt ignited strong interest in property investment.
And you might even be tempted to join the fray. But before you jump in, you need a bit of a reality check to help you prepare and to improve your chances of success.

That’s because a large number of investors are often stuck with their first purchase and unable to build the portfolio they want.
Need proof? Just look at the ATO figures for 2010–11. Of the nearly two million property investors, only one in five owns two properties or more. Even more staggering is the fact that less than 1% own more than six properties.

So how can you ensure you’ll be among the one-percenters?

It all starts by asking yourself the following questions:

1. Do you know what you want to get out of investing?

It goes without saying that if you’re not clear about what you want, you will struggle to get motivated and stay on track. Ask yourself why you want to invest in property. Your ‘why’ is the single biggest factor in helping you succeed.

2. Do you understand the risks of investing in property?

Yes, property investing can make you money. But there are dark sides to becoming a landlord, including vacant properties, cash flow crunch, and falling values. Make sure you understand them fully before diving in. Better yet, make sure you have plans for how to deal with them should they happen.

3. In what timeframe do you want to achieve your goal?

Setting a deadline for when you’d like to achieve your goals gives you a sense of urgency and direction. But make sure the deadline is realistic, otherwise you’ll end up losing motivation.

4. Are you financially ready to invest?

Finance is the lifeblood of investing. It’s simple: no finance, no investment. Before you start thinking about strategy, take stock of what you own and what you owe. Then ask yourself if you can support an investment property with your current financial commitments.
A quick way to gauge whether you’re ready to invest is if you have access to the required deposit and you have the financial resources to hold the property over the long term.

5. Do you know how to manage your budget once you purchase the property?

Buying is the easy part. The challenge is sustaining your investment, paying the mortgage month after month, year after year, until you’re ready to cash out.

Therefore, it’s important that you have the fortitude to manage your cash flow in order to hold your property over the long term. Investors who are unable to maintain a healthy cash flow may be forced to sell and could suffer losses.

6. Do you have people to support you if things get rough?

Needless to say, having supportive people around you will help you deal with the problems you may encounter at some point. It’s important to surround yourself with a group of like-minded people or even a coach to inspire and motivate you when things get a bit hairy.

7. How committed are you to your visions and dreams?

Investing in property is a long-term play. Ask yourself if you’re prepared to do what it takes to hold your property over the long term, despite what the market is doing. Without commitment, you may lack determination and quit halfway.

8. Do you know your exit strategy?

Do you have a plan for how to recoup your investment capital in the worst-case or best-case scenario? It’s important to have a Plan B when things go pear-shaped. It’s equally important to plan when to cash out and enjoy the rewards of your investments.
As you can see, a bit of self-analysis will go a long way in preparing yourself for your investment journey ahead.

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How to: Invest as a young person

Just because you don’t earn a six-figure income it doesn’t mean you can’t break into the property market as a young person.

Granted that property prices have skyrocketed in many capital cities – in particular Sydney and Melbourne – however, starting up a property investment portfolio is still a realistic prospect for the keen young investor.

But it’s not without its challenges.

The most challenging part of investing as a young person is getting finance. Because of their shorter work history and lower savings, young borrowers are often considered riskier compared to their older counterparts.

The other big hurdle is the limit to the amount you can borrow. Generally, young investors don’t have the earning capacity that older borrowers do. This may restrict your options on what and where to buy.

Fortunately, there are ways around these obstacles.

In order to get finance, you need to demonstrate your ability to pay off your loan. This includes earning enough income to cover the mortgage repayments.

Lenders usually want to see consistency in employment and residential history. They’re generally looking for a clean credit record and good savings pattern.

Reduce your living expenses

Yes, this may mean moving in with mum and dad in order to save. But living rent-free with parents can also boost your borrowing power, which means the bank may lend you more money as a result of having low living expenses.
Maintain zero or low debts

Having other personal loans, car loans or high credit card limits could dramatically lower the amount you can borrow. Make it your priority to pay off these debts and reduce your credit card limit to a minimum.

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Offset accounts for property investors

If you’re planning to invest in property, it’s important to choose the right home loan.

We sat down with Paul Vivian, Bankwest’s General Manager of Products and Pricing, to talk about the pros and cons of using an offset account for your investment property.

The benefits of using an offset account

An offset account is a loan feature that can potentially help you save money on interest by ‘offsetting’ the amount you owe on your mortgage with the funds in your bank account.

So how does it work?

Vivian gave us the following example. Let’s say you take out a $450,000 mortgage at 5% interest per annum for 30 years. If you were to put $50,000 in an offset account, you’d only have to pay interest on $400,000 – not $450,000 – saving you more than $139,000 in interest and reducing your loan term by nearly five years.

“Because the interest rate on your mortgage is generally higher than what you can earn in a savings account, an offset account can be a great option if you have cash to set aside, such as rent paid by tenants,” says Vivian.

“It can work if you are a disciplined saver wanting to pay down your loan faster, while still having access to the savings sitting in the offset facility.”

And there can be more benefits for property investors, says Vivian.

Investors may be able to claim a tax deduction for interest paid on their investment property loan if it is clear that the loan’s purpose is specifically to fund the investment property.

Investors could inadvertently change the loan’s purpose if they deposited additional funds into their mortgage to reduce interest payments, then later withdrew those extra funds for another use.

With an offset account, deposits and withdrawals can be made without the purpose of the loan being affected. Vivian notes however that investors should always get their own independent tax advice before proceeding with an offset account in the above circumstances.
The goal of many investors is to maximise the interest charged to their investment loan, in turn maximising their tax deduction. These investors often use an offset account to reduce the interest charged to their owner-occupied loan, which isn’t tax deductible.


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