By; Ali Boone

You’ve decided you want to invest in rental properties.

Excellent decision!

There are so many benefits to rentals, including cash in your pocket each month, tax benefits, equity building, and most importantly it’s passive income!

So you know you want to invest in them, but where do you start? You probably know to “find a house undervalued” and “rent it out” and “boom you make money”. Well, okay, that isn’t necessarily wrong but there is a lot more that goes into the success of a rental property than just buying a house at a good price.

When I first started buying rental properties, I had no idea what factors are truly important in ensuring financial success. Had I known, I could have saved thousands of dollars in losses over the few years I’ve had my properties!

The caveat I throw out here is that if you buy a rental property that goes against any of my suggested risk factors, it is not to say at all that the property won’t be a success. You have to look at risk vs. reward as a spectrum, of sorts.

On one end of the spectrum you have super high risk but high return. On the other end of the spectrum is minimal risk and lower returns. On neither end of the spectrum, or anywhere in between, is any particular result guaranteed.

You can most definitely have financial success with a property caked in risk factors, however the chances of success are much lower (and with a lot more headaches). You increase your chances for success as you move up the spectrum towards the lower risk side, but even at that end it’s not to say you will always have success either. You just have much better chances of it.

So what are the actual factors that can hurt your rental property investment?

5 Ways to Lose Money with a Rental Property
  1. Price-to-rent ratio. This term refers to how much it costs to purchase a property versus how much rent it can bring in. If the price-to-rent ratio on your property doesn’t work, you will consistently lose money every month. For example: an Atlanta property purchased for $95,000 that rents for $1100/month vs. a Los Angeles property purchased for $460,000 that rents for $2250/month. If you run those numbers, the Atlanta rent will easily cover the mortgage and expenses and then even leave some extra in your pocket each month. The Los Angeles property rent, however, will doubtfully even cover the mortgage each month much less any of the expenses. See the difference between the two? The difference is the price-to-rent ratios. If you buy that Los Angeles property, or any other high-priced property whose rents don’t cover the expenses, you will lose money all day long.
  2. Bad tenants. Assuming your price-to-rent ratio is intact, the next fastest way to lose money on a rental property is with bad tenants. Worse than ending up with bad tenants one time is ending up with bad tenants consistently. Most people think they understand this, but it seems like everyone attributes the loss from bad tenants to having to do excessive repairs on the property after they leave (which is certainly what I thought too). The repairs can end up costing a lot for sure but often worse than repairs is vacancy. The scenario- bad tenants decide to up and stop paying rent. They inevitably give some bunk excuse, but regardless, you have no income coming in.You, or your property manager, file for the eviction immediately but even in the states where the eviction process happens “quickly”, this will still take some time. The tenant stops paying, the eviction is filed, a court date is scheduled for likely a month or so later, after the court date the tenants still have another week or so to pay their debt, if they don’t pay a writ has to be filed, in some counties you have to wait for the sheriff to escort the tenants out, and then it may take 1-3 months to find new tenants, all after paying money to clean up and repair the house to make it rent-ready again. All of that can easily be 4-5 months of no rent coming in (and that is only for a landlord-friendly state who does fast evictions!Never mind the states that are tenant-friendly and take months to get the tenants to court and out of the house). Or maybe your tenants spared you all that trouble by just leaving the property with no warning (but of course they steal your appliances on their way out). Even then, you are still looking at 1-3 months of vacancy while you look for new tenants. If you have a mortgage on the property, you have to continue to make those mortgage payments every month regardless of whether you are getting income or not. That can be rough! Nevermind the thousands in lost rents, but you are also spending potentially thousands on the mortgage and other expenses. Repairs are the least of the worries with bad tenants in comparison to the detrimental expenses of evictions and/or vacancies. No doubt, bad tenants are the fastest way to lose money on a rental property.
  3. Maintenance. While I just let repairs semi off the hook as being a culprit for costing you money on your rental property, I’m bringing them back on the hook. Yes, tenant damage can definitely cost you money (always check with your insurance policy and see if it covers tenant damage), but general maintenance of a property can cost way more. I’m talking roofs, HVAC systems, wiring, siding, appliances, flooring, anything.Anyone who has ever owned a house, whether for themselves or as an investment property, knows how much these things can cost. Thousands! Not to say a newer property won’t have any of these problems, but the older the property you buy, the more you better expect to dump into maintenance quicker. It can be brutal.
  4. Declining market. What happens if the market you invested in starts declining? Maybe a major industry goes out of business or a natural disaster hits, who knows. Or maybe it’s just consistent population decline. Either way, the value of your house will drop. The good news is the value of a house doesn’t matter if you aren’t trying to sell it, but if you suddenly need to sell or maybe you have a financing issue where you really need to refinance (like if you have an adjustable-rate mortgage that jumps, knocking out your cash flow each month), you might be hosed. Let’s take the example of needing to sell. If you have to sell for much less than you bought the property for, you could lose tens of thousands (or more). Or, let’s not even think of the value of your property.Let’s think about a declining population causing a decrease in market rents, forcing you to adjust accordingly and causing you to suddenly lose money every month because the income isn’t high enough to cover your expenses anymore.  Or maybe people just stop wanting to live in that area, or never wanted to do in the first place, so you can’t find a renter. But you are stuck still paying the mortgage if you have one and property taxes and insurance. Money will flow out of your pocket faster than you can count the bills.
  5. Not using a tax professional. One of the biggest financial advantages to owning rental properties is the tax benefits. If you do your taxes correctly, you are likely to set yourself up so that the income you earn on the properties ends up being (essentially) tax-free and then you may even get more money in tax benefits on top of that. If you own one rental property, maybe I would be okay with you doing your own taxes. But even then, and most certainly if you own multiple properties, you are going to do yourself damage by not using a tax professional whose primary clients are real estate investors.A lot of CPAs will be worthless in maxing out the tax benefits on your rental properties, but if you find one who specializes in the field, you are certain to maximize the money you get to put in your pocket. The reason you need a CPA who specializes in real estate is because the laws change so often, impacting your write-offs and ways to properly report the numbers, those CPAs will be up on all of the latest much more than one who only has one or two real estate investor clients.Even if you are extremely good and diligent with filing taxes, or even if you are a retired CPA yourself, I still think you need to check-in with a current CPA professional or you are bound to miss out on easy income you would otherwise pocket.
Preventing the Losses Have I completely scared you away from buying rental properties? I wouldn’t blame you. All of the above certainly sounds horrifying. And the worst part is, those problems are so common in rental properties! That’s the bad news. The good news is that there are actually ways to mitigate all of those risk factors. Although even if you mitigate every single factor, you still aren’t guaranteed perfect success but you will have so dramatically lowered your risk that you are in a much better position for avoiding those issues.

What are the mitigations? These guidelines go for investment properties in general:

  • Buy in areas with good price-to-rent ratios. Make sure the market rents suggest that you will profit every month after all expenses, compared to how much you have to pay for the property. This is critical. You won’t find good price-to-rent ratios typically in places like Los Angeles, San Francisco, New York, and most Florida cities. Those are just examples and far from all-inclusive of every market with bad price-to-rent ratios.
  • Do not buy in lower-quality areas. This includes the ghettos, the slums, or generally any area where typically the people living in that area are not of great quality. Not to say every person living in a lower-quality area is bad, but the chances are much higher that they will be which will increase your chances of the bad tenant scenario. The nicer the area, the higher-quality the tenant your property will attract.If you really want to shoot for the areas that are likely to attract the highest-quality tenant, look for areas that are more primarily owner-occupant residents than renters. This goes for general markets too. Some cities boast that they have a huge percentage of renters, which suggests you will always be able to find a renter, but that kind of statistic actually says that the general quality of the population may not be as high. Not to say you have to own your own home to make you “high-quality”, but you get my drift. If you do choose to invest in a low-quality area, I highly recommend sticking with Section 8 tenants which will dramatically increase the chances of you receiving your monthly rents.
  • Try to buy newer properties that check out in an inspection. No matter how good of an old house you get, it is an old house and will cost you a good bit in maintenance much sooner than if you were to buy a newer property. Always get a full inspection before buying any property so you know all the potential issues, but regardless of the initial condition you will have to start putting money into maintenance eventually. The nicer of a property you buy upfront, the longer you can go without forking over that money and maybe less total over time.
  • Buy in growth areas. This goes for both macro and micro markets. Large cities in general may be on the decline due to industry failure or lack of desirability, or small areas within a larger growth market may be going down the tubes for any random reason. Don’t buy in those areas. Buy in cities with good industry diversification (so if one industry tanks it will have little to no effect on your property), a solid trend of population growth, and generally cities where people actually want to move.
  • Use a tax professional who specializes with real estate investors. If you really think you are that good at taxes, spend the money at least once to let a professional do your taxes one year and compare them to what you come up with. If there is no difference, maybe you are that good. But try it out to see.
There are so many mitigations to lower the risks of rental properties. People just don’t realize what factors realistically cost an investor more than they ever bargained for. I know I didn’t know when I started! And when I hear other people talk about wanting to buy rental properties, I realize they don’t realize the reality either.  The other trick that gets people is that to buy a newer property in an owner-occupied neighborhood in a nice area will inevitably cost you more money than buying an old property in a not-as-nice area.

When people see the higher returns on the lower-quality properties, they take those numbers as gold and buy like crazy. Don’t be tricked by supposed numbers! No returns estimate can take into account the level of disaster the above factors can cause. You may pay more, but buying higher-quality properties in nicer areas will almost always put more money in your pocket over the long-run.

Be smart, use common sense, and be willing to be taught on how to make a rental property work!

Does anyone have a property that totally rocked it and a property that totally tanked? What was the difference between them?

By; Kathy Frettke

It’s no secret that our economy has been manipulated financially in a frantic attempt to pull out of the greatest recession since the Great Depression.

Chairman of the Federal Reserve, Ben Bernanke, is known for his strong beliefs about the use of “quantitative easing,” a fancy term for creating money out of thin air. He stated once that he’d dump money out of a helicopter to stimulate the economy if he had to.

That tactic would be exciting for those lucky enough to know where the helicopter was flying. But instead, the Fed chose to buy $85 billion dollars worth of bonds every month. Why? Traditionally, investors buy bonds when they want safety in US government-backed IOU’s. There wasn’t exactly a market for that over the past few years.

Doesn’t it seem odd that a quasi-government, but mostly private entity would have the authority to create money out of nothing, buy government bonds with it, and then expect to get paid back with interest?

I won’t focus on my concerns about the Federal Reserve’s highly dangerous tactics in this blog, Instead, I will focus on the affect their decisions will have on those of us who live on Main Street.

But first, let’s look at Wall Street. What happens when a bunch of free money is created out of thin air and then poured into the market? Most likely an asset bubble is created. That’s what the Federal Reserve wanted and that’s exactly what they got.

A booming stock market makes it look like all is well in the Land of the Free. But is it? The real question on every investors mind is “What will happen when the free kindling stops? What will fuel the fire?”

The Federal Reserve has announced that it will begin to taper it’s $85 billion-per-month bond-buying program in January. The plan is to reduce it by $10 billion per month.

This is either a sign that the economy truly is recovering or that even Ben Bernanke agrees that free money is not the answer to our financial problems. Let’s face it. Free money eventually becomes just that – free and worthless. Who does that affect? People with money.

However, people who own assets that others want and need will always be OK. Citizens need food, shelter and housing to survive. These are the three things they are known to pay for first, before other items.

So even if the mighty dollar gets so devalued from this senseless financial experiment that the US government is forced to do what other governments have done in the past: create a new currency, those with valuable assets will prosper.

Now may be a really good time to look into self-directing your IRA, pulling out of the precarious stock market, and investing in hard assets like real estate.

Association of Private Lenders is now;

American Association of Private Lenders
When we talk about being a “Private Money Investor”, we are talking about someone who loans money to another person at an above bank interest rate while the loan is secured by real estate.

The money can be loaned either short term or long term to professional real estate investors to buy and repair real estate that is then rented out or sold for a profit.
Although a Private Money Investor does not have a physical “bank,” he acts like a bank. He qualifies a borrower and a project and provides the funds, receiving an interest rate of return.

And like a white shirt banker, Private Money Investors are uniquely positioned to leverage the efforts and time of others who are burdened by the daily hassles of a real estate project or property. In other words, they never put on a set of work gloves.

Private Money Investors do not do any of the work of:
• Finding properties
• Rehabbing or maintenance
• Answering tenant complaints

How different this is from the hard work of being a rehabber or a landlord. They leverage the efforts and time of others. You could say that they have figured out a way to work smarter not harder.

Instead of flipping properties, rehabbing, land lording, buying REOs, buying short sale properties, or any of the many ways of doing real estate today, they leverage the knowledge, skills, and experience of professional real estate investors in these niche areas. The only thing they must know is how to be a Private Money Investor. All these real estate professionals have worked hard to know the specific techniques of their specialty. But the Private Money Investor just leverages their expertise by allowing them to use his money.

Often it takes only a few phone calls to get involved in a project and then they wait for the final funds to be wired to one’s bank account upon the project’s completion or on a monthly basis if one has invested in a buy and hold property.

And if the borrower does not pay, the property can be repossessed. Remember, you are a lender. Lenders have the right to foreclose.

The Association of Private Lenders exists to show you how to protect yourself so that if the worst case scenario does happen, and you have to take the house, you will be able to sell it immediately and still make a profit.

We will show you how you can do as many as 24 loans a year and skyrocket the value of your net worth by speeding up the velocity of your investment gains.
You might wonder why investors need you so much right now.

The fact is, many investors who used to depend on banks for financing have had their credit lines cut, often for no fault of their own. The banks either do not have the money, or are so picky that JP Morgan couldn’t get a loan.

What does that mean for you?
This means that investors are in desperate need of your funds and are willing to pay you interest rates often in the double digits.
by Michael Blank on January 7, 2014

I’ve been writing about buying apartment buildings with money from private individuals. In a response to my last article “The # 1 Secret to Raising Money to Invest in Apartment Buildings” another BiggerPockets member asked “how do you find local investors that are interested in discussing deals?”.

Great question, let’s talk about it!
For several years before getting involved with investing in apartment buildings, I was renovating houses, fixing them up and reselling them. To finance these “rehabs”, I raised the money from friends and family. The minimum investment was $25,000 and paid I them 12% to 15% simple interest, guaranteed by the house. The title companies took care of the promissory note and recording the deed. As I was eyeing commercial real estate, I polled my existing investors to see which ones were interested in buy-and-hold commercial real estate.

I was disappointed to find that only a few of my existing investors were interested. However, I found that people I knew were able to refer me to people who were interested.

The lesson here is not that you should start small first (with rehabbing houses, for example) before moving into commercial real estate. Rather, the lesson is that you should leverage your existing sphere of influence to achieve what you’re looking for – in this case, to raise money for apartment buildings or doing flips.

In short, the lesson (which was also confirmed in a recent Podcast with Mike Simmons, ) is to talk to everyone you know.

But how?
It’s surprising who your family, friends, neighbors and co-workers know. Never discount anyone – tell everyone you know what you want to do and you will be surprised at what will happen. If someone refers you to someone they know, always follow up. Even if that person will not invest, she may invest later or she may be able to refer you to someone else.

The conversation might go like this after you dispense with the small talk:

You: “I’m working on something new, maybe you can help.”

Susan: “Oh?”

You: “I’m looking to buy an apartment building in the metro area with a group of investors. The annual returns are expected to be around 13% and the minimum investment is $50,000. You wouldn’t happen to know anyone who might be interested, would you?”

Susan might say, “Well, I might be interested,” or she might refer you to someone, or she might say that she doesn’t know anyone.

If she is interested herself, schedule a meeting with her. If she knows someone, have her make an introduction and then follow up with that person. Make sure you keep Susan informed about the progress.

Your goal is to have as many in-person meetings with potential investors as possible.

Keep these tips in mind
  • It’s important that when you invite someone to that first meeting that you say what the minimum investment amount is. Otherwise, if you’re looking for a minimum $50,000 and the person only has $10,000 to invest, you’re wasting everyone’s time. By the same token, if the other person accepts the meeting, then they’re implicitly saying that they are capable of and potentially interested in investing at that level.
  • Don’t “discriminate”. Often it’s impossible to tell who has money and who doesn’t. It’s amazing how much “little old ladies” have stashed away in their IRA accounts. Similarly amazing is how little money the flamboyant stock broker neighbor next door has to invest in anything besides his boat and second house.
Therefore, “EVERYONE” is the key: Talk to everyone, ask everyone for a referral, and follow up with everyone.

If you talk with everyone you know today, and follow up with referrals, you will be amazed at how much money you’ll be able to raise to invest in apartment buildings.

Les Christie

Years after the housing market melted down, lenders are lamenting the loss of thin, sleek mortgage application files.

Once easy to carry in one hand, the average mortgage application file has now ballooned to 500 pages, according to David Stevens, CEO of the Mortgage Bankers Association.
"Since the housing bubble burst, file size has grown steadily and dramatically," said Peter Grabel, a loan officer for Luxury Mortgage in Stamford, Conn.

Just seven or eight years ago, the typical application file ran to about a hundred pages, he said. Some for "no-doc" loans were thin indeed, not much more than a credit report, plus an appraisal and property information.

But now files are more jam-packed than ever, with income and asset records, tax returns and other financial documents.

"We now need two years tax returns, two months' bank statements, sourcing of every deposit... on every file," said Grabel.

A middle-income worker financing a median-priced house may get away with just a few hundred pages, but business owners or wealthy people with several income streams can generate paperwork better measured with yardsticks than page numbers.

What gives? After the housing meltdown, tighter rules were put in place, requiring an explosion of disclosures to be included in mortgage applications. Those alone account for nearly 50 pages, said Grabel.

One disclosure even invokes the Patriot Act, the post-9/11 legislation designed to combat terrorists. The Feds require lenders to verify the borrower's identity to make sure they're not suspected of funding or laundering money for terrorist groups.

All this amassing and analyzing of documents costs both time and money. And new mortgage lending rules that are going into effect in January will make it even more complicated.

"New rules require you to triple-check everything," said Jeff Taylor of Digital Risk, a mortgage processing company. "The best thing you as a borrower can do to help yourself is to have all your documentation together before you apply. Get needed items like your credit report and get any errors corrected so you can get through the process as smoothly as possible."

Some of the documentation that's required can seem silly. An applicant may have $1 million in the bank, for example, but if there has been a recent deposit of, say $5,000, he is required to show where that sum came from.

The rationale, explained Grabel, is that Fannie Mae and Freddie Mac frown upon buyers who use loans from friends or family to apply to the downpayment. If borrowers have to repay those private loans, it can make it harder to pay off the mortgage. So every deposit coming into an account has to be accounted for and scrutinized.

The checklist lenders use to manage the application can run three pages long (and is also added to the file). The one Grabel uses has four categories: disclosures, credit package, appraisal package and items needed prior to closing. There are 55 separate boxes to check, covering such items as the good faith estimate, asset statements, and the original appraisal report.

No one ever said borrowing hundreds of thousands of dollars should be easy, but today's requirements are a far cry from the days of the housing boom. "Seven years ago, you signed your name and got your check," said Grabel.

Of course, you can always pay cash instead. That's what Taylor's brother did recently and it certainly simplified the transaction. "There were only three pieces of paper at the closing," said Taylor.

Patrick Morris

Owning versus renting is an age-old question -- but there are three distinct cases when renting a home makes sense both financially and practically.

The Motley Fool's editorial director, Anand Chokkavelu, outlaid the reasons why you should consider buying before renting in a great article titled "Rent vs. Buy: Why Buying a House Generally Wins," and generally, I agree with his stance. However, there are still some circumstances when renting makes more financial sense than buying.

Young and mobile
Upon graduating college, many Americans want to fully inaugurate their status as adults by buying a home. The reality of a salaried occupation with benefits yields financial freedom and flexibility that was entirely unknown just years -- or perhaps even months -- prior. Dinners of ramen noodles become supplanted by those of Bertolli pasta.

While the allure of buying a home, potentially even with prospect of being able to rent to friends is an appealing one in many ways, it should also be approached with a great deal of caution. Many have estimated that the financial case for buying over renting often only is realized after you've been in a house between three and five years.

Ask many of those considered to be Millennials or Generation Y about the prospect of them being in the same place three years, much less three months, from now, and you'll likely hear something like, "It's possible, but I've always wanted to live in [insert cool urban area], and I'm considering moving there."

And it isn't simply social or societal whims that dictate that decision, but the reality that career opportunities are seemingly always in flux. Consider that a study by Harris Interactive reports that 3 out of every 4 people would consider finding a new job, and a study by Mercer reports that one third of Americans are "actively looking."

While the Census Bureau reports that"U.S. mobility for young adults has fallen to the lowest level in more than 50 years," this is largely because of external economic circumstances more than anything else. It remains true that the lures of new places and new things are strongest for younger generations, and there could be an opportunity cost, like not being able to take a higher-paying job in a new city, and a real cost, like realizing the significant closing costs over a short period of time, if you own a home and sell it just a year or two later.

Fair credit, bad credit or no credit

Depending on current credit circumstances, renting a home may also make a ton of sense. Renting over a period of two or three years could allow someone to build or repair their credit score through a documented history of on-time rent and other payments. The old phrase "time heals all wounds" is certainly true when it comes to credit scores, too.

The reality is a higher credit score will mean a lower interest rate, which can yield monumental financial benefits. The difference in interest payments of a $160,000 mortgage financed at 6% or 4.5% results in a difference of more than $50,000 in total payments over the course of the loan. An even greater impact is realized if those two years allow someone to move to a 15-year mortgage.

If those two additional years allow someone to build up their credit score and secure a lower interest rate, the financial impact can be monumental.

People who love convenience and flexibility
While it cannot be calculated using an Excel model, some people -- whether young or old -- place a premium value on flexibility and convenience.

Whether it's a result of personal or work circumstances, depending on the stage of life that a person finds themselves in, the nuanced realities of owning a home can be daunting. When a pipe breaks, or a window leaks, or the A/C unit stops working, there's only one person (and one wallet) that is responsible for the repairs.

However, when a person rents, that responsibility falls almost exclusively on the landlord. And if you're someone who does not have the ability or desire to ensure that maintenance issues are resolved in a timely and proper manner, then owning a home may not make sense.

Home ownership can be a wildly rewarding endeavor both personally, socially, and financially, yet like anything, it is not without its fair share of work and efforts. For some, those have a cost (that may not necessarily be tangible) and mitigate the recognized financial benefit of owning a home in the long run.

As with most things, there are both reasons when it does, and does not make sense to rent a home, but these are three scenarios when it pays to be a renter.

From renting to investing
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started.

By Richard Roop

Recent changes in U.S. housing markets and lending industry have created new challenges for real estate investors. But it also creates incredible huge opportunities if you’re willing to make a few adjustments in the type of deals you go after. How you buy and how you sell should be dictated on what’s happening in the market TODAY… not last year or in years gone by.

Let’s look at the proven methods for collecting big checks as a real estate entrepreneur and how targeting sellers who have higher equity can get you more cash now, cash flow each month… and cash later.


Retailing in creative real estate is usually based on buying a junker house, fixing it up real nice and then selling it to a qualified cash buyer. In a normal or hot market you can compete with other houses in the same price range because you’re offering a totally remodeled, pristine property.

A rehabber is typically under time pressure to pay off an underlying hard money or investor loan and may not be in a position to offer owner financing. Changes occurring now in the traditional mortgage markets can make relying on a ‘cash out’ buyer more of a challenge.

There are several solutions to this.

First, if you’re in buyer’s market (with some of your competition leaving the game) you can now buy better negotiating lower purchase prices. In turn, you can offer your newly remodeled house at a more attractive price… making it easier to find a buyer.

Next, begin financing your rehab projects with private investors. You can get lower interest rates and a longer repayment term. Then you have the option of selling the property to a tenant buyer or to a contract buyer using wraparound owner financing.

More and more buyers need help financing and by offering the solution you can get a higher price and seller faster.

Finally consider targeting sellers with free and clear houses by offering a very attractive price in exchange for no interest or low interest, long term owner financing. This is easy to do as getting a list of houses with high equity can many times be acquired through public tax and land records.

These sellers must compete in the marketplace just like any other seller. In fact, according to the most recent U.S. census data 1 out of every 3 houses in the nation is free and clear!

Using a small, well-secured private investor first loan you can raise all the cash you need on these deals. Give the seller a down payment if needed, recapture your buy and hold costs, do repairs, pay off existing liens and even put an extra $10,000 or $25,000 in you bank account… on the day you buy.
Marketing Your Home
Written by Joanne Cleaver
Published in:

Appraisals are tripping up as many as a quarter of home purchases these days. Here are top takeaways from the appraisers who reviewed properties for the recently concluded “Is Your House Priced Right?” contest.

  • Compare your house only to those of similar age and condition. Neighbors are rehabbing? It gets very complicated very quickly to try to add and subtract value once a house becomes very different from yours. 
  • Local preferences rule. Your house doesn’t have central air conditioning…in Florida?  Your condo doesn’t have walk-in Los Angeles? Local preferences will put your house on the ‘must see’ or ‘never mind’ list for buyers. If you think your appraiser has underestimated the value of certain amenities (Hot tubs in Marin County? Terraces in Manhattan?) request a review of those points.
  • ‘Functional obsolescence’ will drive down the value of your house.  What was new and hot 20 years ago isn’t so much any more. If your house has eight bedrooms and most neighboring houses have up to four, you are not going to get much extra value out of the extra bedrooms.
  • Overly defined spaces limit value. Adding a separate office adjacent to a new garage is smart. Even smarter is adding a full bathroom. Now the office is self-contained, and could be used as a studio, guest suite or even an in-law suite. The more flexible the space, the higher the appraised value.
  • Foreclosures must be counted. Appraisers can’t overlook relevant foreclosure sales just because they are foreclosure sales.  Until foreclosures clear the market, they will be in the mix.
  • You are in lockstep with your neighbors. When a neighboring house sells, the parameters for the value of your house narrow. The more recent the sale, the more indicative that sale is of your home’s value. Don’t try to fight it. You won’t win.
Article from:

The Treasure Coast is attracting a growing number of international real estate buyers, from Canada to Latin America and Western Europe, buying second homes and rental properties.

Helped by a weaker dollar, they are attracted by home values lower than other parts of Florida and their native countries and a less-crowded area. And with rising property values in traditional hubs for foreign buyers, such as Miami-Dade and Broward counties, the Treasure Coast could be the next hot spot for those clients.

The presence of international buyers has been prominent on the Treasure Coast since at least 2008, when the housing market started to decline and the dollar began losing its value compared to foreign currencies. A research published in August by the National Association of Realtors found that Port St. Lucie and Vero Beach rank No. 9 and 13 among top destinations for nonresident foreign buyers in Florida.

The two towns are among the top destinations for Canadians. Port St. Lucie is one of the preferred locations of Venezuelans, Brazilians, other Latin Americans and Western Europeans.

"The Treasure Coast is close to Orlando and Miami and one day it is going to become a great center as well," said Walter Mello, who is from Brazil.

Mello moved to Miami-Dade County in 2008 to manage his aircraft exporting business. He owns cotton, corn and soy bean farms in Brazil and properties in Orlando and Lakeland. He is looking for homes in the area from Stuart to Fort Pierce to escape the traffic of big cities. He also is interested in farmland in Indiantown to raise cattle or fish.

The growth of the Brazilian economy and its middle class, paired with easier access to loans, have caused demand for the country's real estate and prices to soar. Mello said this is the time for Brazilians to sell their properties there and invest in Florida. He's not alone in this thought.

If foreigners choose the Treasure Coast, they should come now, said Donn Wonderling, president of the Realtors Association of St. Lucie County. Home values, in St. Lucie County in particular, are starting to pick up.

"They are not going to find inexpensive houses like years ago," Wonderling said. "They will be surprised that a lot of homes have multiple offers."

According to reports from October, St. Lucie County inventory was down 52 percent compared to October of last year and the median price of a single-family home was up 16.7 percent. That trend is caused mostly by a decrease in foreclosed homes and short sales, Wonderling said.

Martin County home values dropped 6.5 percent, but inventory also was down 41.7 percent. In Indian River County, single-family home prices have risen 27 percent while inventory fell 40 percent.

There are no local numbers that show how much of real estate sales go to international buyers. Across Florida, they represent 19 percent, the National Association of Realtors found. And Wonderling said since he moved to St. Lucie County in 2005 he has seen a growing number of foreigner buyers, in particular Canadians and Europeans.

Traditionally, many Canadians have bought property on the Space Coast and in Broward County, said Sonny Solomon, a broker with the Keyes Company whose clientele is 50 percent Canadian.

"They are doing their homework," Solomon said. "They are not saying, 'I'm going to go to Hollywood (Fla.) because that's where all of my friends are.' They are looking at other options."

Yves Gougoux from Montreal has owned condos in Palm Beach County since the 1990s but picked Vero Beach to build his dream winter home. He purchased an old house in cash and tore it down to build a 5,500-square-foot, two-story home in March.

"Vero is a very nice ocean community with beautiful beaches, nice people, very nice golf courses and I'm really looking forward to spending a lot of time there," he said.

Gougoux, 61, owns an advertising company in Montreal and will spend up to six months in his new house at a time. That is the maximum time foreigners on a tourist visa are allowed to stay in the U.S.

According to the research by the American Realtors Association, if visa regulations were more flexible for foreign homeowners, more international buyers would purchase property in the U.S.

Financing regulations also are stricter for foreigners, the research found, because it is difficult for them to confirm credit worthiness. They do not have Social Security numbers or credit ratings computed on scales similar to U.S. practices. About 82 percent of Florida international buyers use cash.

Despite those hurdles, foreigners see Florida's housing market as advantageous. The U.S. offers more political stability than other countries, and international buyers expect real estate values will appreciate over time.

For Marcel Warmenhoven of the Netherlands, U.S. laws make it easier to screen a tenant's background and to evict them if necessary.

Warmenhoven bought a single-family home at Jensen Beach Golf and Country Club in May and is renting it out. He said he picked Jensen Beach because of low prices and because local tenants plan on settling down for longer than in areas that have a more transient population, such as Miami and Orlando.

The Treasure Coast Global Business Council, anchored by the Realtors Association of St. Lucie County, teaches Realtors in the tri-county area and Palm Beach County how to help foreigners navigate the American real estate system.

The council recently received an award from the National Association of Realtors for its work with international buyers. Only three other councils in the country were recognized — in Miami-Dade and Broward counties and one in California.

Yazcara Bradley, the council's chairwoman starting in 2013, said the fact the Treasure Coast council was recognized along with two South Florida counties known as hubs for international buyers proves the importance of foreigners in the local real estate market.

"More Realtors are interested in catering to them," said Bradley, who is Costa Rican and speaks Spanish and Italian. "In the council, we have people who speak at least 10 languages — French, Hebrew, Russian."

She said a growing number of home sales are to foreign-born clients. Most are naturalized or resident immigrants who have lived in other parts of the U.S. and do not fall under the international buyer designation. Still, Bradley said, they are more comfortable dealing with a real estate agent who speaks their language.

The 2010 U.S. Census showed that the foreign-born population on the Treasure Coast increased from 10 to 13 percent since 2000. Meanwhile, the Hispanic population jumped from 8 to 14 percent. St. Lucie County had the highest increase with 102 percent growth.

New businesses have flourished to cater to that demographics — Cuban and Colombian eateries and Bravo, a Latin grocery store chain, just to name a few.

Local real estate agencies are starting to adapt to that growing diversity by hiring more agents who speak Spanish and other languages. Other Realtors are acquiring necessary accreditation — called certified international property specialist program — to work with international buyers.

That shows the Treasure Coast is becoming more like the rest of South Florida, said Keyes Company broker associate Tom Anton in Port St. Lucie.

"I find Port St. Lucie to be the most eclectic market I've worked in," said Anton, who moved from Maryland 12 years ago. "On my street alone, I can think of six different nationalities. It's a melting pot type of thing."


    As a seasoned real estate investor I have used bank financing, hard money financing, mortgage loan brokers to fund my deals. Because these are very limited in the type of "loans" they are allowed to sell they can only accommodate a certain few types of real estate deals.

    For individuals who like to "keep their money working" through these "lenders", thinking that their investment money is more secure through them miss out on investments "secured by real estate", (just as secure as the lenders deals) some deals will have much greater returns under terms that can keep your money longer and that you decided upon.


    January 2014