Tag Archives: real estate

Five Ways To Tell If You’re Cut Out To Be A Landlord

 

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Investing in real estate by purchasing rental properties can be a smart way to balance your portfolio, hedge against inflation and build long-term wealth. Not everyone is cut out to be a landlord, though — but even if you feel you’re not landlord material, you can get the same portfolio benefits by investing in real estate indirectly through a private loan fund or a real estate investment trust. Here are five questions to help determine if investing directly in real estate is right for you.

1. Do you have 20% down payment and 5% to cover repairs and unexpected expenses?

Buying a rental property takes a much bigger down payment than buying a personal residence. Most lenders want at least 20% down, even if the property will generate enough income to pay the mortgage plus expenses like property taxes and hazard insurance. Having another 5% set aside to cover repairs and big-ticket expenses, such as replacing a roof or an HVAC system, may keep you from having to dip into personal funds to pay for unexpected problems.

2. How will you handle renters who don’t pay and the possibility of evicting tenants?

At some point, almost every landlord has to deal with tenants who stop paying rent. Eviction is a financial decision with emotional underpinnings. When tenants don’t pay rent, you still have to pay the mortgage, the property taxes, the water bill and all the other holding costs. But sometimes, nonpaying tenants are families with children or have unexpected circumstances like a serious illness or accident occur, leaving them unable to pay rent. If it’s too emotionally taxing to handle the eviction yourself, you can hire an attorney to represent you in court and movers to remove the tenants’ possessions from the property. Before becoming a landlord, you should know that the possibility of evicting a tenant might become a reality.

3. How do you feel about other people using your stuff?

Landlords hold security deposits because damage happens. Carpets get stained, hardwood floors get scratched and there is a fair amount of general wear and tear that should be expected in and on your property. As long as the cost to repair damages doesn’t exceed the security deposit, there shouldn’t be an issue. The real question becomes, what happens when the cost of repairs required exceed the security deposit? How will you confront your tenant to address these issues?  If contemplating this (somewhat common) scenario is stressful, becoming a landlord may not be an optimal option for you.

4. Can you wait at least 15 years for your investment to pay off?

Real estate is a long-term investment for a couple of reasons. First, the transaction costs are high. Real estate sales commissions, state and local transfer taxes, appraisals and settlement costs all reduce your resale profit. Second, the length of your mortgage dictates the monthly payment. The longer your keep your mortgage, the lower the monthly payment.

 

Source: Forbes – Bobby Montagne, CEO of Walnut Street Finance

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A LOOK BACK AT 2018

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As we approach the end of January 2019, I would like to take a moment to reflect on the accomplishments of our team during the prior calendar year.
 
As a result of changes in government regulations, the mortgage industry was impacted in ways not seen in more than a decade. Many mortgage professionals, including myself, had to rethink our strategies. It became evident that a team approach would result in a more comprehensive market approach.
 
The primary focus of 2018 was building that team. By July of 2018, the right mix of individuals were identified and began a concerted approach in servicing our clients effectively, amidst the unfamiliar territory created by the government changes.
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The team includes myself with in excess of two decades of banking, lending and mortgage brokering experience. My son Stefan McMillan, fully licensed as a mortgage professional since July 2017. Anis Rahman licensed as both a mortgage professional and a realtor since January 2017, but has in excess of thirty years of entrepreneurial experience. Nasir Zia also a licensed mortgage professional and realtor, who is the tech savvy member of the team. The final member of the team is Sidra Zia who is a licensed mortgage professional. Among the team, a total of 5 languages are spoken.
 
Each member focuses on a specific area of our mortgage brokering business. Building relationships with non-bank prime lenders is the focus of Anis. Relationships with ALT-A, B lenders and private lenders is the focus of Stefan. Nasir and Sidra both provide in depth research on new real estate opportunities for real estate investor clients outside of the Greater Toronto Area. I serve as the quarter back of the team by coaching them on client interactions, CMHC and Genworth mortgage products, client prospecting, sales forecasting, managing renewals and mortgage maturities and other business development tools.
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This team approach allowed us to finish the year with tremendous success. Two members of the team, Anis and Stefan, both received top producer awards from our broker office, Centum Supreme Mortgages Ltd. This could not have been a greater achievement for two industry professionals who have both been licensed for less than 2 years. We expect 2019 to yield much of the same successes.
 
The McMillan Group
Real Estate and Mortgages Made Simple
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Why cash flow doesn’t matter

Although it may seem counterintuitive, cash flow is not the be all and end all of investing in real estate.

“Everyone has such a cash flow mindset, and don’t get me wrong, cash flow is amazing and will help support a different lifestyle eventually, but making those dollars year-over-year is where the wealth comes from,” said veteran investor Lee Strauss of Strauss Investments. “If you have an extra $1,000 in your pocket every year, the return on investment is dismal and doesn’t even add up. But if you take $26,000 year-over-year, now we’re talking.”

Strauss is, of course, alluding to tenants paying down a mortgage’s principal balance for the investor while the latter rides the property’s appreciation.

“On average for a single-family dwelling, the principal pay down is going to be about $6,000 a year,” he said. “The other reason is you have an income-producing asset that is hedged against inflation, and that income-producing asset appreciates, on average, 5%.

“If you purchase a $400,000 property and it goes up by 5% in one year, that’s $20,000 in the first year. Five percent appreciation plus mortgage pay down, which you’re not paying and will be about $6,000, is $26,000 in one year.”

Mind, appreciation is a compounding factor.

“After year three, you’re at about $460,000 on an asset you bought for $400,000, and it’s been paid for by somebody else for three years, so now it’s worth more. After three years, the pay down is $18,000. That’s why people have always invested in real estate; they just didn’t know it.”

Laura Martin, COO of Matrix Mortgage Global and director of Private Lending Hub, notes that the process by which equity is built can be expedited in a couple of ways.

“The first process is by lessening the amortization period and increasing the payments of the mortgage in order to pay it down faster. This means there would be next to no cash flow, but there will be less money going towards interest payments on the loan,” she said.

“The second way is to ‘force’ equity in the home by making improvements that will drive up the property’s value. It’s referred to as ‘forced’ because it doesn’t rely on the external factors of appreciation caused by the real estate market.”

Martin adds that the extent to which an investor ameliorates the property should be determined by how far below market value they paid for it.

Mortgages have some of the best terms available of any loan type, says Martin, and that flexibility can be leveraged to purchase more properties.

“At an average of 3.5-4% on a fixed mortgage with down payments of around 25% and with amortization periods at 25 years—coming across such favourable financing terms with other investments is highly unlikely,” she said. “There is also leverage, in terms of using the asset as collateral, to finance other properties, thus making an increase in net worth more attainable.”

Source: Canadian Real Estate Wealth – by Neil Sharma 24 Jan 2019

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10 Charts That Show How Out Of Whack Things Are In Canada’s Housing Markets

For sale signs line along a road where houses are for sale in Calgary, Alberta, April 7, 2015.

TODD KOROL / REUTERS
For sale signs line along a road where houses are for sale in Calgary, Alberta, April 7, 2015.

Years of rock-bottom interest rates and rising prices have created some problematic conditions.

After years of boom times, Canada’s housing markets are at a turning point. Rising interest rates and tough new mortgage rules have taken some steam out of the market. But job growth is strong and wages are rising steadily, suggesting there will be homebuyers around to keep the market humming.

So which way are things going? That’s really anyone’s guess. But one thing is clear: After years of — let’s face it — unsustainable growth, things in Canada’s housing markets are looking a little messy when it comes to things like prices and mortgages.

Below are 10 charts illustrating just how out of whack things have become. Vancouver’s housing market is looking especially WTF these days, which is why it gets a bit more attention in these charts than other places.

Canadians have never had to shell out more of their income to own a home

THE ECONOMIST/HUFFPOST CANADA

This chart, which uses data from The Economist magazine, shows the ratio of house prices to incomes in Canada over the past four decades. Never have house prices been so disproportionately high when compared to what people are earning. Only years of rock-bottom interest have made this situation “affordable” for homeowners. Which is why rising interest rates should be — and are — a major concern among Canada’s policymakers.

Condo construction is at an all-time high …

BMO ECONOMICS

Construction of condos in Canada is at record highs, which for some experts is a warning of falling house prices ahead, though others disagree, given Canada’s suddenly accelerating population growth. Meanwhile, single-family home construction is in the dumps, driven in part by a near-total collapse of detached home construction around Toronto. Canadians in the largest cities are moving into condos, whether they like it or not.

… But young families don’t want to live in them

SOTHEBY’S/HUFFPOST CANADA

And apparently they don’t like it. In a survey of “young urban families” last year, Sotheby’s International Realty Canada found that 83 per cent of this group would prefer to live in a detached home, if money were no object. Only five per cent would choose to live in a condo. But with detached homes in Canada the least affordable they’ve ever been, 43 per cent of this group have given up on ever owning a detached home, the survey found.

You need to be a one-percenter to own an “average” Vancouver home

NATIONAL BANK FINANCIAL/HUFFPOST CANADA

There’s nothing “average” about buying an average-priced home in Vancouver these days. According to estimates from National Bank Financial, it now requires an income of $238,000 to qualify for a conventional 20-per-cent down mortgage on average Vancouver home. That’s not much less than the $246,000 you would have to earn to be in the top one per cent of earners in the city.

Despite the slowdown in the market, prices remain very high, and now rising interest rates and the new mortgage “stress test” have further pushed up the amount of income a household needs to qualify for a mortgage.

… Because Vancouver homes are comically overpriced

RBC ECONOMICS

This chart from Royal Bank of Canada shows that the cost of home ownership in Vancouver, as a share of income, is the highest ever. For detached homes (the top line), costs are far beyond any previous historical precedent. But condo costs (bottom line) — while elevated compared to historic norms — are not actually outside their normal historic range.

Vancouver’s new distinction: Worst housing market

KNIGHT FRANK

Vancouver used to dominate the lists of world’s hottest housing markets like few other cities in recent memory, but those days are history. Global real estate agency Knight Frank’s most recent real estate index ranked Vancouver at rock bottom among 43 world cities. How the mighty have fallen.

There aren’t enough new residents to prop up Vancouver’s market

RBC ECONOMICS

Demographic shifts are about to give Vancouver real estate a bit of a kick in the pants. The region’s population of homebuyers — meaning adults — is currently growing at a much slower pace than has been the historic norm. Combine this with the above-mentioned record-setting levels of condo construction and the also above-mentioned unreasonably high prices, and it looks like Vancouver’s housing correction could go on for a while yet.

… But Toronto has as much as it can handle

RBC ECONOMICS

Toronto’s housing market is in an uneven slump, with some parts of the market sliding (detached homes) while others keep performing strongly (condos). But the experts are saying don’t expect a major decrease in house prices, because the city is seeing accelerated growth in its adult population. Growth is now near a 15-year high, which ought to put a floor under any price declines in this era of mortgage stress tests and rising interest rates.

Mortgage growth is at historic lows

BANK OF CANADA

Those mortgage stress tests sure have had an impact. The value of mortgages on Canadian lenders’ books rises year after year no matter what, through recessions and boom times alike. Last year, that growth fell to its lowest level since the 1990s.

Investment condos often lose money

CMHC/CIBC/HUFFPOST CANADA

Buying an investment condo has become the national pastime for Canadians with cash, but with prices at these levels, they’re no guarantee of profit.

A study by CIBC and Urbanation last year found that 44 per cent of the condos taken possession of in 2017 in Toronto would rent out for less than the cost of ownership (assuming a 20-per-cent down mortgage). CMHC looked at the high-rise condo towers in Montreal’s downtown core and concluded the same is true for 75 per cent of them.

We weren’t able to find estimates for Vancouver, but given how realtors there are busy trying convince people negative cash flow can be a good thing, we’re guessing it’s pretty much the same there.

Investors can still turn a profit if the resale value rises. But house prices have stopped rising. Buyer beware.

Watch: The extreme measures Canadians go through to buy a home

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Why the wealthy are heavily focused on real estate

Getty Images/iStockphoto

Real estate averages 27 per cent of the investments of the ultra wealthy.

SHELDON KRALSTEIN/GETTY IMAGES/ISTOCKPHOTO

With markets roiling in 2016 and commodities lingering in low-price limbo, the holdings of high-net-worth investors can serve as indicators of where the rest of us might consider parking our nest eggs. It turns out that a good chunk of wealthy peoples’ investments is in real estate.

“Real estate is generally accepted as an alternative investment [by high-net-worth investors],” says Simon Jochlin, portfolio analytics associate at StennerZohny Investment Partners, part of Richardson GMP in Vancouver.

“It has the characteristics of an inflation hedge: yield, leverage and cap gains. It does well in upwardly trending markets, it pays you to wait during market corrections and typically it lags equities in market declines – it buys you time to assess the market.”

While the definition of high net worth can be flexible, in Canada and the United States it is generally considered to be someone who has at least $1-million in investable assets.

Thane Stenner, StennerZohny’s director of wealth management and portfolio manager, says a good way for determining what the wealthy do with their investments is to look at reports from Tiger 21, an ultra-high-net-worth peer-to-peer network for North American investors who have a minimum of $10-million to invest and want to manage their capital carefully.

Every quarter the network surveys its members, who number about 400 members across Canada and the United States. Some of the participants are billionaires, and most have a keen eye for business, Mr. Stenner says.

Though the Tiger 21’s Asset Allocation Report for the fourth quarter of 2015 found that its members were becoming cautious about Canadian real estate, they still on average put 27 per cent of their investment into real estate, the largest portion of their allocations. The next largest were public equities (23 per cent) and private equity (22 per cent) with smaller percentages going to hedge funds, fixed income, commodities, foreign currencies, cash and miscellaneous investments.

The real estate portion declined by 1 percentage point from the previous quarter. “While this is the lowest we have seen this year, it is at the same level observed in the fourth quarter of last year, which consequently was the high of 2014,” the report said.

“Real estate is very popular and one of the reasons, in my opinion, is that investors can actually see and touch their investment,” says Darren Coleman, senior vice-president and portfolio manager at Raymond James Ltd. in Toronto.

In his experience, real-estate investors, wealthy or otherwise, seem to behave with more logic than those who focus on markets. “For example, if you own a rental condo, and the one across the hall goes on sale for 30 per cent less than you think it’s worth, you wouldn’t automatically put yours on the market and sell, too, because you think there is a problem. Indeed, you may actually buy the other condo,” he says.

“And yet when a stock drops on the market, instead of thinking of buying more, most people automatically become fearful and think they should sell.”

Real estate also allows for considerable leverage, Mr. Coleman adds: “Banks love to lend against it. Over time, this lets you own a property with a much smaller investment than if you had to buy all of it at once.”

At the same time, Mr. Jochlin says there are disadvantages to real estate that investors should beware of. Property is not particularly liquid, so if you need to sell you could be stuck for a while.

“It’s also sensitive to interest rates and risks from project development,” he says. There are administrative and maintenance costs, and an investor who buys commercial rental property will be exposed to the ups and downs of the entire economy – look at Calgary’s glut of unleased office space, for example.

“Timing is key. You do not want to chase the performance of a hot real estate market,” Mr. Jochlin says.

“Buying at highs will significantly reduce your overall return on investment. You want to buy in very depressed markets at a discount. In other words, look toward relative multiples, as you would an equity.”

As to how one goes about investing in real estate, Mr. Jochlin says it depends. The factors to consider include determining whether your investment objective is short- or longer-term, your liquidity requirements, your targeted return and whether you have any experience as a real estate manager.

“Sophisticated high-net-worth investors have a family office, and thus a specialist to manage their real estate assets,” he says.

How the rich buy real estate

The wealthy don’t necessarily buy and sell real estate the same way ordinary investors do, says Mr. Stenner. Ordinary people buy something and hope that when they sell it they’ll get a better price. Meanwhile, they like to do things like live on the property or rent it out, whether it is residential or commercial. If it is vacant land they might build something. Not always so for high-net-worth (HNW) investors, Mr. Stenner says. While everyone who invests hopes their investment will rise, Mr. Stenner says that in real estate, HNW people tend to fall into four categories:

Developers

“The real estate developer is looking for substantial returns from individual/basket real estate projects, typically 30-50 per cent IRRs [internal rates of return],” Mr. Stenner says. Developers are highly experienced investors who often take big risks, looking at a raw, undeveloped property and envisioning what it could look like with, say, a shopping mall or office tower. This requires lots of access to capital and a strong stomach, as there can be huge delays and setbacks.

Income Investors

“These HNW investors typically look for a stable, secure yield, tax-preferred in nature and structure if possible, with modest capital growth potential,” Mr. Stenner says. They take the same businesslike approach to property as the developer-types, but they’re more conservative, focusing on cash flow and long-term profit as opposed to getting money out after a development is complete. Often they’re building a legacy that they hope to pass down through generations. Mr. Stenner says lower net worth people can emulate income investors, for example, through REITs that are based on apartment buildings.

Opportunists

These HNW investors tend to look for more short-term higher risk, higher return “asymmetric” payoffs. Income from the investment or project is secondary — they’re in it for the quick buck. Often they see real estate in contrarian terms – investments to look at when the market is low and to sell on the way up, rather than hold. After 2008, many HNW investors bought up depressed-price housing in the U.S. Sunbelt. The sizzling Vancouver and Toronto markets might be the opposite of what they’re looking for right now; commercial property in the stagnant Canadian economy that can be purchased for low-trading loonies right now might be more interesting.

Lenders

This refers to HNW investors who lend capital to developers or opportunistic investors, for a fixed return, plus as much asset coverage from the property as possible. They fund mortgages, invest in real estate financing pools or put money into companies involved in this type of investment. “Because wealthier investors tend to have more liquidity, this also creates more optionality to deploy capital in various ways, while using the real estate as collateral or protection,” Mr. Stenner says.

Being a lender is a way to diversify. In addition, money lent in this way puts the lender high up in the creditor line if something goes wrong. If things go right, it generates income as the mortgage is paid back to the HNW investors or the funds they buy into.

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The 8 Things You Need To Know To Avoid Losing Money In Real Estate

We all know those people who frequently lament their decision to invest in real estate. Constantly blaming the market, or real estate as an industry, they believe the entire process is predicated on luck and timing, an exercise in chance. For people who have lost money investing, it’s easy to sympathize with them-but are their beliefs regarding results being beyond their control actually accurate?

Many who bought property between 2001 and 2007 lost money. These were years where prices aggressively increased, largely due to loose lending practices that allowed people to buy homes they could not afford using loans that were only temporarily manageable. Prices continued to climb until these loans reset, at which point houses fell into foreclosure, prices continued to drop, and the overall housing market spiraled into chaos.

But was this truly unavoidable or impossible to predict? Is it justified to live in fear of something like this happening again?

If you believe the answer is “yes”, you’re not likely to get started investing in real estate. The constant fear of an anvil dropping on your head like a looney toons cartoon will prevent you from ever taking any serious type of action. This will also prevent you from having any serious chance of success. The consequences for incorrectly assuming real estate investing is a gamble are grave.

If you believe the answer is “no”, it begs the question-what are the factors that prevent someone from losing money in real estate? Is it just a matter of timing the market? Is it found in getting only great deals? Or are there more pieces to the puzzle?

If we can understand what causes folks to lose money in real estate, we can take preventive measures to ensure it doesn’t happen to us. While no investment is without risk, smart investors understand there are certainly precautions that can be taken to mitigate that risk. In my nearly ten years of investing in real estate I’ve found there are certain steps to take that have a big impact on avoiding the wrong deal. I’ve spent a considerable amount of time listening, interviewing, and speaking with real estate investors. I’ve found patterns in what went well, and I’ve also seen patterns in what led to things going horribly wrong.

The following is a list of the things I’ve noticed often lead to catastrophe. Avoiding these mistakes will greatly increase your odds of real estate investing success.

Negative Cash Flow

If you want to make money in real estate, you should plan on holding an asset for a long period of time. Good things happen when real estate is owned over the long haul. Loans are paid down, rents tend to increase, and the value eventually goes up. The number one problem preventing investors from winning the long game is buying a property that loses money every month.

Don’t buy real estate assuming the price will go up and you can sell it later (this is an issue I’ll cover a little later). Nobody knows what the market is going to do. This is why trying to time the market is a bad strategy to base your decisions on. Instead, only buy properties that generate more income each month than they cost to own. By avoiding “negative cash flow”, you are protected from market dips or stalling home prices. You only lose money in real estate if you sell in unfavorable conditions or lose the asset to foreclosure. Ensuring you earn positive cash flow each month will put the power for when you exit the deal back into your hands.

For more information on how to analyze a rental property, click here.

Lack Of Reserves

If lack of cash flow is the number one culprit for losing money in real estate, lack of reserves is number two. Too many variables are involved in owning rental property to be able to accurately determine when unexpected expenses will hit, and how much they’ll be. Whether it’s an HVAC unit going down, a roof leak, or a water heater busting, there will always be something you need to repair or replace.

None of this takes into consideration evictions, destroyed property, and more. While you’ll eventually end up positive if you hold a property long enough, there will be times when your bleeding cash. Having a sufficient amount of reserves during these times is crucial to your success. Conventional wisdom suggests keeping six months of expenses in reserves for each property. While this number can vary for individual people with unique financial situations, make sure you have enough set aside to comfortably weather the storm when Murphy’s law hits.

Following The Herd

As Warren Buffet stated, “Be fearful when others are greedy and greedy when others are fearful”. While many of us know this to be true, the fact remains too many people still follow the herd. Many bad decisions are made when they are based on what others are doing, rather than basing them on sound financial principles.

It may be tempting to follow the herd, but understand it is a false sense of security. Just because everyone else is buying doesn’t mean you should too. In fact, it may be the opposite. The best deals I ever bought were purchased when no one else was buying. The only reason they were for sale is because someone else lost them who originally bought them when everyone else was buying! Make decisions on fundamentals like cash flow, ROI, equity, and a solid long term plan-not on what you see everyone else doing.

Betting On Appreciation

This is the number one reason I’ve seen for those who lose properties to foreclosure. Amateurs buy a house assuming it will go up in value and they can sell it later. Professionals buy under-valued properties in solid locations that produce positive cash flow. This gives them the flexibility to exit the deal when it makes financial sense to do so. When someone bets on appreciation, doesn’t have positive cash flow, and doesn’t keep accurate reserves, they are gambling on the market continuing to rise to bail them out from a risky investment.

Buying in Bad Neighborhoods

While we all know the first rule of real estate (location, location, location), there is also still the temptation to buy a questionable property in an area that seems too good to be true. When it seems too good to be true, it usually is. While homes in undesirable locations can look great on paper (read, in a spreadsheet) the reality is they almost always look better in theory than they’ll be in practice.

When you buy in an area where good tenants won’t want to live, you’ll be forced to rent to less than desirable tenants with lower credit scores, less reliable income streams, and a worse rental histories. The cons just won’t justify the pros. Having to pay for multiple evictions, destroyed homes, and theft will cause even the most stalwart investors to lose their cool. Avoid the temptation and only buy in areas where reliable tenants want to live.

Underestimating Rehab Costs

Whether you’re a total newbie or a seasoned pro, everybody makes this mistake. Experienced investors assume their rehabs will go over budget and over schedule. They prepare for this by writing these overages into their budgets and planning for them accordingly.

There is no use in running out of money with 10% of your rehab left to go! You can’t rent out the property and can’t generate income unless 100% of the property is ready to be dwelled in. Don’t be the person who makes the mistake of buying a property then running out of money before it’s ready to be rented out. Don’t bet on contractors, don’t bet on estimates, and don’t bet on numbers in a spreadsheet. Make sure you bet on yourself and have enough money set aside to finish your rehab, even if you’re told that’s unnecessary.

Planning on Doing The Work Themselves

All too many people have assumed they would save on a deal by doing the rehab work themselves rather than paying someone else. While there are some people who can pull this off, it’s a mistake to assume you can pay too much for a property, or not have enough in reserves to pay for the work, simply because you plan on doing the work yourself.

It’s been said “The man who represents himself in a court of law has a fool for a client.” The same can be said of the person who assumes they’ll do the rehab work themselves to avoid budgeting correctly. You don’t know which direction your life will take, what time you’ll have later, or what unexpected problems will be uncovered once you start the rehab. If you’re able to do the work yourself, consider that icing on the cake-just don’t count on it.

Failing to Educate First

The final lesson I’ve learned from those who have lost money in real estate is that they didn’t understand what they were getting into until after they had committed to purchasing a property. Certain decisions like buying a property, starting a rehab, or putting money into a deal, can’t be taken back once they are made. The time to realize you’re not prepared, or it’s the wrong deal, is before you pass the point of no return.

If you want to invest in real estate, that’s great! Start by educating yourself now, before you’re committed, then use that information to help you make the best choice possible. I wrote the book “Long Distance Real Estate Investing: How to Buy, Rehab, and Manage Out of State Rental Property” to help save others money by learning from my mistakes. I document my systems, strategies, and the criteria I use to make my own decisions so others can avoid catastrophe. This is just one example of ways you can invest a very small amount of money to save yourself thousands of dollars in mistakes.

Reading articles like this show a propensity for avoiding mistakes and saving money. I encourage you to read as much as possible before jumping in. Other resources include websites like BiggerPockets.com, podcasts, and online blog sites where you can learn from the wisdom of others.

No investment is without risk, but that doesn’t mean we need to live in fear. Start by avoiding the eight mistakes I’ve outlined here and you should be well on your way to growing wealth through real estate.

Source; Forbes.com –Real Estate

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What does a mortgage broker do? Your step-by-step guide

What does a mortgage broker do? A mortgage broker is a licensed individual who helps you select the mortgage product that best suits your financing needs. They do this by comparing mortgage products offered by a variety of lenders. A mortgage broker acts as the quarterback for your financing, passing the ball between you, the borrower, and the lender.

To be clear, mortgage brokers do much more than help you get a simple mortgage on your home. They can help you access equity, refinance current properties, purchase investment properties, and a myriad of other tasks to support your financial well-being.

When you go to the bank, the bank can only offer you the products and services it has available. A bank isn’t likely to tell you to go down the street to its competitor who offers a mortgage product better suited to your needs. Unlike a bank, a mortgage broker often has relationships with dozens of lenders (oftentimes some lenders that don’t directly deal with the public), making his chances that much better of finding a lender with the best mortgage for you.

Now that you have a better understanding of what does a mortgage broker do, let’s look at how a typical mortgage application looks.

Step-by-step guide to a mortgage application

What does a mortgage broker do to win your business? Your relationship with a mortgage broker will usually start with an introduction from someone you trust like a family member or friend. Or, you may find your mortgage broker online. You’ll often set up an initial phone call to go over your mortgage financing needs.

Your mortgage broker will typically ask you some basic questions about how much you’re looking to spend on a property, how much you earn and how much you intend to put down on the property. If you’re looking to refinance, access equity, or obtain a second mortgage, they will require information about your current loans already in place.

Once your mortgage broker has a good idea about what you’re looking for, he can hone in on the best mortgage solutions.

In many cases, your mortgage broker may have almost everything he needs to proceed with a mortgage application at this point. If everything goes well, he’ll ask you to provide some documentation, such as a letter of employment, notices of assessment and pay stubs to submit your application to a lender.

If you’ve already made an offer on a property and it’s been accepted, your broker will submit your application as a live deal. Once the broker has a mortgage commitment back from the lender, he’ll go over any conditions that need to be met (an appraisal, proof of income, proof of down payment, etc.).

Once you’ve completed the mortgage commitment, your broker will usually submit the paperwork and any additional documentation to the lender to sign off on. Once all the lender conditions have been met, your broker should ensure legal instructions are sent to your lawyer. Your broker should continue to check in on you throughout the process to ensure everything goes smoothly.

This, in a nutshell, is how a mortgage application works.

Why use a mortgage broker

You may be wondering why you should use a mortgage broker. Isn’t it better to just go down to the local bank branch and get help with your financial needs there?

The main advantage of using a mortgage broker is that they deal with dozens of lenders and hundreds of products. Your broker should be well-versed in the mortgage products of all these lenders. This means you’re more likely to find the best mortgage product that suits your needs.

If you’re an individual with damaged credit or you’re buying a property that’s in less than stellar condition, this is where a broker can be worth their weight in gold. Since they have access to many lenders, they are more likely to find you a lender that can assist you, unlike the banks, which may turn down your mortgage application or offer your a higher interest rate.

Even if you’ve been offered a decent mortgage from your bank, using a mortgage broker means you’re doing your own due diligence. Your broker may be able to find you a better lending solution than your bank is offering. You won’t know unless you pick up on the phone and contact a mortgage broker.

Free service: When you work with a mortgage broker, in most cases you won’t have to pay them a dime. That’s because your broker is usually compensated directly by the lender. You can get unbiased mortgage advice at zero cost – it doesn’t get any better than that!

Just be aware that some lenders offer more compensation than others. You’ll want a broker who is honest and will put you with the best lender for you, despite another lender paying a higher finder’s fee.

Save time and money: By using a mortgage broker, not only can you save money, but you can save time. When you shop on your own for a mortgage, you’ll need to apply for a mortgage at each lender. A broker, on the other hand, should know the lenders like the back of their hand and should be able to hone in on the lender that’s best for you, saving you time and protecting your credit score from being lowered by applying at too many lenders.

Negotiate on your behalf: Your broker can negotiate on your behalf with various lenders to help find you the best mortgage solution. Be sure to ask your broker how many lenders he deals with, as some brokers have access to more lenders than others and may do a higher volume of business than others, which means you’ll likely get a better rate.

This was an overview of working with a mortgage broker. By working with a broker, you’ll better your chances of negotiating a better deal on your mortgage with a lender of your choosing.

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