That leads to a lot of fear that can only be overcome by taking personal responsibility and facing reality no matter how harsh it might be right now. This will cultivate financial literacy and independence and never again will you be reliant upon other people. There is a sense of freedom that is also felt but it must be balanced with discipline, action, and moderation.
Buy Sell
The results of our greed and fear based choices are now forcing us to become entrepreneurs and business owners which can be a very liberating thing. The biggest obstacle to making the transition from employee to entrepreneur is time management and workload. Often when people want to change careers they can never find time. If they are successful their business becomes a glorified job weighing them down with very hard hours and workload. These challenges are best met by organizing blocks of time to concentrate solely on one thing at a time and also hiring virtual assistants, interns, employees, and creating a strong network of business contacts. Remember everything should be done gradually and consistently so you can really learn and master the process.
Real estate investing is cyclical and it will come back around, will you be in a position 5 or 10 years from now were you look back and are fulfilled or look back with regrets? Many people create passive income through real estate investing in fact it has produced the more millionaires than any other industry, will you be one of them? I feel a great shift in wealth, and as the great Ben Franklin once said, "The future belongs to the educated", because they are the ones that can utilize their strengths and immediately apply what they learn.
Real Estate has a lot of niches and I see a lot of new investors spread themselves out to thin and never commit to one niche as their specialty for fear they will lose out on something. Actually, quite the opposite is true once you have a specialty; it is a framework to add value to other people in exchange for whatever you need. Then you can leverage all your leads by outsourcing to other people and allowing them to use their unique talents that you may not posses, instead of tossing the lead. Remember taking action and never giving up are the only sure ways to reach your highest potential as a real estate investor.
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The real estate market is now in its down cycle with house prices plummeting and house value underwater. Foreclosures are at record high. However, if you are investing for the long term and want to create wealth, this is the best time to buy undervalued properties.
Sir John Templeton, legendary investor and founder of the fidelity funds group says, "Buy at the point of pessimism and sell at the point of optimism". This is your time to buy, not just buy but also buy right.
If you are starting out as a beginner investor, you need to learn how to buy right avoiding the mistakes most investors make. This article will help you avoid such mistakes as you progress as an investor.
Real estate investor mindset
The first thing you must do to buy right property as an investor is to have a mindset change. This is because the processes of buying your personal house vis-à-vis, buying an income producing property are parallel to each other.
An investor buying a property is looking for; value in a property, he is looking for income and potential for capital appreciation. On the other, hand a homeowner is looking to buy, in a nice neighborhood with good schools in a nice area. An investor is looking for a property in a location that attracts renters; that is within commuting distance from their work, close to shops, clubs and so forth. I hope you get the picture.
The second factor you need to have is to have a system for finding the right property- your workhorse value scout. What is your workhorse value scout? They are like your homing radar to spot the right property. They help you assess the feasibility of an investment property. The main values you need to evaluate your potential investments are the cost per square foot and gross rent multiplier.
Let's talk about them in detail.
Cost per square foot
Cost per square foot is the average cost per foot you are paying for the property. Here is how to use the cost per square foot (CPF).
Let us a take a property with an asking price of $100,000, a 2 bed, 1 bathroom property with total square foot of 2,000 square feet. The cost per square foot here is 100,000/2,000= $50 per sq foot.
This number is important because you can compare the average cost per square foot in your target market. You can get this information from your local county property appraiser or land property registrar in some countries. You are looking to buy properties that are below the average or near the average CPF.If you compare this number with the average cost per square foot and it is above the average then you might be overpaying, hence you can renegotiate.
A word of caution here, in using the cost per square foot, always compares "apples for apples and not oranges for apples". What do I mean, compare properties with similar size and in the same area, for example a 2 bedroom 1 bath property to a 2 bedroom 1 bath apartment, not 3 bed 2 bath to 2 bedroom 1 bath property.
The next value you need to use is the...
Gross rent multiplier
The gross rent multiplier is another value you can use to see if a property is over or under priced. It is not a precise tool but this can give you a quick indication whether you a buying a loss maker. The GRM calculated, by dividing the average price of recently purchased or sold house by the annual gross income from renting a comparable house in the area.
Gross rent multiplier = market value recently sold property/ annual gross rental income
Let's use an example: A property that recently sold in your target market for $100000 with gross annual rent of $5000 has a GRM of 20.
The GRM is just a guide to estimate the approximate value.
Here is my own experience of using this two work scout values... I generally tend to offer around 25 percent below the cost per square foot and 75 percent of the GRM. There are other factors, I consider such as; cost of financing; vacancy rate and the condition of the building. When you find potentially promising properties, you can then do your due diligence on the properties and select the best property that will yield positive cash flow.
The key to success as a real estate investor is to buy value properties at a discount, and to achieve this you must have the mindset of an investor. You also need to have a system to asses value and buy right.
These two parameters, the cost per square foot and gross multiplier will help you achieve your objectives.
Ajibola Osho, has a passion for helping investors achieve their wealth building goals so they can live a wealthier, happier lives, they always dreamed of.
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I have had several conversations with Canadians this last year that are dreaming of heading south to California and other states to both beat the cold and to invest in real estate. The strong Canadian dollar (or should we say weak U.S. dollar) combined with a hurting housing market in the U.S. is providing Canadians with arguably as good of a time as any to buy real estate in the U.S. in the last 30 years.
If you are looking to move, invest, or purchase a second home, you should first have a basic grasp of the key differences between buying real estate in Canada versus buying real estate in the U.S.
Regarding Taxes: When it comes to taxes I will never profess to be an expert. This is too critical and the best is to contact a CPA (Certified Public Accountant) to talk about your situation and issues that you might need to look out for. Here in Santa Barbara, CA., I would be happy to recommend my father, Mike Schmidtchen at 805-963-0881. He has been a local CPA for roughly 30 years.
With that said, here for example are 2 key points that might be different than in Canada.
1) Here in the U.S. 1031 exchanges allow for capital gains taxes to be deferred from an investment property and rolled into another investment property several times over. From what I understand, this apparently is very different in Canada where this option is not allowed.
2) For a primary residence here in California, you are able to right down the interest paid on your mortgage as well as property taxes.
Regarding Lending: With the crisis that has gone on in the last 12+ months here in the U.S., lending practices are changing weekly. So if you are looking to finance a property here in California, check back home in Canada as well as with a local lender in the U.S. to see about the options you may have. The most recent that I have heard is that you would need at least 30% for a down payment and proven liquid funds for 6-12 months that would cover your payments.
Regarding Escrow: After you have talked with experts on taxes and lending (or if you are in the fortunate position to pay cash) and you have ultimately decided to look into a real estate purchase here in California, then here are some basics about the escrow process.
1) Escrow is simply the term we used to describe the time from when your purchase offer has been accepted to the time that you close sale on the property. Here in the Santa Barbara, CA. area, a "normal escrow" is around 30-45 days.
2) When writing up a purchase contract, you will need proof of funds (bank statement, letter from a lender etc.) that covers your down payment as well as earnest money (roughly 3% of the purchase price). Your Realtor will then provide you with the paperwork that is needed to write the offer.
3) Upon acceptance of your offer, your earnest money is cashed and deposited into a neutral 3rd party escrow company within 3 business days. So this is money that you will readily need available.
4) As a buyer, you have 2 major contingencies, the loan contingency and the physical inspections contingency. Generally these last 14-21 days from acceptance of your offer. During this time you will receive numerous disclosures about the property from the seller as well as other general disclosures. Also, during this time you will do a home inspection of the property and then based on the results of this and the disclosures you will hire experts to look into any negative issues/concerns about the property, go over potential requests for repairs, etc. Ultimately, this is the time to negotiate if needed and make sure you feel comfortable about the home you are buying. If you do not feel comfortable or can not reach terms with the seller under the contingency period, you can cancel escrow and your earnest money is returned to you.
5) Upon releasing contingencies, you will sign loan documents (if needed) generally within 4-6 days before the close of escrow. Money from you for the down payment or the entire purchase is generally needed within 36-48 hours before the close of escrow date.
Regarding Costs: As a buyer here in California, the costs you will incur are for escrow fees, lending fees, home inspection fees etc. There are no fees to work with a Realtor for the purchase of your property. Commissions to Realtors are 99% of the time paid for by the seller. For example, with a purchase price for a property of $1 Million, you are looking at estimated costs of $2300-$3200 at the time of close.
Regarding Property Taxes: Here in California, Proposition 13 has set property taxes as 1.02% of the purchase price of your property. So again with a purchase of $1 Million, you are looking at roughly $10,200 for the year which is again a tax right down. Property taxes can be paid in full once a year or in 2 installments, due December 10th and April 10th.
Kevin Schmidtchen - Thank you for reading. I hope you find Santa Barbara Real Estate Voice informative. Please feel free to comment below with any
thoughts.
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