Considerations When Making an Offer on a Home

You want to make an offer on a home and the listed price is $300,000, what do you offer? There are many factors that you need to take into account when offering a price for a home.

First, consider your intentions. Is this a home that you plan to live in or is this an investment property? If this is a house you plan to live in, you want your first offer to be lower that the list price, but not so low that the offer is flatly rejected. If you plan on living in the house for a long time, it may not matter if you pay the list price because you will make that money up and more due to appreciation over the years. However, be wary not to pay more than the home’s worth. You never know when you may need to move and you do not want to lose money on a quick sale.

On the opposite side, if you are buying this home as an investment property, shoot for the fences. In other words, if the list is $300,000, you may want to offer something like $230,000. You would offer this lower amount because you want to maximize your return.

Second, consider the seller’s intentions. If the seller is in a dire financial situation (similar to the current situation facing many home owners in this market), is facing a divorce, obtained an out-of-state job, or something like that, the seller will be more motivated to sell, and thus would take a lower price if you offered a shorter escrow. This would work out for you regardless of your intention.

However, if the seller is selling an investment property, the price is probably going to be firm. In this situation, if you have considered your intentions, (you already know the seller’s intentions at this point) your last consideration is the house’s appeal to your intentions.

Last, consider the home’s appeal based on your intentions. In other words, if the home is a “perfect” family house in which you and your family are going to live for many happy years to come, you may not care if you pay the price listed. If the house is a “perfect” investment property, you may, once again, not care if you pay the list price. However, if the home is just another property that really does not impress you, move on.

Your intentions are most important because they will dictate your next course of action. Know your intentions, find out the seller’s intentions, the make a low offer or list price offering as applicable.

How to Put Your Money to Work

What does it mean to put one’s money to work? Basically, when you have money, 99% of the time it is sitting in a checking account. Most people that have their money in a checking have it in a non-interest bearing checking account. There are many reasons why this could be. First, the account minimum for an interest bearing checking account is almost always higher than for a regular checking account, and you may not have the additional necessary funds. Second, you may not know whether your bank offers an interest bearing checking account and, therefore, have never inquired about such. Last, you may not care.

Let me clear something up before we move on. Interest bearing checking accounts are not going to make you rich, however, why would you pass up free money? Additionally, this article is intended for your normal money supply (normal money supply means the money you use to pay bills, buy groceries, and use for all of your other living expenses), not money that you have set aside for investment. It would not be practical for you to move all of this money to a savings account, because savings accounts usually do not come with check writing privileges or debit card options. Therefore, you would have to constantly move money between your savings and checking accounts in order to pay bills. What is the solution? The solution is to find a bank that offers a decent interest rate and a low enough minimum balance for you to take advantage of interest bearing checking. Note that you may have to look beyond the “major” banks in order to find something like this.

Interest bearing checking is not the only way to make your money work for you. Investments such as real estate and the stock market can offer continuous returns (appreciation and rents in real estate and dividends and capital gains in the stock market) on your money. The problem that arises with these investments is the level of risk involved. As many people recently learned, it is easy to lose your real estate investment if you get in over your head. Additionally, unless you know a little bit about financial speculation, the stock market may prove to be a waste of time and money. Also, these investments may need a lot of initial capital to start and, therefore, may not be appropriate for your “normal money supply.”

Under the worst case scenario, you could put your money in a savings account. It will offer a higher interest rate than will interest bearing checking, but will have the disadvantages discussed above.

Find ways to get your money working and you will find that all of those extra dollars acquired by way of interest or investment will really start to add up!

Five Considerations Before Buying A House

The commonly stated motto for real estate is "location, location, location." However, when buying your first home, (absent already being wealthy) affordability is more important. I am not suggesting that you sacrifice yours and your family's safety or expectations by moving into a dangerous neighborhood, however, if you cannot afford an added luxury (for example, living on a golf course) you should not try to squeeze it into your budget.

(1) Purpose - Know why you are buying a home. If you are buying a home to live in, your standards should be different than if you are buying an investment property. If purchasing to live, you should like the "feel" of the home. You should feel comfortable there and like the floor plan. If purchasing for an investment, the only thing you should be concerned with is whether it needs a lot of work or will be hard to rent out (depending on your investment strategy).

(2) Location - As I stated above, you do not want to move into a dangerous neighborhood because the homes are extremely affordable, however, you should also not move to a rich neighborhood just because the neighborhood is "rich." Assess your situation and see what location is best for your. For example, if you have children, you might want to buy a home in a location that is zoned for a great school. Pick your location based on your situation and not on economic perception.

(3) Price - One of the main reasons that people lose their home is because they finance more home then they can afford. Stick within your price range! Biting off more than you can chew (as far as price is concerned) may work if the money crunch lasts only a couple of months. However, when you take a loan that normally spans 30 years (360 months), be aware that constantly struggling to pay your mortgage will take a huge toll on you.

(4) Mortgage Rate - Absent having the cash to buy a home outright, you will need to finance a home purchase. Due to this fact, many banks offer this option to customers. However, just because you have an account at a bank does not mean that you must use that bank for your mortgage. Look around; find the best rate and the best deal. Do not be committed to your bank just because you have your checking account there. Be committed to the bank that gives you the best interest rate and terms!

(5) Market - Although this may be out of your control, market condition should play a part in your decision. In a really "hot" market, you will be paying more than the worth of home when purchasing. During a "cold" market, you can find great deals and many times pay below fair market value. However, if you are buying a home to live in, your decision to buy should be based on your circumstance. If you can wait for the perfect market condition, than do so, but do not sacrifice your living condition just because the market is not "right."

What is the Difference Between a Real Estate Broker and a Real Estate Agent?

As articulated to me by my real estate teacher before I obtained my real estate salesperson license, “the agent is scum and the broker is god!” This is a very important lesson to learn. The problem that most aspiring licensees have is that they are under the false impression that once they receive a license, they have free reign to sell any property and represent any client that they see fit. The truth is, agents are nothing without their brokers. A licensee cannot sell any property or any timeshare, nor can he/she represent any client without the consent and involvement of the broker.

Educational requirements are another difference between an agent and a broker. In order to obtain a real estate salesperson license (depending on the state in which a license is obtained), a person usually need only show proof of having taken a specified number of hours of real estate classes and pass a test. However, the requirements to obtain a broker’s license are far stricter. First of all (once again, all states are different so check your local laws), brokers usually need to have completed a specified number of college credits in specified subjects. Additionally, to sit for the broker’s exam, a person usually needs to have worked full time as a real estate salesperson or real estate broker/salesperson for two years during the last five years. Also, the broker’s exam requires an additional fee that is usually higher than the exam fee for a real estate salesperson. Last, some states provide an exception to the requirements of work experience and college credits for a broker’s license if the applicant has obtained a bachelor’s degree from an accredited university. Some states waive the experience and educational requirements if the applicant is a licensed lawyer. However, absent spending the money and time to successfully complete law school, most applicants will have to meet the educational and experience requirements.

The preceding paragraph begs the question, “If sitting for the broker’s license requires all of those additional qualifications, what is the advantage of having a broker’s license?” The main advantage of having a broker’s license is money! Let us be realistic about the real estate business; I am sure that it feels great to help a person buy their first home. However, if a person wanted a job solely for the good feeling, becoming a real estate agent or broker would not be near the top of the list, if at all. People become real estate agents for the money. Real estate agents can make a lot of money through commissions. However, the broker that employs the agent will always make more. The best way to become rich is to make money of the efforts of others. Brokers usually collect anywhere between 10% to 50% of the agent’s commission. Now, if a broker employs ten agents, that broker is making money off of his/her efforts and off the efforts of ten others. Real estate agents cannot do this, therefore, would you rather be a broker or a real estate salesperson?

Before you answer that question, it is important to note the liability issues with brokers. A broker has a duty to supervise and train agents, therefore, if the agent messes up, the broker could be held liable along with the agent. Back to the example of the broker that employs ten agents; that broker has the possibility of being held liable for the mistakes of ten people whereas a salesperson can only be held liable for his/her own mistakes. The broker in our example may get ten times the monetary benefit, but, in return, he/she has ten times the liability issues.

In the end, if the broker is competent, the liability issues can be easily avoided (also helping a broker in this task is the fact the most states require a continuing education requirement where a salesperson has to take “refresher” classes every two years in order to renew their real estate licenses). Therefore, although harder to obtain, if you possess the necessary qualifications, the monetary benefits of being a broker outweigh any potential liability issues.

Real Estate Career Revival Tips

Yes, I have a real estate license. Truthfully, I do not use it that often. I do a small deal here and there, but nothing that I would call a career. Why then, you may ask, am I writing a post about how to revive a real estate career? I am writing this post because reviving a real estate career is similar to reviving any career, you have to think like an entrepreneur! Why am I discussing a real estate career? I am discussing a real estate career because the housing market is currently a hot topic in the news, therefore, I thought the readers would be able to relate more to this post.

First and foremost, you have to love the career that you enter into, or at the very least, you must enjoy it. If you enter a career for the sole purpose of making a lot of money, but you hate your job, you will hate your life. In my opinion, making money is fun and there are infinite amounts of ways to do it. Why then should you settle for a job you hate but makes good money? Why not pursue a job you love and figure out a way to make a lot of money from that job? The point, if you do not like working in real estate, reviving your career is the least of your worries. If you do not like the job, find a new one!

Second, you are going to have to like to talk on the phone. Change your perception about things like “cold calling.” Do not think of it as a burden or an intrusion on the person being called. Instead, convince yourself that you are calling this person for the purpose of helping them make money or buy the property they always wanted. As a real estate agent, you are in the business of selling dreams. It may sound cheesy, but when you help somebody buy their first home or their dream home, you just made a huge impact in that person’s life, and I guarantee that you will get referrals from him/her. Get on the phone and sell people their dreams.

Third, be persistent. You may notice that sales begin to slump in markets like our current market. When this happens, you have to think of new approaches to get clients. Now is the time to start pushing the idea of investment properties. Sellers are desperate and need to get out of their homes, however, nobody is buying. This means that home prices are rapidly falling. In this situation, if you are a seller’s agent, concentrate on changing your primary clientele and represent more buyers. Change your business model for the time being and you will change your income bracket. Flexibility in different markets is key to survival.

Last, set goals. If you find yourself in a rut, set a short-term goal. Example: “I will help two people buy an investment property this month.” Two properties is not going to break the bank, however, the pecuniary gain is not the point. The point of setting a short-term goal is to create a sense of accomplishment and motivation for yourself. This way you will want to endure in this business, you will know the feeling of receiving a commission check, and you will want to have that feeling again!

Is the Mortgage Crunch Really a Bad Thing?

In my previous post Multiple Streams of Income: Real Estate as a Business, I discussed the real estate business as a potentially lucrative business for new entrepreneurs. Well, I am here to tell you that the time to strike is now.

News broke yesterday that the tenth largest mortgage lender, American Home Mortgage, filed for Chapter 11 bankruptcy. This fueled speculation that the mortgage market was in heavy turmoil. This is due to the fact that American Home Mortgage was not a sub-prime lender and because some of the company’s investors included some of the largest financial firms in the world.

However, even if this is true, real estate investors can still benefit from this kind of market. The current situation is that people cannot obtain mortgages. These people are not necessarily financially inept, but these people do have a problem (whether is be substandard credit or lack of a down payment) that prevents them from obtaining a mortgage and thus, owning a house. These people have two choices: they can either leave their current location, move to place where the cost of living is less, and attempt to buy a house at this new location; or these people can rent a home, condo, apartment, etc., until they can afford to buy. Due to considerations such as employment, family, friends, etc., most people choose the latter option.

How does this help real estate investors? If, as a real estate investor, you practice the Buy, Improve, Hold, and Refinance model, this current market is great news for you. As more and more people are unable to obtain mortgages, more and more people will be looking to rent. If you are the owner of an investment property, you should have no problem filling any vacancies, and because of the large influx of renters, you should also have no problem getting a premium rental rate.

What if you do not have an investment property? The good news is that you are not out of luck; the bad news is you will have to have great credit and probably a small down payment, but more of this in a minute. Another effect of this market is that people are having trouble selling their homes. Less people qualifying for mortgages equals less buyers. If we all remember back to Economics 101, we will know that the economy revolves around the principle of supply and demand. Right now, there is a far greater supply of homes than there is a demand. This means that you, as a real estate investor, can grab a property for less that its fair market value (if you have the right credentials a.k.a. good credit and a down payment).

Although the market looks bleak for some, the market looks great for real estate investors. Strike while the iron is hot and find a good investment property today!

Multiple Streams of Income: Real Estate as a Business

Many entrepreneurs get their start in the real estate business. The real estate business can be extremely lucrative, you just have to know what, where, and how to get in. The real estate market, like so many other businesses, is cyclical. You have to know how to survive and be profitable in the bad cycles in order to create the wealth that is truly befitting an entrepreneur.

First and foremost, before you jump headfirst into real estate, you have to learn about the business and the market. Many would be entrepreneurs are hypnotized by the lore of getting rich quick. They think that every deal that they come across is the next million dollar investment. You can not be “star struck” by every real estate deal that comes your way. You have to carefully analyze every deal and even call in a second opinion when necessary.

As I mentioned, you have to know the market. Many entrepreneurs make the fatal mistake of jumping into the real estate market when it is “hot.” This type of market is called a “seller’s market.” You will know when the current market is a seller’s market by, amongst other things, dramatic raises in real estate prices occur. People think that this is the best time to get into the market, but this is simply not true. This is the time when you want to sell, hence the name “seller’s market.” It is simple economics; when more buyers exist than sellers, sellers can raise the price of their property and thus get more return on their investment.

In the worst case scenario, which occurs more often than you may think, would be entrepreneurs buy all their investment properties in a seller’s market. Once the market cools off (as it inevitably will), these would be entrepreneurs find that their investment properties have negative equity and the mortgages or obligations to investors become too expensive to bear. They end up losing their properties and their investment dollars.

The best time to buy is when the market is in the toilet. You can get property cheap, and if you have the knowledge, money, and time, you can follow the most well known real estate money making formula: (1) Buy, (2) Improve, (3) Hold, and (4) Refinance.