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Lessons most real estate investors learn the hard way

Investing in real estate can be one of the most exhilarating things an investor does. There is a thrill that comes with finding a good deal, improving a home and, making a killing off of the sale. Most real estate investors don’t start out that way, however. In fact, many, if not most, real estate investors will tell you that they have made many mistakes and lost quite a bit of money as well. They will also tell you it was worth it because of the lessons learned that could be utilized later down the line.

Here are a few mistakes real estate investors typically make in the beginning. Avoiding them can save a lot of heartache.

Hard money

Hard money loans can be an incredible tool. If you have not heard of hard money loans, they are quick loans that are based on the value of the asset (the home, or piece of real estate) instead of the person getting the loan. This means someone with bad credit good get a hard money loan, as long as it is a good deal and the house is worth a lot more, or has a lot of potential.

Hard money loans are usually less than a year, and are just used to snag a quick deal, maybe fix things up, then sell or convert to a regular loan. They have incredibly high interest rates – often as high as fifteen percent.

Because of the high interest rates, investors usually hold hard money loans for as little time as possible. If a mistake is made and they end up holding the loan significantly longer than expected, the interest expenses can rack up and put them in a miserable place. If they hold past the original time of the loan, things can get really ugly.

Simply put, if you are going to use a hard money lender, be careful, have exit strategies and backup exit strategies to be sure you are not stuck holding the bag.

Signals

Most good investors are able to use signals and see when the signs point to selling and when they point to buying. If you are able to recognize these signals then you are able to capitalize much quicker and make money much faster.

Research

If you think you are getting a good deal on a piece of property then it is time to be careful. There is often a reason a piece of property is priced the way it is. While good deals do exist, bad deals disguised as good deals also exist.

Research the neighborhood, the history of the home, the future of the area, rental prices, the real estate market as a whole, and everything else you can think of. If everything checks out, you can feel confident in the deal you are getting.

Understand expenses

Your mortgage will absolutely not be your only expense. There will be random expense all along the way. Try to have an emergency fund for when something big comes up. New investors are often surprised to realize how much some home repairs can cost. One recommendation that some investors will give is a home warranty. A home warranty is a warranty that gives you the ability to insure almost everything in your home that can break. From water heaters, stoves, microwaves, refrigerators, and more. While these are not killer expenses if broken, it may be a good idea to have a warranty in place until you have a large enough savings that you can replace and repair these items yourself.

This list is not comprehensive in the least. New real estate investors make mistakes every day. It will happen no matter how big the list. Find a mentor who has done what you are looking to do. Get advice and confirm your first few deals with them. Someday you may be that very mentor.

How to Save Money For Your First Home

 

Some home buyers are able to purchase their first home for as little as three percent down or less. However, three percent on a decent home can still cost a small fortune. In some markets, it may equate to tens of thousands of dollars or more. You also have closing costs to pay for when buying a new house, and these can easily cost you another three percent of the sales price or more in some cases. Saving up enough money to purchase your first home can seem like an impossible feat, but you actually can accomplish this goal if you put your mind to it. These steps can help you to reach your goal more easily.

 

Determine Your Goal

Establishing a financial goal gives you a target to reach for, and it can help you to more easily focus on saving. First, research homes that you would like to purchase, and pay attention to their approximate sales price. Then, research loan programs that you may qualify for, and pay attention to the down payment requirements. Using this information, you can determine the approximate amount of money you need to save as a down payment. In addition, factor approximately three to five percent of the sales price for closing costs. It is always better to estimate on the high side so that you are not caught off guard by extra expenses. In addition, most lenders want to see that you have at least three to five months of the estimated mortgage payment available in savings after the down payment and closing costs have been taken into account. When you add all of these figures up, you will determine your financial goal.

 

Create a Detailed Budget

Now that you have a firm goal in mind, you need to review your monthly budget. Some of the most financially successful people have a rolling budget that extends for many months. This is because expenses can vary from month to month, and an extended budget gives you the opportunity to budget for these fluctuations. Take time to look for ways to trim back your expenses. For example, you could shop around for more affordable auto insurance or switch from cable TV to Internet-based programming. Many people can easily trim several hundred dollars or more from their budget with proper effort. Allot this money toward regular savings. It is wise to include a line item in your budget for savings and to consider this is a necessary expense.

 

Make Automated Savings Transfers

Some people find it difficult to adjust to saving money. It essentially takes a large chunk of money out of your budget each month. However, when you scale back your regular expenses, such as by eliminating your cable TV plan, you do not necessarily need to adjust your lifestyle and regular spending habits to save money. You can easily set up an automatic savings transfer that moves the money to your savings account on each payday. This way, within a few months, you will easily become accustomed to saving money.

 

Save Your Windfalls

Many people receive windfalls throughout the year. For example, you may receive a production or holiday bonus from work, a tax refund or holiday or birthday presents in cash. In some cases, this can add up to several thousand dollars or more over the course of a year. Rather than spend this money, add it to your savings account. This is a great way to see an instant increase in your account balance. In addition, if you receive a raise, increase your savings transfers by the amount of your raise. This way, you will increase your savings contributions regularly without impacting your current lifestyle.

 

It may take you several years to save up enough money to purchase a house. When you follow these steps, you will see your savings account balance grow over time. Eventually, you will reach the goal you have established.

 

How To Save For A Home Downpayment

One of the more common ways to build wealth over time is owning a home. As owners pay down the mortgage, they are able to build up equity. Should they decide to sell the home, they can then tap this equity. The homeownership rate in the US was 63.8 percent in October 2016. While this was down from what it was a few years ago, this statistic shows that owning a home is still a popular way to build wealth.

It’s recommended that prospective buyers save up 20 percent of the home’s value as a down payment. This will allow the buyer to avoid private mortgage insurance, which can be quite expensive and only protects the lender. FHA loans only require a 3.5 percent down payment, and loans via the USDA or the VA require no money down. If you’re not in a rural area or a veteran, here are some ways to build up the down payment that’s necessary to buy a new home.

Live In Affordable Accommodations

When it comes to the biggest expenses that most people will have on a monthly basis, the cost of lodging will usually come up near the top of the list. The average cost of rent in the United States is $1,231 a month. That’s more than a quarter of the median family income. The best way to save money on rent is to find a place to live that’s on the low side of the local market rate. While there won’t be as many amenities in cheap apartments or homes, the money that’s not spent in the way of housing can go toward savings.

Just getting a cheap apartment is not the only way to save money toward a down payment. Getting a roommate can also help cut the cost of rent and free up even more cash flow for savings. For example, a three-bedroom apartment or house that costs the median of $1,200 could cost only $400 a month if one person rented out each bedroom. Put in some twin beds, and the cost could be lower. Even a married couple could rent out a room or two to save on costs. Every dollar saved on rent can then go toward saving up for a future down payment.

 

Cut Other Expenses

Americans are notorious for spending more money than they need to. Whether it’s a daily latte or cable television, people in the US confuse wants and needs. Basic food, lodging, clothing and transportation are necessary to live and have a job. Most everything else is a want, and there are ways to cut down on these expenses. For example, it’s not necessary to have a super expensive cell plan with unlimited data. There are prepaid options that are pretty cheap. Additionally, it’s possible to cut down on eating out or save some money by opting for Netflix or Hulu rather than an expensive cable package with every pay channel known to man. Every dollar saved from cutting out unnecessary expenses can then go toward a down payment.


Get A Side Hustle

Sometimes, one job just doesn’t pay enough to save much. This is where a side hustle can come in quite handy. There are entire online communities that are dedicated to helping people find side hustles that can bring in extra income. Every dollar earned in excess of basic living expenses can go toward the down payment. Those who can keep up the side hustle after signing off on a mortgage can even accelerate the time needed to pay off the loan.

Regardless of whether a person thinks a down payment for a new home is in the cards, there are steps that he or she can take to build up some savings. It will take time, and it’s a good idea to save up for closing costs and a deductible for home insurance claims. However, over time, building up savings for a down payment can be done by taking positive steps toward the goal.

 

How to Save for the House of Your Dreams

Buying a home is a dream for many people living in America today. Renting a home is like throwing away money every month. It helps the owner of that home build up equity without helping the renter. The problem is that many people do not have the funds in their bank accounts or budgets to gather up enough cash for a down payment. As lenders often ask for a down payment equal to 10% of the home’s total purchase price, it’s easy to see why so many middle class people keep renting. Some are smart enough to know how to put money back to buy a house though.

Compare Mortgage Rates

According to Freddie Mac, mortgage interest rates dropped for the first time in months at the beginning of 2017. Freddie Mac found that these rates dropped to 3.44% on 15-year fixed rate mortgages and to 4.20% on 30-year fixed rate mortgages. These figures represent the interest charged on home loans taken out this year alone. Comparing mortgage rates is a smart way for prospective home buyers to see the rates charged by different lenders and to see which lenders will give them the best rates to help them better afford their dream homes.

Look at Mortgage Types

Smart home buyers will compare and contrast different loan types to determine which one will help them spend less money on a loan. A fixed rate mortgage is a home loan that comes with one interest rate that never changes over the course of the loan. An adjustable rate mortgage is fairly different because the interest rate on that loan changes as the market changes. Bank Rate also describes an interest only jumbo loan, which allows a buyer to pay only on the interest on the loan for up to 10 years before making payments on the loan’s principal.

Think Outside the Box

Thinking outside the box can help almost anyone find a solid home without spending a lot of money and without saving for years. The U.S. Department of Housing and Urban Development, also known as HUD, offers residential properties for sale, including single family homes and buildings that can accommodate up to four families. Though anyone can purchase one of these homes with proper financing in place, HUD explains that homes will typically go to those willing to live in the home first before the department will offer those homes to investors. The Federal Housing Administration can also assist American citizens with housing purchases. It even has a program designed to help community workers purchase homes.

Create a Savings Account

One of the best ways to save for a new home is with a dedicated savings account. Many financial institutions now offer a round up plan. When an individual uses his or her debit card to make a purchase, the bank will round up to the next dollar and put that extra cash in the individual’s savings account. If a purchase cost $8.19, the bank will put $.81 cents in the account. Some will find it helpful to save any dollars they get back from making cash purchases and deposit those bills in their savings accounts later.

Save On Other Purchases

Comparison shopping helps customers find the best prices on the products and services that they need. Whether they save money on car insurance after retirement, landscaping or even new glasses, they have more money they can put back towards a down payment. Comparison sites allow shoppers to enter the product they want and view how much that item costs on multiple websites, including any shipping or handling fees charged by the site. Even saving a few dollars on groceries is a few dollars more towards a dream house. Smart home buyers know that saving and putting back cash and looking at mortgages and rates can help them buy the perfect home.

 

How to Prepare for a World of Home Automation

First came computers; they were followed quickly by the internet, and soon we found ourselves in an age of handheld devices, touch screens, and motion sensors. With all of this, it was only a natural development that another byproduct of modern technology would be increasingly automated homes. From always on voice-activated devices, to remote controlled appliances, lighting and temperature control, and home theaters (see Argenta) that are better than the real thing, home automation is certainly our future.

So how do you prepare for a world of home automation? How do you make sure that you are best placed to embrace the newest developments in home tech—most of which we don’t even know about yet? Here are a few tips to get you on your way.

Research

The best way to prepare for the future is to know what is coming. Keep one eye on tech publications, reading as much as you can about the things that are currently in concept or development phase. If you are able to, try to visit various conferences and trade shows such as CES to see what kinds of things are out there. If you cannot make it to these, there is considerable coverage to be found online. If you know which things are coming up, you can know which you want to buy, and which to hold off on to wait for a better version.

Don’t Adopt New Tech Too Early

Which leads us to our next tip—be discerning about which tech items you take on early on. In the age of instant information and social media bragging, the idea of becoming an “early adopter” can seem very tempting. But sometimes it is not the best way to go. Many new technologies need awhile to iron out the kinks and problems, and if it is something that has little or no precedent, it will be likely to face at least a few of these. Furthermore, newer cheaper or more efficient versions are likely to start cropping up in the second wave, and with home automation, you are looking at a lot of money to replace something just a few months later. So while some things you can take the risk on, it is often worth waiting awhile before incorporating the very newest of the new home technology.

Start Saving

In order to fully take advantage of the latest home tech features, you are going to have to spend some money. For this reason, you will probably want to start saving right now. Things like theaters are expensive, but when you have a saving plan, you should be able to find something in your price range.

Make Home Preparations

You might also want to design your home interior with home automation in the back of your mind. Older houses are a lot trickier to fit home automation seamlessly into, and that is because newer home layouts are often designed with modern technology taken into consideration. If you are building your own home, it will be easy to incorporate technology, but even if you already have a home, there are ways to make sure that you can accommodate new home tech. Work with interior designers and architects to better figure it out.

Embrace it

The future is coming, and resisting it will not prevent it. Homes of the future are going to be more tech driven and user-friendly than they have ever been. Rather than fearing future home technology developments, embrace the greater ease and comfort that will come from them, and jump on it early—the future is ours for the taking!