investment (46)

I am a realtor and a Santa Cruz rental property investor since 2000. There are many reasons to invest in Santa Cruz rental properties, some of which I have discussed in this article. Today I want to talk about what the pros and cons are in renting to UCSC students. 


Here are the pros that I have experienced.

1. Vacancies are virtually non existent: There are almost $18,000 UCSC students and in any given year there is only room to house about 8,000 of them on campus. There are always many thousands of students looking for a place to rent, so the potential pool leaves no vacancies in your Santa Cruz investment rental properties.


2. Students pay more money:  They frequently will pay more per bedroom and sleep 2-3 in a room just to have a place to stay. Here is a link to what students expect to pay from the UCSC community housing page.


3. The rent money is very secure: The students get financial aid and/or are supported by their parents. In 17 years and 4 rental properties as a Santa Cruz rental home investor I have only had a problem getting paid once.


4. UCSC makes the rental process very easy for a Santa Cruz rental investor: They give workshops to the students on what they need to do to look attractive to a Santa Cruz rental investor. They come to you with complete rental applications, credit reports, references, and certificates saying they understand what it takes to be a good renter. The university posts your rental for free so you have a large pool of possible renters.


5. Students replicate themselves making the rental process even easier: My experience has been when one student moves out they have another take their place making the process seamless for the Santa Cruz rental investor.


6. Santa Cruz students are often long term renter: If you get the students early, in their sophomore or junior year they often stay for 3-4 years or more. making the cost of turnover very low.


7. Santa Cruz students can vacate in the summer if you want a summer beach home that is rented for 9 or 10 months: If you are a Santa Cruz rental property investor who wants a place in the summer for yourself you can rent to students during the school year and keep it for yourself in the summers. Many students go home in the summers, and the ones who don't can always find a sublet from another student who is going home. It is a way to have a vacation home that more than pays for itself.


Cons of renting to UCSC students:


1. Insurance on the house can be tricky: Recently many insurance companies, including the one I have always used, State Farm have decided they do not want to insure homes that are filled to the brim with students in college towns. They see them as Frat houses and won't write new policies. You can get commercial insurance, which is more expensive than residential or find the rare insurer who will do it. I found that CIG insurance out of Monterrey was willing to write a residential policy at competitive prices.


2. Large homes can be a hot bed of petty emotional issues for the Santa Cruz rental property investor.: If you are the owner of a large home with 6-10 students they may turn to you when there is a spat between the tenants. It is a time and emotional drain. I put one person in charge and have that person deal with issues like who is going to clean the house, noise complaints, bullying, etc. They have the final say. It works pretty well.


3. Students are often unaware of what it takes to take care of a house: Students do not always understand what it takes to care of a home and things can be damaged by mistake, even without large parties or Frat behavior. The way to ameliorate this is to buy a house that does not have delicate finishes and educate the students on basic home maintenance. My tenants know they need to call me right away if something is wrong and not let a small problem get out of hand. I would rather be over called than under called, and they know it.

So as a long time owner of Santa Cruz rental property I can enthusiastically say that renting to Santa Cruz students is a good thing from an investor perspective and not something to be afraid of.


If you have any questions about becoming a Santa Cruz rental property investor please feel free to contact me.

Marcy Moyer

eXp Realty of California


Specializing in Probate, Trust, and Investment Properties

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Santa Cruz, known for the beach, the boardwalk, Pacific Ave, hippies, and organic food, along with University of California Santa Cruz is also probably the best place for investors looking for rental properties right now. Here are some reasons why.


  • 62% of Santa Cruz residents live in rentals, compared to a ntional average of 43%
  • Average sale price of Santa Cruz homes has doubled in the last 5 years
  • Cap rates for Santa Cruz rental properties are between 3.5-4% very easy to obtain, as opposed to 2.5-3% in The Silicon Valley
  • No rent control but there is a one year moratorium on Santa Cruz short term rental permits so Air B&B investments not the way to go now.
  • While the market is apprectiating the competition for investment homes in Santa Cruz is not as great as in Silicon Valley
  • There are still Santa Cruz home sales contingent on the sale of another property, making 1031 exchanges much easier.
  • Accepted offers almost always have contingnecies so you have time to figure out if the property makes sense for your portfolio.
  • Would you rather visit your rental property in Santa Cruz or Milpitas? I would pick Santa Cruz any day.
  • UCSC only guarentees housing for students for 2 years. They have over 18,000 students. The housing shortage is so acute that students are living 3 to a room or in their cars, not because they don't have the money for housing, but because there is such a shortage.


Smart Silicon Valley investors should look at Santa Cruz as a place where your money goes further and the cash flow is so much better. 

I have put my money where my mouth is and own 3 Santa Cruz rental properties myself.

I encourage you to contact me if you have any questions about how and why to buy a rental property in Santa Cruz.

Marcy Moyer

eXp Realty of California


Specializing in Probate, Trust, and Investment Properties

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Why San Jose Condos Make Good Rental Properties


I am frequently asked by San Jose real estate investors, both veteran and new, what is best for San Jose rental investments, multi- family homes, single family homes, or condos.


My first answer has been the same for decades: “Are you most concerned with appreciation or cash flow?”


The answer to this question depends on a variety of individual goals. What has changed over the years is what is best for cash flow.


Historically San Jose rental property appreciation has been best in this order:


  1.      Single family home
  2.      Condo
  3.      Multi family home


Historically San Jose rental property cash flow has been best in this order


  1.      Multi family home
  2.      Condo
  3.      Single family home


This long held wisdom that a multi- family home is the best San Jose rental for cash flow is being disrupted by the latest market forces. Right now, CAP rates are better on newer condos than older multi- family homes, and are much easier to take care of.


The CAP rate on a San Jose rental property is a measure of cash flow. To figure it out you take the income minus expenses (assuming no loan) and see what percentage of the price of the property the expenses are. 4% is on the high end of what you can expect in this market, and many investments are in the 2% range for single family homes and 3% for multi family homes.


Let’s take a sale of a duplex in Japan town as an example of a San Jose multi- family sale in 2016.


Sales price was $1,000,000


Expenses including property tax, utilities, garbage, repairs, insurance total $15,200


Income is $43,200


Cash flow:  $43,200-15,200 is $28,000


Cap rate is the what percentage of $1,000,000 is 28000 or 2.8%


At this time duplexes are not covered by rent control, but that may happen in the future,


This duplex, like many of the homes in downtown San Jose, is very old. This one was built in 1930. While charming, they need a lot of repair and in many years repairs will be over $2000 a year which was this years estimate.


Now take that same $1,000,000 and apply it to two studio condos in a beautiful downtown San Jose building called Axis. I have a client who does own 2 studio condos at Axis that are rentals so these are real numbers.


Market value: $500,000 each $1,000,000 for both


Expenses including HOA, HO6 insurance, property tax and repairs is $24,000 for both


Income: $


Cash Flow: 57200- $24,000 = $33,200


Cap rate: 3.3%


In this case this new building needed very few repairs, there will never be rent control per California state law, and the HOA covers most of the insurance, water and garbage, and the repairs of the common area.

Here is another example of a clients cash flow at The Brickyard, a less expensive building than Axis San Jose, but a great downtown San Jose rental with the best HOA management company I have ever experieinced.


2 condos worth $370,000 each or $740,000

Expenses including property tax, HOA, HO6 insurance, repairs $19,400

Income: $48000

Cash flow: 3.9 % 

Things to watch out for as the building ages is making sure there is enough in the building reserve fund to cover expenses as the building ages.


When the reserves are healthy the future looks brighter for the condos because:


  1.      There is no fear of rent control
  2.      There will be no needed foundation repairs, earthquake upgrades, termite issues etc for the individual San Jose rental investor to deal with in the future as the building is new and the HOA covers these issues.


Of course every case of San Jose rental properties is different, but if you are thinking about buying a San Jose rental property a condo can be a great investment for cash flow, not just appreciation.

If you have any questions about buying a rental property in San Jose please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales


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RealEstate-IRA.jpg?width=178You attended a seminar on passive income generation with mortgage notes, learning how to enjoy high returns while sitting on your couch, and you are ready for your first purchase. But, hold on. Is this how you make your investment decisions? There is no doubt about the efficacy of mortgage notes, but you must understand them before buying your first note.

In this post, we’ll look at the basics of a mortgage note and the tax benefits of adding mortgage notes in 401k Solo retirement plans.

What is a mortgage note and how does it work?

In simple words, mortgage note is a legal agreement, involving a lender and the borrower under which, the borrower agrees to repay the loan amount along with interest in a definite period. Every mortgage note must include the names of both the buyer and the lender, descriptions of the property, the term period of the loan, the interest rate, installment amount, any legal protections favoring the borrower in case of a default, and details of previous financing, if any. If this is your first purchase, try to include detailed descriptions of the legal terms of the loan and cover any loopholes in the process. Once a deal is struck, the borrower deposits monthly repayments along with the interest to your account. You can hire a service company to manage the note and send regular payments for a monthly fee of under $100.

What are the different types of mortgage notes?

  • Fixed and adjustable mortgage rates: The most common types of mortgage notes are those with fixed and adjustable mortgage rates. As it sounds, a fixed mortgage rate comes with a fixed interest for the complete loan term, and the principal amount decreases after every single payment. On the contrary, adjustable mortgage notes have a varying rate of interest, which tends to be lower initially, and then changes in accordance with the economy.
  • FHA and VA loans: These are loans guaranteed by the government and are available through federally approved banking institutions. The credit requirements and down payment terms are strict in comparison with private lenders, although there is a guaranteed repayment, making them an attractive investment option.

Why invest in mortgage note through 401k Solo plans?

Self directed Solo 401k retirement plans are retirement solutions for small business owners and self-employed individuals, offering privileged features such as self-directed investing, checkbook control, and participant loans. According to the current IRS guidelines, a Solo 401k plan holder can invest in a wide variety of investment assets including mortgage notes, tax liens, real estate, and other untraditional investments.

What gives Solo 401k an edge is the tax-deferred growth. You can purchase mortgage notes under the name of the plan, and redirect your repayments into the account, where they enjoy tax-deferred growth until distribution. In case of Roth Solo 401k, the taxes are paid upfront and there are no taxes upon distribution, offering completely tax-free growth.

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“Real estate investing, even on a very small scale, remains a tried and true means of building an individual's cash flow and wealth.”

Robert Kiyosaki

Real estate is one of the oldest and most trusted investment options. It offers decent returns and gives the owner a sense of satisfaction. Are you a small business owner? Investing for retirement is a wise decision and Solo 401k is one of the best available retirement plans for self-employed and small business owners.

Solo 401k is a qualified retirement plan that allows investment in real estate, precious metals, private businesses, and also traditional stock and bond investments. One of the upsides of this investment plan is the freedom to choose your investment. It offers higher contribution limits of up to $53,000 in 2015 along with catch up contributions of $6,000 for professionals above 50 years of age.


Why investing in real estate is an excellent choice for small business owners?

You can fund a real estate purchase through your Solo 401k retirement plan and if you do not have sufficient funds in your account, you can always use a nonrecourse loan. In regular transactions, the borrower has to pay a certain down payment and the rest is available through finance.

Real estate investments allow you to diversify your portfolio and look out for other investment opportunities in between. You can generate a continuous income stream by investing in rental properties or similar commercial properties.

Real estate does involve maintenance cost but you can write off wear and tear costs of a commercial property and apply for tax deductions in your income tax returns. In addition to it, you can sell the property through a 1031 exchange and save taxes against any capital gain. It is mentioned in IRS Section 1031 (a) (1):

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."

If you are planning to purchase a property through 1031 Exchange, make sure to consult qualified professionals and make a transaction with their consent.

When investing with a Solo 401k, you may be able to skip this step and still enjoy the tax benefits. All Solo 401k accounts are tax-deferred, so you will not have to pay taxes on the capital gain until years later. Better yet, if the property is purchased with fund from a Roth Solo 401k, all gains are automatically tax-free.

Another reason why you should prefer real estate investments in your Solo 401k portfolio is their limited lookout requirements. You do not have to check the value of real estate investments regularly, especially if you are investing for a prolonged period. 

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Recently, surveys show that there is a growing demand for upscale rental apartments. This presents a potential opportunity for real estate investors all over the country. Plan holders of Solo 401k accounts can also capitalize on this latest real estate trend, as it is also an opportunity to invest and grow their retirement funds.

Latest study shows that young professionals nowadays prefer renting to buying their homes. The reason is that credit market is now tightened and it is harder to qualify for a home loan. The shifting job market and the likelihood of changes in personal life such as marriage and divorce are also reasons for which young people are more hesitant to commit to a property purchase. Plus, upscale rental apartments can offer high-end amenities, such as a swimming pool or a gym. If a young professional were to buy her first home, it would be unlikely that she would be able to afford a property with such luxury.

Because of this growing trend, investors are now looking at this demand as a great investment opportunity. This demand can be capitalized by plan holders of Solo 401k accounts as well. A Solo 401k account, also known as an Individual 401k, is allowed to invest in real estate, including rental apartment buildings.

Investing in real estate with a Solo 401k, plan holders will enjoy many benefits over other retirement plan. The first benefit is the high Solo 401k contribution limit, which allows account holders to stash away up to $52,000 per year as of 2014. Plan holders who are over 50 years old can also make an additional catch-up contribution of $5,500 per year. The total annual limit for this group is $57,500. Since account holders can contribute more into this tax-deferred account, they can gather enough funds faster to invest in real estate.

If account holders do not have enough money in their retirement account even with the high contribution limit, they will still have other financing options. Unlike a traditional IRA account, a Solo 401k is allowed to use non-recourse financing for real estate purchases. If an IRA account obtains financing for their purchases, it will trigger an Unrelated Business Income Tax (UBIT). This doesn’t apply to a Solo 401k, however, and account holders can certainly leverage their investment. This is definitely a powerful advantage for upscale rental properties, which requires intensive capital up front.

Investing in rental properties is a good way to create steady passive income. The return is also more predictable, especially after the lease is signed. Not only that, with the introduction of the Solo 401k plan, now investors can use rental properties to diversify their retirement portfolio and capture the opportunities presented by this newest trend.

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4359192766?profile=originalAmericans seem to push back their retirement further and further, and sometimes not by choice. Especially for self employed small business owners and independent contractors, many dedicated all their wealth and effort to grow their business. At the end of the day, however, people still need to figure out a way to be able to retire. Self employment retirement plans and rental income can be a viable solution.

What are self employment retirement plans?

Self employment retirement plans, or often called Solo 401k plans, are created for self employed individuals. Unlike traditional retirement plans, a Solo 401k allows investments in assets other than stocks and bonds. That means rental properties, among many other options, are allowed.

Rental properties to provide income during retirement

Plan owners of self employment retirement plans can certainly look at rental properties as an income source during their retirement. Rental income is also known as a source of passive income, which means investors do not have to keep working on the investment to generate profit. This allows them to earn income when retired.

This long term investment offers good passive income that can also guard against inflation. As landlord, you can adjust the rent every year to overcome inflation rate.

To ensure a good return, here are a few things to look for in rental properties:

- Location: As true with properties, a good neighborhood will attract more buyers and renters. As a retirement investment, however, it is also wise to choose a place closer to where you live. This way, managing and maintaining the property is not too much of a hassle.

-Size and build: Decide if you would like to start with a single family home, a duplex, or larger. The size and layout of the properties need to fit with your needs. Also try to invest in newer houses, to avoid high repairing and maintaining cost and hassle.

How to finance a rental property

Start contributing to the self employment retirement plans as soon as possible. By doing so, you can take advantage of the high Solo 401k contribution limit, enjoy tax-deferred benefits, and to save up funds to finance the rental properties. Even if you don’t have enough in the Solo 401k account or do not want to pay cash up front, there are financing options available. With an IRA, the use of financing to fund a real estate purchase could trigger Unrelated Business Income Tax (UBIT). A Solo 401k, however, allows the use of non-recourse financing, tax-free.

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Real estate investors are often drawn to this market by its earning potentials and security. Many investors have successfully built their wealth upon real estate, one property after another. But what about their retirement funds? Many investors assume that retirement funds can only be invested in stock and mutual funds, and they leave it all to their custodian to manage the portfolio. This, however, is not necessarily true, as now innovative retirement solutions such as Solo 401k Plans can help real estate investors take charge of their future.

Is real estate a wise choice for retirement funds?

Most real estate investors are in for the long haul, not expecting to cash out until years later. This actually makes real estate a perfect fit for retirement planning, which often holds investment for years until account holders make withdrawals. Many investors choose to add properties to their portfolio. With these, they can collect rental payments as a steady return, while waiting for the value to appreciate over the years.

Investors who prefer fast return can also attain that with real estate investments, by engaging in house flipping. In this case, investors would purchase a property, remodel it, and sell for a profit. It involves more risk and more effort from the investor, but can potentially generate much larger returns.

The biggest advantage of adding a property to any investment portfolio is its security. Investors can always recover their initial investment by selling the property itself, so they are less likely to lose everything.

Solo 401k Plans Allow Real Estate Investment

As much as real estate professionals know about the industry, why do they still have nothing but stocks and funds in their retirement accounts? The answer is simple: not a lot of people know that retirement plans can hold other assets.

For some traditional retirement plans, it is true that investment choices are limited. However, there are innovative solutions, such as Solo 401k plans, that allow virtually any legally available investment. Plan participants can invest in real estate, including commercial and residential properties, trust deeds and notes. The plan allows high contribution limit and self-directed option, giving plan participants even more control.

Self-directed Solo 401k plans give full control to plan participants as they can now act as the trustee of their accounts and make all the investment decisions. In order to succeed however, investors need to have a good understanding of the investments they choose.

For real estate investors, obviously, real estate is the best investment choices, as the account holders have the knowledge and experience required. In these cases, adding real estate to a retirement portfolio can potentially secure and grow the portfolio more effectively. 

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How to properly evaluate a potential investment property

photo credit: Håkan Dahlström via photopin cc
photo credit: Håkan Dahlström via photopin cc

Life is full of sayings that seem contradictory at first.  Expressions like “a chain is only as strong as its weakest link” and a “team is only as good as its worst player” seem to make no sense until they have been analyzed and understood.  In flipping homes, you make your money when you buy.  Quite simply, if you buy a home at the proper discount then you have a much better chance of selling at a profit.  Here is a general outline to help you evaluate a potential home for investment.

First, Take a Casual Drive

It is a good idea to only consider homes that you can actually inspect.  Being able to drive by the home gives you a firsthand perspective. On your way to the home pay attention to the little details such as

  • condition of the roads; are there large potholes, pavement patches, adequate street signs?
  • local area; are there any schools, shopping, offices, or factories nearby?
  • Appearance of the actual street; how do the other homes on the block look?
  • The prospective home; what is your first impression when you see the place?

Second, take a Casual Stroll

Now that you have had the time to look at the home and surrounding area from the road, it is time to actually look at the property up close.  When you are in the home ignore things like carpeting and paint.  Take time to look over the roof, the foundation, the electrical box, the HVAC unit and any plumbing pipe that is easy to access.   Walk outside and see if the septic tank or well has any problem.  These are the areas that can cost major money to fix.  If there are any noticeable problems with these primary parts of the home you can use that to negotiate with the seller.

Third, crunch some numbers

Now that you have looked over the home and determined that it is a possible investment, it is time to do the math.  You need to have an idea of what the total repairs will cost along with how much the home should be worth after the repairs are completed.  Once you have these numbers you can make an offer to the seller.

When putting together your repair estimates it is always better to over price.  Trying to cut corners and dream that the kitchen can be remodeled for $2,000, or some other wishful hope, will cause you tremendous grief later on.

After you have looked at a few homes and talked with the same contractor a number of times you can start to get a feel for how much repairs will cost.  This one skill takes some time to master for those that are new to real estate investment.   Once you are comfortable estimating repair costs you will be much better at spotting a deal when it pops up.

Search for: Madison, WI Foreclosures for Sale

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These home renovations tend to not pay back your investment.

photo credit: Jeremy Levine Design via photopin cc
photo credit: Jeremy Levine Design via photopin cc

Home investors have to walk a very thin line in their prospecting and repairing.  They want to find a home that others have ignored due to necessary repairs and updating.  However, they don’t want to waste money on improvements that simply look nice but fail to increase the home’s overall price.  Here are the top renovations that do not add much value to the home.

Grandiose Landscaping

Potential buyers will appreciate a well-kept lawn and may be somewhat attracted to a nice flower bed by the front door, but elaborate landscaping will not add to the home’s price.  Even worse, if the prospective buyer has no inclination to spend hours in the yard weeding, fertilizing and replanting then you may actually scare off a few buyers.  A simple lawn with low maintenance bushes are the best bet for most homes.


A new pool is extremely expensive and you may not recover even half of your investment when the property sells.  The average home buyer looks at the pool as a major expense and a potential problem in the form of injury or a lawsuit.  Some contracts in recent years have actually been structured to include filling in the pool with dirt and sod just to avoid potential problems.

Carpet throughout the Whole Home

It can be rather expensive to replace the carpet in an entire home.  Additionally, styles and preferences change over the course of time and homeowners may wish to have a more updated look in the home.  The need to replace a large amount of carpet sometime in the next 3-5 years would likely be daunting for most homeowners.  A better bet is to have hardwood and tile in the home.  They are easier to clean and most people appreciate the simple upkeep. Although the initial investment in hardwood or tile is more expensive, you are more likely to get a greater amount back when you sell the home.

More Home than the Rest of the Neighborhood

One of the fundamental basics of flipping homes is to search for a property that conforms to the neighborhood.  Never buy the absolute biggest home or the smallest home in the neighborhood.  They will be harder to sell.  Along the same thought process, never add more to a home that will make it vastly different from the neighborhood.  If all the properties on the street are single story homes then it makes no sense to tack on a double story addition.  Stick with the norm for the neighborhood in order to be able to move the property quickly.

Expensive Cosmetic Features

Some people like to brag about the Italian tile in the kitchen or the gold chandelier in the dining room when they are working on a remodel.  However, these expensive items add little to the value of the home.  It is better to make sure the home has plenty of lighting, has ample space and that the closets and cabinets are well organized.  Those expensive add-ons can be purchased by the next owner.

Basically, the best improvements you can make to an investment home are the ones that add function and space.  Anything else will simply be for show and potentially cost you too much in the long run.

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Best home features to draw the highest sale price.

photo credit: Jeremy Levine Design via photopin cc

photo credit: Jeremy Levine Design via photopin cc

Investing money in a rental property or a flip can yield great dividends.  However, not all improvements are equal.  It is important to put your money in the right places in order to have the greatest impact on the home's value.  Here are the top features you can add to a home that will likely draw the highest price.

New Deck

The addition of a deck is one of the best improvements that can be made to a home.  In fact, Remodeling Magazine published a report that stated over 85% of the money spent on a deck will likely be recovered when the home is sold.  This compares favorably to 78% of the money spent on remodeling a bathroom.

Decks add another usable area for families to entertain or relax.  It is wise to plan out the deck properly in order to maximize space, function and appearance.


One of the hottest trends over the past few years has been the addition of sunrooms.  These areas allow homeowners to feel close to the outdoors while staying comfortable inside.  Skylights and tile floors are common in sunrooms.  Owners can choose to have the room heated or not, depending on climate and budget.

A sunroom will add to the total square footage of the home but at a cheaper price than adding other types of rooms such as bathrooms or bedrooms. The best place to put a sunroom is just off a major area like a living room or kitchen.


More companies are offering employees the option to telecommute and freelancers are growing in numbers every year.  For this reason it is quite common for people to need a specific work area in their home.  Having an office in the home makes it easier for people to get their jobs done and the area can be a deduction on taxes.  Popular features are multiple electrical outlets, internet line outlet, open space and storage cabinets.

Light and Space

Tight, dimly lit spots are a real turn off for potential buyers.  If there are areas in a home that do not have access to sunlight then it is a good idea to add electrical lighting.  Recessed lights, adjustable lights and modern light switches add a contemporary feel.

Besides adding light you can opt to add more space.  This can be accomplished by removing walls that block off areas from each other.  Many homes now have a wide open spot comprised of the kitchen, living room and dining room.  This allows a number of people to socialize with each other without the need for everyone fitting in to one small room.

This is not to suggest that all the above features need to be added to a home in order to increase its value.  These are simply some of the best ways to recover costs and attract buyers to a home.

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Rookie mistakes when flipping a home.

photo credit: Jeremy Levine Design via photopin cc
photo credit: Jeremy Levine Design via photopin cc

With mortgage rates still at all-time lows and lots of homes available at prices below market, many people are turning to real estate investment for the first time.  In order to be safe, new investors often start out with flipping homes instead of holding a property for its rental value.  Here are some of the top mistakes rookies make in home flipping and how to avoid them.

Not Allowing Enough for Repair Work

This is usually the biggest mistake made by new investors.  People who have never renovated a home often underprice the repairs needed to make the home attractive enough to sell.  This is why seasoned investors recommend that new investors talk to a contractor BEFORE placing a bid on a home.  Getting a good price upfront will help determine if the house is worth the purchase. It is also wise to add a bit of cushion for Murphy's Law for things that just go wrong for no reason.

Allowing Emotion to Let You Pay Too Much

Some investors find the “perfect” home and go full steam ahead with the purchase.  They find a home with a discount in a hot area and they just KNOW that they can sell it for a quick profit.  This is where cold, hard facts should take the lead, not emotion.

An investor should never, ever buy a home for anything more than 70% of the home's repaired value.  This is a rule of thumb that has been used by many investors for years and it has served them well.  Paying more than the 70% will lead to smaller profits or even a loss.

Trying to Do Too Much

Many new investors envision themselves remodeling the bathroom, adding new paint and then finishing up the front lawn in a few weeks and then, voila, the home will sell.  However, it is best to let the pro's handle the tough work.  Repairing or remodeling a home can require some or all of the basic contracting skills such as carpentry, plumbing, masonry, painting and electrical.  It is simply too much of a daunting task to try and do all of this on your own unless you have considerable experience in these areas.  Even if you can do it all, wouldn't it be better to hire someone to do this type of hourly work while you search for the next deal?

Taking Too Long for the Repairs

Each month that you own a property is another month of expenses for items like utility bills, insurance and property taxes.  This can eat in to your future profits and may even cause yourself a loss.  Before buying the property sit down with your contractor and discuss the estimated time needed to repair the home.  If necessary, ask the contractor to break the job down into rooms and develop a timeline.  This will help you and the contractor stay on pace to finish the work and get it back on the market.

Your goal as a home flipper is to find a home at the right price that you can turn around and sell for a profit.  Don't fall in to the trap of these mistakes and don't get too attached to any home.  Always be ready to simply walk away from a potential deal and look for a new one.

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It Takes a Good Plan to be Successful in Rental Property

(Investment Properties: Part 5 of 5)

For people considering a purchase of a rental home this is truly an opportune time. The tremendously low mortgage rates coupled with attractive home prices makes this a buyer’s market.

However, numerous reports indicate that home prices are rising consistently, although modestly. If you are considering buying a home it is time to take action. Here are a few guidelines to help you plan out your first purchase.

Look to Experts

If you are looking at your first investment property purchase it would be wise to work with a real estate agent that is experienced in these kinds of deals. An agent that intends to work with an investor over the long term will be meticulous about the property recommendations to insure the investor meets their financial goals and comes back to the agent for more homes.

It is also a good idea to speak with other investors. They can provide you some guidance about what to look for in homes, what areas to avoid and other general information that is generally not found in a textbook.

What Type of Investment Do You Wish to Pursue?

Some first investors choose to buy a home at a great price and rent it out on their own. Others use the service of a management firm. And then there are the individuals that buy a home, spend some money on repairs and put the home back on the market at a price to make a profit.

It is important to consider your options and tolerance for risk. Buying a home that you can easily afford while looking for a tenant may be a good opportunity to get your feet wet.

Develop Your Team before the Purchase

If you plan to manage the property on your own, there will be a few individuals you need to contact prior to purchase. First, you will need a lender that can handle investment loans. Second, you should consult with an accountant and attorney to make sure you are covered legally and that you minimize your tax liability. Third, you should speak to an insurance agent about the proper policies to cover your investment. Finally, you will need to talk to a general handyman or one each of plumbers, electricians, roofers, painters and HVAC repairmen. Having these people lined up and ready to work for you will make much of the process go by smoothly.

Choosing the Right Area

It is important to pick a home in an area that is accustomed to rental property. Places with a high population close to schools and shopping districts are usually safe bets. Rural areas can be difficult simply because the number of available applicants is typically small. Keep in mind that you may want to sell the property in a few years. If you buy the smallest, or the largest, home in a neighborhood it can be tough to unload later.

Buying an investment home should be approached as a strictly business transaction. Decide how much you can comfortably invest and how much you hope to make as a return and let those types of items help you with the decision.

Investment/Rental Properties (5 Part Series)

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How to Pick Profitable Rental Properties

(Investment Properties: Part 4 of 5)

From looking at various homes to actually making a profit, investing in rental properties takes many steps. A person that is new to the process may feel a bit overwhelmed. In order to reduce risk and increase your chances of making positive cash flow with real estate, here are some tips on picking a home.

Good School Zone

A good school zone will always attract families. Many families will be able to purchase homes in the area but some will have to rent a while in order to get their finances in order. These are the types of people who will stay in a home for 2 or 3 years and be potential good tenants. Focus on schools that have high standardized test scores and achieve well in the areas of math and science.

Avoid High Crime Areas

This may seem obvious, but it needs to be pointed out. Homes in areas that are subject to more than average rates of crime will be tough to rent out. Furthermore, the crime rate will drop the rental rate. This can cause a breakeven or even net loss on the monthly cash flow.

Demographic of Neighborhood

Each neighborhood will have its own miniature set of demographics. A community next to a college or university will likely be made up of homes rented almost exclusively to students. An older neighborhood with higher priced homes will likely have couples that are middle aged and higher. Study the neighborhood carefully to make sure there is an available market of tenants that fit the demographic.

Employment Opportunities

Another factor that can heavily influence the profitability of a rental property is the number of available jobs in the nearby area. A new factory, expanding hospital or growing university are places that will add on more people and need them for full time work. Many times people will obtain a job first and then start looking for nearby homes to rent. Sometimes these people can be short term renters but it is possible to find someone that locks in a home for 2 or 3 years.

Check for Vacancies and Homes for Sale

For a new subdivision that is under construction it is common to see multiple signs indicating new homes for sale. However, for an established neighborhood, a high number of for sale signs is a kiss of death. This typically indicates that the area is on the decline. An even worse condition is the presence of several vacant homes. These are homes that have been abandoned for various reasons. Steer clear of these areas in your own best interest.

Be on the Lookout for Problems from Mother Nature

Some areas are more prone to natural problems than others. Issues like flooding, mud slides and tornadoes seem to be attracted to certain areas. The insurance for properties in these areas can be quite high and chip away at the monthly cash flow for the property.

Finding a good property based on these guidelines does not automatically mean that your home will be a cash cow. However, it should increase your chance for success in a very lucrative type of investment.

Investment/Rental Properties (5 Part Series)

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Advice About Purchasing Your First Rental Home/Property
(Investment Properties: Part 1 of 5)

Before buying that first piece of rental property it is important that you answer a single question. This question has nothing to do with your credit score, your experience with real estate or how much money you can gather for the purchase. The question is quite simple: WHY are you buying an investment home?

The answer to this question will guide you towards the right kind of property and the right type of financing. Let’s look at some examples to get a better idea of reasons people use to start investing in homes.

Saving for College Tuition

This type of goal usually involves a term over a few years. Couples with young children will buy a home in an area that has shown signs of appreciating. A year or two before the child enters college the family will sell the home and use the profit to pay for tuition, books and other expenses.

In this particular scenario the couple is not concerned with making a large profit each month on the rent. They simply want to break even while keeping the home in tip-top shape to maximize the potential appreciation.

Using Cash Flow to Increase Monthly Income

Some individuals invest in rental homes because they want to earn a profit each month from the rent. In these cases it is extremely important to buy a home either for all cash or at a deep discount from the market price. Foreclosures and vacant homes are common for this example. Buying the home for cash or at a deep discount allows the landlord to charge a fair rent based on the current market conditions and pocket most of the money each month as profit.

Speculation about Future Values

Sometimes people simply buy a property at a slightly discounted price in hopes that the property value will escalate quickly due to a future event. For instance, a new shopping mall, new school or a new factory can greatly improve the value of homes in the immediate area. Buying a home in such a location and holding on to it for a few months to a year can yield a high profit.

Career Change

Some people want to begin their property investment as a means to escape their current full time job and start a new career. It is possible for people to invest in real estate as their main source of income. However, it is not a get rich quick scheme.

The most successful investors have clear goals and follow a proven formula. They buy homes in particular areas that exhibit desirable qualities. They only buy when the price is discounted heavily and they have favorable financing for the transaction. They also understand the rental rates for the area in comparison to the financing costs.

Buying a rental home can be lucrative and lead to good fortune. However, it must be approached with diligence and hard work, not pie-in-the-sky dreams.

Investment/Rental Properties (5 Part Series)

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How to Buy Investment Properties with an IRA - Step by Step (Part 4 of 4)

Using a self-directed IRA to buy real estate is a sound investment strategy for many people. The ability to buy assets that can provide strong returns is appealing to a wide range of people. Listed below are the basic steps necessary to buy a property in compliance with the IRS rules governing the use of an IRA account.

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photo credit: roberthuffstutter via photopin cc

1. Contact a financial firm that has experience with self-directed IRA’s. Working with a firm that is familiar with these accounts and the real estate transactions is the most important step.

2. Understand the IRS rules. A property bought via the IRA must be an investment home. Second homes, vacation homes and primary residences are strictly prohibited. Furthermore, distributions from the account are not allowed until the owner of the IRA is at least 59 ½

3. Deposit funds into the account. One of the important rules about buying property with an IRA is that all funds for the purchase as well as any other expenses has to come directly from the IRA. The owner cannot chip in extra money to help cover property tax or replacing the roof, in example.

4. All revenue received on the property must be deposited to the IRA account. The revenue cannot be given to the IRA owner or relatives.

5. Take time to preview multiple properties. It is wise to enlist the assistance of a real estate agent who has knowledge with these types of transactions. An agent can recommend properties in areas that have strong rental history. Furthermore, the agent can help calculate the return on investment based on average rent payments for the area.

6. Once you have picked out an investment property it is time to put down an offer. Contact the custodian for your IRA account and tell them you want to buy a property. The custodian will then fill out the necessary forms and sign all real estate documents on the behalf of your IRA account.

7. It is a wise idea to get a contract with a property manager to handle the finances of the property. This will prevent you from collecting the rent payments and making any necessary repairs yourself. A property manager can keep all the transactions clean and legal and free you from the headache of property management.

It is important to understand the rules concerning using an IRA to buy and manage real estate investments. Failing to follow the rules can lead to penalties and possibly loss of the tax advantages associated with an IRA account. When in doubt consult a tax professional before making any decision or transaction with the IRA funds.

This is Part 4 of a 4 Part Series.

Part 1: How a Realtor® can help you invest in your IRA

Part 2: Purchasing Investment Properties for your IRA

Part 3: How to invest in real estate using an IRA

Part 4: Step by Step Guide to Buying Homes with your IRA

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Purchasing Investment Property using an IRA (Part 2 of 4)
Using an IRA account to purchase real estate can be a great way to add to an existing retirement plan or simply diversify current holdings. Following the guidelines of the law for these types of investments can bring strong yields to the IRA owner.
Different Ways to Use IRA with Real Estate
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photo credit: j l t via photopin cc
There are actually several ways to use an IRA as an investment in real estate.
* Act as a bank – The money in the IRA account can be loaned out to individuals who offer up real estate as the primary collateral. In essence, the IRA account becomes a mortgage lender.
* Own property – Most people choose to use their IRA funds to outright purchase an investment property. The seller of a home enters into a contract with the IRA and the IRA becomes the owner of the property.
* Partner with others that own property – It is possible for an IRA to become a partner with investors such as other IRA’s, entities or individuals.
Property Value Requirements
Most IRA companies will require that the property has a report of market value in order to be accepted as an investment. Furthermore, some companies may require that a new value report be presented each year. This is to ensure that the correct property taxes are being paid. The report can come in the form of an appraisal or a market analysis completed by a real estate agent.
Basic Guidelines for IRA Real Estate Investment
* All transactions must be arm’s length – This means that the owner of the IRA cannot buy any property from the IRA. Conversely, the IRA cannot purchase one of your existing properties.
* The owner of the IRA cannot use the real estate – This means that you cannot live in the home nor can you use it as a second home or vacation property.
* The IRA account only invests for the account – The owner of the IRA cannot receive any type of immediate benefit from the investments.
* No sweat equity allowed – Any repairs or improvements made to a property must be completed by a third party.
How to Manage the Property
Once an IRA has bought real estate, the expenses for the property will need to be managed via the IRA account. The expenses can be controlled by a property manager or by the IRA owner. Once again, there are some rules to keep in mind.
* You are in control of decisions for the property – You have the say in which plumber to hire, who is allowed to rent the home and other similar decisions. However, you cannot do any physical work on the property.
* No personal funds used for the property – Your personal funds cannot be used to pay property taxes, secure insurance or anything else related to the property. For this reason it is always wise to open up an IRA account with a nice cash buffer to handle expenses.
This is Part 2 of a 4 Part Series.
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Like many Affiliate Brokers, at some point in our careers we determine it's time for us to go out on our own and do our own thing. Now, that time has come for myself however, I don't have the personal funds I need to start my own office. Like many others I need money. You can get money all kinds of different places however, banks seem to be the most obvious choice for most of us. In fact, I myself have seriously considered my local bank, the one I actually use for my personal money but, I am almost completely debt free and I really don't want to acquire additional debt through traditional means. Without saying it, yes.....I listen to a famous particular radio broadcaster who is known and preaches about living debt free and yes, I am trying to do just that however, I know that some debt is good. In this case, this is debt I can take on that will further my long term goals.

Now, with all that being said, let me just say, for those of you who do traditional lending...banks, etc.... I am not saying not to use you. In fact, I believe you have a valuable place in the market place and do good by lending dreamers like myself the funds we need to bring our plans into reality however, I just don't think that type of lending is a good fit for me.

So, my next option are Investors and let me tell you, I have found out in the past 2 months, not all Investors are created equal. I learned about debt partners, joint venture partners, equity partners, etc... and for a while, it all had my head spinning.....really spinning. Now however, I feel a little better and I can actually say, I think I know what I want. I think what I am looking for is a Self Directed IRA Investor who is prepared to invest in a LLC as a Debt Partner. Now, where do you find them, how do you connect with these people? That is the question.

Several IRA Custodians have reached out to me in the past couple weeks because many of my blogs have revolved around this idea. Truthfully, I really don't know why more of us, especially those of us in the REO industry aren't completely and utterly schooled in this type of investing and likewise, making it work for ourselves but, that is another blog for another time. None the less, these IRA custodians, due to heavy regulations, can't just come out and say, or do for that matter, "we want to invest in your company". So, how in the "h""e" double hockey sticks to you find these investors?

So, here is the goal. I need a Self Directed IRA Debt Partner Investor who wants to invest in a real estate brokerage focused on Traditional buying, selling and investing, distressed homeowners / REO / Short sales and the Self Directed Private Banking Concept. Anyone out there know of anyone? IF you do, please send them my way, I want to talk with them, I want to send them our business plan, I want to earn their investment. Granted, I don't need a lot, less than 50k so, even a "small time investor" would be cool.

If you don't know how to use your IRA to invest in a LLC, ask me. I can guide you to resources that will educate you, people who can offer you insight. If the only thing stopping you is that you don't know enough about it, don't let that stop you from picking up the phone and calling me because, I can help guide you.

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Silicon Valley Home Prices are on the rise. Inventory is low, and there are plenty of buyers out there making multiple offers the norm, not the exception. Investors have been a big factor in the market since the crash, but now it may be time for a change if you are an investor.

For the last few years investors were gobbling up foreclosed homes, short sales, and other bargain priced properties. These were often rehabbed and resold quickly. While there was often competition from other investors, it was manageable for many investors.

The landscape has changed. The inventory is so low, and the interest rates are not only low, but loans are a little easier to get than right after the crash. This along with a very high employment rate, and skyrocketing rents, has sent first time home buyers flocking back into the market.

As a result, the chance to buy a home for a low enough price to rehab and resell while making a 30% profit is not working in the investor's favor. It may happen occasionally, but not often.

However, there is still plenty of money to be made investing in real estate. Maybe it is time to look into a buy and hold strategy. It will not make you money overnight, but in the long run will bring in more money than being able to snare the occasional flip.

So if you have $500,000 to spend, why not look for 2-3 homes you can purchase, get a positive cash flow, and sell in 5 years for a great profit if the market has appreciated, or keep holding until your profits are at an acceptable level. With a buy and hold strategy the investor should be looking more at appreciation potential than getting the best price or not buying. It is still number crunching, but the set of numbers being crunched is different.

If you have any questions about buyer or selling investment properties in San Mateo or Santa Clara counties please feel free to contact me.

Marcy Moyer

Keller Williams Realty


DRE 01191194

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Homebuyers Can Use a FHA Loan to Purchase Property from an Investor

FHA MortgagesFHA has been the most popular mortgage used by Wisconsin residents looking to purchase their first home. The relaxed credit standards lower down payment requirement and higher debt ratios has allowed many people to purchase a home through this type of loan. However, investors who were in the business of buying a home to simply turn around and sell it for a profit, called flipping, always steered clear of FHA borrowers. FHA had a rule stating a home could not be sold a second time within 90 days of its last purchase. But that has all changed.

Original Intent

The primary reason for this “anti-flipping” rule was discourage fraud on mortgages. However, as time marched on it became apparent that deserving FHA buyers were being denied a home. Many homes have been bought after foreclosure by investors and repaired to make them ready for resell. The FHA ruling prevented the investors from selling and the market has struggled.

Some Rules to Keep in Mind

Although the FHA administration has decided to lift this rule, there are still other guidelines that must be followed when dealing with one of these investment homes.

  • The seller of the home and buyer cannot have any type of pre-existing relationship. This could be as simple as a relative selling to a family member or as complex as a business owner selling to a partner or employee.
  • In the event that the new sales price is 20% or more than the price paid at acquisition by the investor the loan may be inspected more closely to ensure the value of the property was not artificially raised.

Keep in mind that the original rule was put in place to prevent fraud. In addition, the original rule only came in to effect when a home was bought by an investor and then resold within 90 days. If the investor waits beyond the 90 day window to sell the home most of these issues will not be present.

Protection against Future Fraud

Most lenders are well aware of the abuse that has taken place in the mortgage industry over the past few years and have stepped up their lending standards to catch fraud and illegal practices. Because of the heightened scrutiny, many high ranking managers among the top lenders do not feel that this change in FHA rules will lead to a sudden burst of bad loans. The tighter appraisal restrictions, along with the general awareness of potential problems, should allow banks and mortgage companies to move forward with new FHA loans without falling victim to a scam artist.

Original Post - Using an FHA Loan to purchase from an Investor

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