Real Estate Investment Disposal: Wide Range of Exit Strategies Available to Real Estate Investors

Without proper planning, investors who have improved, maintained, and even filled their properties with good tenants risk selling those assets for less than true value or paying capital gains taxes that could have been deferred. After an investor has determined that there are valid reasons to dispose of property, the next decision is how to effectuate the sale.

Outright Sale and Lease/Options

In an outright sale, an investor transfers title to property in exchange for payment without keeping any interest in the property. The buyer either pays all cash or makes a cash down payment and finances the balance of the purchase price with funds from a mortgage lender. If the investor has carefully considered the expenses, such as a real estate commission or unexpected repairs, and tax consequences – the local realty transfer tax and federal and state capital gains taxes – of an outright sale, this is the most expedient way to dispose of property.

For some investors, a short-term lease with the option to purchase may be more in keeping with their real estate investment plans. In such an arrangement, an “optionee” pays the owner for an option (also referred to as a down payment) to buy the property at a later date and then pays monthly rent for the duration of the lease. The owner and the optionee decide how much of the monthly rent is to be credited toward the purchase price. When exercising the purchase option, the optionee pays the balance of the purchase price with a conventional loan or other funds. The owner retains full ownership of (and tax responsibility for) the property until title passes to the optionee.

The lease/option is ideal for individuals who want to buy property but do not immediately qualify for a conventional mortgage because of inadequate income or what the lender deems to be a poor credit history. The lease/option transaction can save the seller the commission that a real estate agent would earn on an outright sale.

Installment Sales

At times, a real estate investment plan is best served by the gradual sale of a residential property and the transfer of maintenance, insurance, and tax responsibilities to a qualified buyer. In this type of transaction, the investor is both the seller and a lender who takes back a mortgage on the property being sold. Because the U.S. tax laws consider this an installment sale, the seller can defer payment of the capital gains tax while receiving monthly payments akin to rent but without the usual landlord burdens.

At the same time, the buyer gains title to the property without all the paperwork and fees associated with a conventional mortgage loan; this often allows the seller to ask for a higher purchase price. The interest rate and the length of the mortgage term determine the monthly payment amounts. For investors amenable to installment sales, this can be an astute way to attract buyers in a tough lending environment. The downside to an installment sale is that the seller will have to go through foreclosure procedures if the buyer defaults under the terms of the purchase agreement.

Due Diligence Is Always Paramount

Many investors have successfully engaged in more creative and risky exit strategies than the ones described above. Regardless of the disposal method chosen, investor-owners must never neglect their due diligence. Among other things, this means verifying that a buyer has the funds to purchase a property outright or to make monthly rental or mortgage payments to the owner.

There are other factors to consider. For example, if the owner is disposing of a multi-unit residential property and a prospective buyer lives far away, is inexperienced as a landlord, and has no plan for managing the property, the owner may decide that the risk of default on an installment sale would be too high.

Eight Steps to Becoming a Real Estate Investor: Well-Informed Investors Can Thrive Even in Shaky Economy

As prices for real estate continue to stagnate and even plummet throughout the United States, properties that even a year ago were out of reach for many are now sitting on the market with more reasonable prices. This new accessibility to property is enough to convince some individuals that now is the time to try their hand at investing in real estate.

Nonetheless, jumping into real estate investing on a whim or a hunch without proper preparation is a surefire way to fail. Fortunately, many sources are available for boning up on the basics. There are numerous books, CDs, and DVDs on real estate investment, and many of these are in local libraries. In addition, when the words “real estate investing” are typed into any search engine, millions of Web sites turn up.

Learning Real Estate Investing Basics

It takes a while to wade through this available information. In the end, it becomes evident that there are eight basic steps for increasing the chances for success in real estate investing:

  1. Understand the components of return on investment, including cash flow and appreciation
  2. Write an real estate investment plan that specifies financial goals and timetables for reaching them
  3. Carefully choose the form in which to own property (as an individual, a partnership, corporation, etc.)
  4. Turn to real estate agents, attorneys, tax advisers, and other professionals for expert guidance
  5. Study the target areas in which to buy property
  6. Line up affordable financing
  7. Avoid overpaying for real estate
  8. Manage the property diligently

These steps merely outline what is involved in becoming a real estate investor; there are many factors within each step. Absorbing and understanding all this information is not as daunting as it may appear. No special course work or degree is necessary to understand the principles involved, particularly if the novice investor lines up a team of professional advisors. As with anything new, there is a learning curve to real estate investment. Patience is necessary; any short cuts can lead to disastrous decisions.

Yet, studying is not enough and over-caution can be paralyzing. This is why it is essential to get out there and buy – it is the only true way to learn the business of real estate investing.

Real Estate Buyer’s Comfort Level Trumps Economic Outlook

Although the economic outlook and real estate markets remain uncertain, this should not deter individuals from investing in real estate. As Rhonda Duffy, broker of Duffy Realty of Atlanta, wrote in an e-mail to this reporter, “The timing and outcome of a purchase … have more to do with the specifics of the property and the motives of the buyers and sellers than they do with any macro economy or market-driven issues.”

According to Duffy, in most cases, the determinative factor for when and how to best acquire property is the comfort level of the buyer, “which encompasses his or her financial and personal criteria.” Thus, she observed, “Like in most things, everything comes down to how it affects ‘me.’”

Just make sure that “me” is armed with adequate and reliable information.

Security Issues In Showing Your Home

Selling Your Home–Some Security Tips Whether or not you list you home with a real estate agent you subject yourself to a security risk each and every time your home is shown. Real estate agents will screen prospective buyers but their process is limited and subjective. The real deterrent to a “bad guy” is the thought of an agent screening them out–not the process.

You see, when you put a “for sale” sign in your yard you are inviting complete strangers in to your home–among your personal possessions–something you know is wrong and you teach your children not to do. Unfortunately, if you want to sell your house–you have to do it!

A real estate agent is trained to do certain things to minimize the risk. Those items include never allowing their car to be blocked in a driveway, never showing a vacant home to a stranger, always alerting their office as to where and when they will be on an appointment, getting license plates, always following a customer into a room, etc… These are seemingly small things that we, as brokers/agents, do without even giving a second thought. Real estate agents also have eyes in the back of their heads that allow them to baby sit kids running around while giving a tour of the home. It is truly amazing how much we can juggle with both hands to get a sale!

As a homeowner, however, you have not been subjected to the training an agent has received. You have to constantly be aware of the security issues as well as the liability issues–what if this prospective buyer is just looking for a place to slip and fall–sad, but it does happen! If you are selling you home on your own keep the above items in mind…and here are a few more tips that might help.

Never show the property alone. Always let someone know exactly where you are and how long you will be there. Remove all “people-trippers” such as yard hoses, toys, animals, loose carpet, etc… Have your car keys in-hand. Park your car where it can not be blocked. Follow your customer into the rooms. Do not lead. Hide all valuables! Check all door and window locks immediately after each showing.

The main security comes from using common sense–and if you are uncomfortable with a situation–get out of it.

These risk are there whether or not you use an agent–but I believe they are decreased with the use of an agent. Use caution and smart sense–you will be just fine! If you doubt the security of your home–ask a security company to come by and do an assessment–some police departments will do this for free.

What to to in the Negotiation Process–Understanding the Details

I want to start by making the following observation–then I will jump to the next subject. Enjoy your reading. With that said, there are some obvious exceptions. “For Sale by Owners” notoriously get callers asking for owner finance and rentals. People that are turned down at lenders and/or have had non-accepted contracts through an agent hop on the FSBO bandwagon thinking the process is different, it isn’t. A lender does not care whether or not the home is sold through an agent. An unacceptable contract is unacceptable regardless of agent involvement. If you are willing to offer owner financing, then these calls aren’t a nuisance, otherwise, just be patient and bear with it.

In spite of that, do not be too quick to dismiss all of these calls. There is a remote possibility that there is financing available to less than credit worthy applicants. Be aware that there are mortgage companies that service customers with far less than perfect credit. Banks will also lend to these customers if they have a favorable loan to value ratio, making the loan very little risk to them. You should inquire of these callers whether or not they have tried these options.

Don’t get your hopes up, but it is worth at least a few minutes of your time to know that you thoroughly investigated this prospects ability to buy your home. Consider the possibility of a co-signer, it is just a matter of asking the prospect a few simple questions. Agents don’t often bother with this because it is more work on their part, and frankly, many are not familiar with creative financing or financing for credit impaired persons. The more you know, the better. Who knows, maybe this added knowledge will put one of these callers in your home! Being creative pays off.

You will also experience a series of “low ball” offers, probably sight unseen. Many publications, materials and programs suggest to their listening audience that real estate is a great way to get rich quick. It very well may be, but not at your expense. People looking to make a bundle in real estate often try to buy low and sell high. They set a limit of what they will pay for a property and are not at all embarrassed to make a ridiculous offer. I suppose after making around a hundred offers someone, some where will say “Yes.”. Don’t be surprised to hear a $40,000 cash offer on a $90,000 price. The caller isn’t really expecting you to accept this, or even counter it. Give them an “A” for effort and suggest that they try their luck elsewhere. Don’t get discouraged over these calls. You have done your homework and know the accurate value of your home. Understand, that these people are only trying to make money off of you. Avoid the inclination to get discouraged and do not second guess yourself. These callers picked your telephone number out of the classified ads and dialed it. That is all the preparation that went into their attempt.

Also be aware of individuals that offer to buy your home on some sort of short-term lease purchase or owner finance deal. Often times, during that short term, they are trying to re-sell your home as if it belonged to them and do a simultaneous closing with the third party at the same time they close with you. Typically they will buy from you at a lower price and sell higher. They can avoid closing costs by having you provide the title policy directly to the third party. It can be an agreeable situation to you as it takes you out of the real estate business. It does, however, increase your liability and take money out of your pocket. I would suggest you rather list your property with a broker and try to get a more conventional sale.

SOLD! Is A Career in Real Estate Right for You?

The Finances

A career in real estate is like owning and operating business. As with other businesses, there are startup costs as well as reoccurring expenses. Start-up costs often include coursework that licensees must take to obtain their license, MLS fees and dues, a privilege license as required by some states, office supplies, business cards etc. As real estate salespersons build their business, they will invest in advertising, a website, and other marketing campaigns that will take out quite a chunk of a budget.

In addition, many real estate offices pay their sales associates commission and commission alone. For some, this is not concerning. For others, it is alarming. Real estate is a career in which individuals can earn unlimited income; however, changes in the market can make for a lean season here and there. Establishing a system for budgeting, saving for a rainy day and holding back taxes are all imperative to real estate career success.

Time Management

One of the reasons many individuals decide to try a hand at a career in real estate sales is the flexibility of time. Perhaps the single greatest tool that a real estate agent needs is a strong sense of time management. Unlike a typical nine to five, the world of real estate and most brokers-in-charge allow agents to create their own schedule. This means real estate agents can work way too little or way to much if they don’t watch the efficiency of how they spend their time.

Real estate can be a 24/7 job if you allow it to be. Imagine phone calls in the evenings, on the weekends or during church. How the business is run is up to the agent. Does he or she need the structure of working between the hours of nine to five Monday through Friday? A real estate career can be established that way, but the agent may lose the business of those who need night and weekend attention. Again, there are options here.

Emotional Obstacles

Real estate agents face rejection on a regular basis. Whether it is a seller who decides to list with someone else, or a buyer who purchases a For Sale By Owner without the help of the agent who has been working with them for years, people do not respect the time and effort real estate agents often invest in them.

Variety of Options

While there are challenges and advantages to a career in real estate sales in the arenas of finances, time management and emotional obstacles, one thing to remember is that there are several options within home sales. Some may work while others are more of a struggle.

House Hunting with the Help of a Realtor: 7 Ways a Good Agent Can Save Home Buyers Steps and Money

Home buyers may have a picture-window view of their picture-perfect home. But most need some help navigating the field and narrowing the choices. A real estate professional can simplify the home purchase process.

Buying a home is a major financial commitment marked by important, but often complex or unfamiliar details. Here are seven keys to consider before scanning those classified ads and for sale signs:

Home Buying Key #1: Realtors Know the Ropes

Home buyers and sellers typically work with a Realtor. “Realtor” is a trademark that designates a licensed real estate professional who belongs to the National Association of Realtors (NAR). They complete extensive education and training. They’re held to strict professional standards and ethical principles. Realtors understand the ins and outs, from finding financing to negotiating an offer and closing the deal.

Home Buying Key #2: Realtors Know the Neighborhood

Realtors have valuable insider knowledge. They can match what home buyers want and can afford to available properties. Most Realtors have toured local homes and can help screen, preview and assess properties. They can show suitable homes and limit time spent house-hunting.

If home buyers are torn between the lakeside townhouse, the suburban ranch or the brick bungalow, Realtors can provide tie-breaking insights.

Realtors know features, neighborhoods, perks and pitfalls. They understand municipal, state and county laws, home association pros and cons, and other factors. They’ll know which area has the lowest crime rate, the best schools or a convenient corner grocery. Details matter. Safe neighborhoods and good schools are among many key factors in selecting sites, building equity and determining future resale value.

Home Buying Key #3: Realtors Have Resources

A good Realtor has been around the block. They can help buyers decide how much house they can afford, what style of house best suits their needs, and where and how to find it.

Realtors are familiar with properties listed in the Multiple Listing Service (MLS) database of MLS members’ and other homes for sale. They can also access facts about everything from home association dues to tax rates and city ordinances to the selling price of comparable homes. They know local customs and practices, which can vary widely by region. Realtors can estimate utility costs or even recommend the best neighborhood bakery!

When it’s time to seal the deal, Realtors help buyers navigate the world of appraisals, mortgage terms, title companies and closing documents.

Home Buying Key #4: Realtors Have Contacts

When buyers need an appraiser, home inspector, surveyor, title company, or other experts. Realtors can recommend local pros. Whether it’s a lender who’ll work with home buyers on flexible terms or a roofing contractor to shape up that fixer-upper after buyers move in, a Realtor offers an edge in finding reliable partners.

Home Buying Key #5: A Buyer’s Agent Can Give Buyers an Extra Edge

Buyers often work with sellers’ agents who show their own contracted property listings and other agents’ listings. Sellers’ agents are typically paid by a commission, which is a small percentage of the selling price. If another agent sells the house, they share the commission.

Some buyers choose a buyer’s agent who works exclusively for them. A buyer’s agent can guide and negotiate with the buyer’s needs and interests in mind. Buyers should keep in mind that sellers agents work for the seller. The bidding process has many nuances. A buyer’s agent can help ensure that the best interests of the buyer are considered.

Some buyer’s agents are paid via a percentage of the seller’s commission. Others work on a flat-fee or hourly basis. Ask about terms before signing an agreement.

Home Buying Key #6: Realtors Help Tame the Paper Tiger

Whether finding financing, making an offer and closing the deal, the paperwork can be daunting. From appraisals, inspections, offers, counter-offers and contingencies, to closing documents required to finalize the sale, there’s a lot to review. A Realtor can explain details such as types of home loans, down payments, interest rates and terms, or how to address or re-negotiate based on problems identified during a home inspection.

Home Buying Key #7: Before Finding a Place, Find a Pro

The right real estate professional can simplify the process, save money and help avoid common pitfalls. It’s worth the effort to take time and ask a lot of questions. A good agent will be a good listener who seeks a clear understanding of a buyer’s needs. Ask friends and families for referrals.

Check with established real estate firms. Talk to agents at Open Houses. Narrow the list and contact a few Realtors from different agencies. Have a prepared list of questions. Buyers should trust their instincts and find someone whose personality and style are a good match. When they do, it’s a sure sign there’s a “sold” sign in their future!

Buying Foreclosed Property at Auction: A High-Stakes Game for the Uninitiated

In the United States, after a court enters a judgment of foreclosure in favor of a mortgage lender, the sheriff of the county where the property is located or another officer of the court will hold a public auction to sell the property so that the mortgage debt can be paid. The officer who will conduct the auction will require all bidders to prove that they have the funds to complete the purchase.

Foreclosure Listings

Notice of the auction is published in local newspapers, and lists of properties being auctioned on a particular day should be available from the office of the county clerk or the sheriff.

Other interested parties, such as holders of second and third mortgages, may be present at the auction because the foreclosing lender must notify all lien holders of the auction.

Sheriff’s Sale/Foreclosure Auction

In many states, the lender makes the opening bid. This is a formality that usually sets the unpaid balance of the mortgage as the base price for the start of the bidding. Bankruptcy filings and other factors may result in the lender bidding less than the balance due.

The officer who conducts the auction will award a deed to the successful bidder, who then becomes the new owner of the property. The next step is to have the court confirm the sale. This means that the court determines whether the sale was conducted fairly and in accordance with the applicable laws and regulations; state law dictates whether confirmation takes place a few days or a few weeks after the auction.

Potential Problems for Real Estate Investors

Not knowing market value . Because investors cannot evaluate the potential of a property if they do not know the market value of that property, it is imperative that investors familiarize themselves with the prices at which similar properties have recently sold in the area. By knowing what similar properties go for in the neighborhood, investors have a yardstick by which to calculate what is a reasonable price to pay for a distressed property at auction.

Getting occupants out. In states where mortgages are created to evidence purchase-money loans, homeowners may stay in their homes for as long as a year, depending on what the law provides. In states where trust deeds are used instead of mortgages, a homeowner must vacate the property before the sale of the property by the trustee, usually fewer than four months.

As the new owner of the property, it is up to the successful bidder to get rid of whomever is occupying the property. The occupants may not be the former homeowner and family and instead may be relatives of the former owner, renters, or even squatters. The occupants may be reluctant to vacate the property. They may even be hostile.

To evict the occupants, the investor may have to hire an attorney for the court proceedings. A better course may be to offer the occupants an incentive to leave, such as paying the moving expenses or one or two months of storage fees, or an outright cash payment.

For more on what can go wrong for a successful bidder when the foreclosed property is occupied.

Emptying and cleaning the property. In addition to removing the occupants from the property, the successful bidder will have to empty the property of items left behind and of no value. Related to this is cleaning the property. Occupants who were reluctant to leave may have left the property dirty and full of trash and useless items. They may even have damaged the property.

Having insufficient resources. Bidders at foreclosure sales often are not allowed to inspect the property before the sale. This makes it necessary to guess how many repairs, improvements, and updates are needed and what it will cost to make the property legally habitable and marketable; in short, the return on investment cannot be calculated with any certainty. Buying property with this much uncertainty is inadvisable not only for inexperienced investors but also for those whose real estate investment plans do not support such high-stakes risks.

Targeting the Right Home Buyers: Determine Your Target Market Before You Sell Your House

Certain types of residential areas usually attract a predominant type of home buyer. A suburb near an elementary school will probably attract families with young children. A condo in the heart of the city, on the other hand, often attracts a high number of young professionals.

The type of home also dictates the most likely buyer demographic. A single-story home with a garage might appeal most to seniors or empty-nesters while a three-bedroom house with a large yard appeals to families moving up the “property ladder.”

So how does this information help you sell your house? Use it when home staging to most appeal to your market. Use it to select a realtor. Or use it to help market your listing if you sell your house yourself.

Let’s take a look at a few of the most common home buyer demographic groups.

Home Buyers Looking for a Starter Home

Single-family homes and lower-end condos or townhouses will most likely appeal to buyers currently climbing onto the first rung of the property ladder. Starter-home buyers are usually renting when starting their search. Your most likely home buyers then will come from areas that have rental rates in keeping with the mortgage payment of your home.

Look for a realtor that specializes in targeting first-time home buyers. In real estate market slumps, reaching this market can be a good selling strategy for some realtors. If selling your house yourself, send out flyers or postcards to apartment complexes in your neighbourhood.

Targeting Home Buyers Moving Up the Property Ladder

Two- to four-bedroom homes in established neighbourhoods are often characterized as “move up” homes. These homes appeal to growing families or buyers moving up the property ladder, so sellers of these homes may live in your existing (or an adjacent) neighbourhood. Look for home buyers that currently own starter homes or renters of upscale apartments.

And as of November 2, US home buyers of move-up homes have even more incentive to buy.

Home Buyers Looking for an Upscale Home

On the high end of the price scale, your ideal home buyer is likely to be someone moving up in your neighbourhood or relocating. Home staging for upscale home buyers features high-end furnishings and finishes – and a completely “move-in ready” home.

Look for a real estate agent with a background in marketing high-end homes. Or if selling your house yourself, target local companies, high-earners in nearby districts, or owners in your current neighbourhood.

Home Buyers Looking for Specific Features

Homes with unique features, such as a working horse farm, will attract a narrower segment of home buyers. Look for real estate agents that specialize in those areas. An agent who specializes in selling equestrian properties is an excellent idea. Perhaps you are selling a live-work studio loft. There will be agents who specialize in marketing to this crowd too.

Targeting home buyers according to demographics is a great way to hone in on the buyers most interested in what your home offers.

Selling a Home Fast in this Tough Real Estate Market:

The current Real Estate market is a fierce Buyers Market, meaning if a buyer is lucky enough to

Still Have a job, have any money left in their Bank accounts, Still have a good credit score (FICO score) and wants to take a chance buying a home in an unstable and possibly still declining market -He or She is worth their weight in gold.

If a Home buyer has committed to this process in these times, he/she is very serious and that isvaluable to know.

Since the market is glutted with homes for sale at rock-bottom prices,a qualified buyer demands theabsolute best price, most beautiful, largest sq ft, cleanest, best location home out there. In otherwords they want a “smokin’ deal”and wouldn’t you? They get a Realtor and see up to 40-50 homes depending on price range, area location and amenities desired. It is the best deal that gets the offer.

How to get that Offer?

It must be perfect: Harsh, isn’t it?

Clutter, Personal Effects, cutsy baby pictures, vacation pictures, Aunt Freeda’s paint by number artwork, crafts, Silver Spoon collections, desktop papers….gone. In fact put away at least 50 % of the personal effects and chochkys on every surface. Some exerts say too many personal effects distract a buyer – not so, in my opiniion it just makes a room look smaller & since the value in a home according to Realtors and Appraissers is square fottage, then giving a buyer more visual square footage makes the home a better “deal”. Unless your buyer is a family member, they won’t have the same taste as you, so pack it all up and put it away in storage. you’ll have a head start on your packing and sell the home quicker to boot.

Your Goal is to Make each room in Your Home Look like a fancy hotel room. Have you noticed that whenyou enter a hotel room, all your senses are delighted by beautiful decor, soothing/coordinatingcolors, decorative flare, wonderful smells and mood lighting? There is nothing on surfaces orcounters and one or 2 tasteful pieces of artwork AT EYE LEVEL, a blindingly clean space with shinebouncing off every angle – is this an accident or a well thought out plan by hotel owners to makeyour stay better than their competition? Apply the same prinicple to your home and get those better offers.

Clean UP Your Act:

Yeah, this is going hurt…Take the time to do a DEEEEEEP Clean. Bathrooms must look like Home Depot display aisles… spotless, even and especially the shower/tub. All surfaces need to be clutter free and shining. Beds must be expertly made with Military quarter bouncing ability, floors and baseboards lint/dirt free, shelves cleaned and organized, Kitchens looking like no one has ever cooked in them,yes even inside oven, that’s where 80% “ish” of woman look first. Fine steel wool will remove grease,grunge and stuck on food from cooking surfases. Once again, all drawers shelves and closets should have at least 50% of items removed and packed in boxes. This makes the storage areas look so muchlarger.

The bottom line: Clean and organize like the President’s coming for dinner.

Paint IT

A fresh coat of paint is like the entire house was scrubbed with comet. Paint any surfaces that are too bright, loud, dingy or dirty, using soothing, tasteful colors. Home or Paint stores have color chips of coordinating paint schemes, so use those – why “re-invent the wheel”? Your exterior paint color can send buyers running away or entice them to offer higher. A cool or dark color makes a home look cold and small. Warmer colors make a home look larger. “soft yellow/white trim or warm taupe/white trim seems to add the most curb appeal.

Make your home look like a Model Home – Stage it like the Pros

Take 50% of furniture out into the garage and pack it up. Rooms look larger with less in the room.Group according to activity. A model home designer sets a room to look functional and cozy, for instance a living room might have two groupings: a reading center and TV grouping. So Clearly define each space.

Curb Appeal

The front of your home is the curb appeal or first impression. If it doesn’t measure up, buyer’s tend to ask their Realtors to keep driving and move onto the next showing. There’s just too much competition out there. Clean, sweep, prune, cut, mow, weed and scrub till it looks like a TV show. Adding a few inexpensive items like colorful flower planters, painting walkways will attract those buyers inside.

Spend some time and energy preparing your home for success and get those winning offers.

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