Thursday, September 29, 2011

Importance of Real Estate Mentors

As you are getting started in real estate investing you are going to have a lot of questions and concerns:

1)  How much should I charge for a late fee?
2)  When should I send a notice to quit?
3)  Do you know how to fix a leaky toilet?
4)  Did I make a horrible mistake?
5)  When should I sell?
6)  What accounting software is the best?

You'll be confronted with these and other similar thoughts at some point.  A book and even the best blog won't really be able to answer them.    

This is where a real estate mentor comes in handy.  They can commiserate with you when tenants are being high maintenance or refusing to pay.  They can advise you on basic repairs and share a few war stories that will reassure you that everything will turn around.

It shouldn't be too hard to find someone like this.  Surprisingly many people you already know will probably have their hand in real estate in one way or another.  So learn from their wisdom and optimism and be prepared to reciprocate for someone else when you have a little experience under your belt.

Wednesday, September 21, 2011

Investors in Rental Properties Transforming Neighborhoods

The contributions of small real estate investors to communities are often overlooked. In fact among the general public many misperceptions exist. Some think of investors in rental properties as harming neighborhoods even as slum landlords harming tenants.
The opposite is true. Turning a distressed property, be it condo, townhouse or single family home, into a renovated rental property has big benefits for any community. As empty homes are reclaimed and rented, neighborhoods improve, prices rise, and the perception of the neighborhood as a good place to live and raise a family rebounds. Over the years this has proven true in inner city areas from Savannah, Georgia to Capitol Hill. And it is small investors working property by property – not the fat cats – who have began these grass roots transformations.
And how do small investors benefit renters in the Northern Virginia area? They provide nice affordable homes for individuals and families including: recent graduates starting their first job, professional consultants in the area for short term work, older people transitioning from larger homes, and families who have been foreclosed on and need a new start in life.  
In his excellent article, The Value of Real Estate Investors to a Community, Peter Giardini lists six contributions real estate investors make to local communities. Be sure to read this great post. ( He encourages real estate investors to publicize these benefits.
Why does it matter? At the moment the administration is considering plans to lend money only to huge real estate investors, excluding the small investors.  We need to explain why the small real estate investor also needs access to capital so that we can continue to play our unique role in transforming neighborhoods and helping individuals and communities rebound.

Tuesday, September 13, 2011

Quick Primer on Debt/Income Ratio

As soon as you start to acquire some rental properties, you will realize that understanding how to finance more acquisitions is extremely important.

Getting access to capital has gotten more difficult in the recent downturn and on a micro level it is indicative of why it is difficult to turn the economy around.  There are good buying opportunities but investors can't get the financing to purchase them.

One calculation that you have to be aware of is your debt/income ratio.  This calculation compares your monthly debt payments to how much income you make.  Most lenders won't let this go above 36%.
You have to include in your debt payments the principal, interest, taxes, and insurance for the home plus car payments, student loans, credit card payments and other recurring debt.

This ratio could make it pretty difficult to buy more than a property or two as an investor because the PITI (principal, interest, taxes, and insurance) payments will be great than your income.  However, once you have two years of rental income on your tax returns that money will be added to your income in the debt to income ratio.  This means that you can borrow more because you have more income.  It is helpful to be able to show that your future purchase will have positive cash flow as well to please the lender.

Take this ratio seriously and make sure you can pass these requirements and you'll be ready to add more properties to your portfolio.

Monday, September 5, 2011

Refinancing Booming But Lenders Stretched Thin

With mortgage rates hitting historic lows, the refinance boom has returned.  The San Francisco Chronicle documents a new problem with the topsy turvy lending market though (  Because of all of the layoffs in the lending industry, there aren't enough knoweledgeable people at these institutions to process the increased volume.

This raises serious concerns about the Administration's plan to allow underwater borrowers to refinance:
Hopefully, this will be a boon to mortgage industry hiring and get a lot of people back to work.

In the meantime, anyone who can should take advantage of amazing low rates and contact my good friend
Richard Moroscak ( to find out more. 

Friday, September 2, 2011

Administration Wants to Let Underwater Borrowers Refinance

With the housing sector threatening to tip the economy towards another recession, the Obama Administration is looking for ways to assist struggling homeowners. 
Just how bad is the housing market? In July home foreclosures reached 212,764. And according to some estimates 11.1 million mortgages are underwater. This means that more than 23% of US homeowners owe their banks more than the underlying properties are worth.  Many of them will end in foreclosure.
To remedy this bleak picture the White House is considering proposals for another housing assistance program this one aimed at refinancing mortgages.  Writing in Marketwatch Greg Robb (Plan to kick-start housing wins Jackson Hole Nod) contends that Glenn Hubbard, a former top economic adviser to President George W. Bush and now dean of the business school at Columbia University, has presented the most concrete proposal to the White House.  With mortgage rates low, his plan would allow any homeowner who is current on a government-backed mortgage to refinance even if the home’s value was less than the current mortgage amount. With 75% of GSE borrowers holding a 30-year fixed-rate mortgage of 5% or more, this could significantly lower homeowners monthly payments. The hope: it would prevent them from falling behind in their payments and enable them to spend more. Hubbard claims his plan “would help up to 37 million borrowers and act as a long-lasting tax cut that would add $70 billion per year to spending.”
Of course, it’s not a great plan for bondholders who would get lower returns. And the 11.1 million who are behind in payments won’t be eligible.
Whether or not this plan becomes a reality remains to be seen.  But interestingly it has won support from many economists attending the Federal Reserve’s Jackson Hole policy retreat. That could be because the options of boosting the economy are becoming extremely slim.
            Let us know your thoughts on this latest proposed housing assistance program. Do you think it would actually get to the root of the problems facing the housing market?