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Bridget Alves                of Valencia

Blog - Full Service Real Estate Group, Inc

Tips to make money “flipping” houses

Bridget Alves - Monday, July 04, 2016


Of all the investment vehicles out there, real estate is arguably one of the most accessible. Everything around us is real estate, in one form or another, and investing in it simply requires that one obtain some measure of ownership. That being said, one of the more common ways people invest in real estate is through the practice of “flipping” houses. “Flipping” a house involves the age-old investment trope of “buy low, sell high” but applies it to houses instead of stocks. For those interested in the possibility of “flipping” a house, here are a few tips:


  • Try buying with cash as opposed to loans. Depending on the market in which you’re looking to invest, this can seem like a daunting task. While it isn’t entirely impossible to make money “flipping” a house you bought with a loan, the moment you buy said home you’re already in debt. 
  • “Buy low …” the further below market value you can purchase a home for, the more money you stand to make on the resale. Unfortunately, the vast majority of people know how much their home is worth and won’t be willing to let it go for less. So, how do you buy below market value? You search for that small percentage of people that don’t fit into the aforementioned category. Typically, these people will be what we refer to as “motivated sellers.” These folks, for whatever reason, are in a rush to sell their home. Maybe they have to move for a new job, or maybe they can’t afford the mortgage payment anymore. Either way, the more dire their need is, the more likely they will be to give you a good deal just to get rid of the home.
  • Be cognizant of the home’s location. Knowing where the home is on the map is one thing, knowing where it is regarding market trends in the area is something else. Houses are like stocks in that, if the area where the home is located is experiencing positive yearly gains in terms of home values, it isn’t unreasonable to bet on those gains continuing. The opposite is also true. If the area has been experiencing yearly losses in terms of market value – be very careful.
  • Make as many repairs and upgrades as you can by yourself. Look, finding a “motivated seller” can be a godsend, but it isn’t always going to happen. A lot of people who profit off of “flipping” houses do so by purchasing a home that needs work, putting in said work, and then selling the updated home for more money. In order to maximize the profit, you’ll want to minimize the expense; and that often means making what repairs you can yourself. Every contractor you don’t have to call is one less fee you’re going to have to pay.

Investing in a home to rent? Here's how to keep tenants

Bridget Alves - Monday, May 02, 2016


One of the worst things that can happen if you own a home that you intend to rent out is to have long periods in which the home is uninhabited. During these times your investment is effectively a liability. You're the one stuck with the mortgage, you're the one paying the utilities, and you're the one who's going to be wondering if the whole thing was even worth it. If you're thinking of buying a home with the intention to rent it out, or you're already the owner of one or more rental properties, here are some tips to help you get, and keep, your tenants for as long as possible.


Take a good look at prospective renters' backgrounds
The obvious things you'll want to look for will be anything having to do with paying their rent on time and whether or not they've had any evictions. What may not be so obvious, though, will be to look at the length of time they stayed at any one residence. Sometimes, a person looking to rent a home will tell you straight-away that they plan to be in the area or home for only a year or two. Other times they won't. If their rental history indicates that they typically move every 2 to 3-years, it will be reasonable for you to assume that's what's going to happen if you rent to them, too.

Ask them why they're moving to the area
If the person is from out of town, asking what brought them to town can provide valuable insight into whether or not they plan to stick around. For example, a family moving to the area with a young child because they like the school system indicates that they plan to remain. Additionally, moving to be closer to family and friends can also indicate a desire to remain in the area.

Don't buy a home you wouldn't live in
When you buy a home you don't plan to live in, there can be an element of “disconnectedness” in the purchase. This “disconnect” can lead investors to buy homes in less than great neighborhoods simply because they're inexpensive. While there's nothing inherently wrong with buying or renting a home in a lower income neighborhood, it can lead to complications in finding (and retaining) tenants later; and the neighborhood itself can greatly limit the home's appreciation as years go on.

When you buy an investment property, that property is your product, and you want to make sure the product you're showing to the people is the best one possible. Treat it like you live there. If you think it could use some improvements regarding curb-appeal, make them. If the place could use some upgrades on the interior, then make those too. Homes are supposed to be warm and inviting, ensuring that the home(s) you're renting out feel that way will surely help you keep your tenants.

Not interested in moving? Buy a home anyway!

Bridget Alves - Monday, February 29, 2016


There are two good reasons to buy a home. The first, and most obvious, is because you want to live there. The second reason is because real estate is a tried-and-true investment vehicle that has been an effective way to build wealth for a long, long time. If you have the money to buy a home, but you’re not looking to move, here are a few reasons why buying anyway might be a good idea.

 

  • There are lots of ways to invest. Buying and selling stocks and commodities, for example, all have one thing in common: they’re intangible assets that you have very little control over. If you purchase stock in a tech company, for example, and that company’s CEO makes some bad movies, you’re out of luck. With a home, though, you have much more say in the matter.
  • The rate of return via renting a home that you own can be considerable. When you rent a home that you own, the money is paid to you and you use that money to pay the mortgage. Currently, rental increases are outpacing the growth of home prices; which means that you’re likely going to be able to rent the home out for more than the cost of the mortgage. So, when your renters pay you the monthly rent, a portion of that money is pure profit.
  • The renters put equity in the home for you. Even if the monthly rent of your home does not exceed the cost of the mortgage, every payment your tenants pay you, that you in turn pay the bank, becomes equity. If you decide to sell the home ten-years on, provided you get at least what you borrowed back, all of the money you accrued in rent over that time period becomes yours.

 

Interest rates are low right now, and the market is trending upward, which means right now is a great time to buy. Remember, though, that if you choose to become a landlord you will take on some responsibility for the home even though you don’t live there. Make sure you have someone draft a very comprehensive rental agreement so that you and your tenants know exactly who is responsible for what. If you play your cards right, can easily put yourself on the road to financial freedom through owning several homes.

Gifting down payments: The nitty-gritty

Bridget Alves - Monday, January 11, 2016


Gifting the down payment of a home is a trend that’s been growing increasingly common. Because it’s a gift, it doesn’t affect a borrower’s interest rate, but it also doesn’t count as income when lenders are determining whether or not an applicant qualifies for a mortgage. That being the case, for those who are in a position to gift the down payment of a home, here are some things you’ll likely want to know before you do it.

 

For starters, lenders are usually more than happy to allow gifting the down payment to a piece of property that is occupied by the owner (i.e. a residence), but usually won’t allow it for investment properties. Also, when a down payment is gifted, additional paperwork will be required on the part of the giver to ensure that the money doesn’t come from illicit sources.

 

The next big hurdle is the gift tax. It’s possible to gift someone up to $14,000, however any higher amount will be taxed by the IRS. There are a few ways to get around the gift tax, though. For one, it’s possible to gift someone up to $56,000 by making four separate gifts of $14,000. Additionally, one parent can gift $28,000 to someone, and then when both parents file their taxes, they agree to split the gift (thereby equaling $14,000 a piece, and not triggering the gift tax).

 

Another thing that needs to be known about giving gifts: they’re permanent. Suppose you give your child $56,000 towards the down payment of their first home and they instead choose to invest that money in a business venture that fails. Tough luck. Once you gift someone money, it’s out of the control of the giver unless alternative arrangements are made in the form of legally binding contracts.

 

No matter what, before gifting any significant amounts of money, always talk to your CPA to find out exactly how it could affect your taxes and finances as a whole.

How to help your kids buy their first homes

Bridget Alves - Monday, December 21, 2015


With the holiday spirit in the air this time of year, it’s hard not to think of what you can do for people – especially when it’s your own family. Whether it’s a wedding gift or a Christmas present, parents with the funds available are often using them to assist their children with buying their first home. If you yourself have been thinking about doing so, here’s a few ways you can do it.

 

Family loans
Those who have sufficient assets can loan money to relatives for the purchase of a home in lieu of traditional mortgages. Situations like this can be profitable for the lenders because they’ll typically get a better interest rate than they would on a typical investment vehicle from the bank like a CD. On the side of the borrowers, the fact that they answer to mom and dad instead of a financial institution might help should financial difficulties arise. When someone loses a job, the mortgage is still due. If the lender is in the family, though, they might be more willing to negotiate something that will help their relatives out.

 

Though it’s coming from family, the loan will still follow the IRS’s proscribed interest rates based on the term of the loan. If the loan isn’t intended to be an investment, and the lender isn’t interested in earning interest, up to $14,000 in interest can be forgiven each year under gift tax exclusions (or up to $28,000 if gifted as a couple). Any interest earned above this must be reported to the IRS as taxable income.

 

Co-signing the mortgage

If your child or relative’s income is too low to qualify for a mortgage, co-signing can help. When co-signing, the parents’ income will be under just as much scrutiny as their kids’, and in order for a co-signing to be successful the parents must be able to show that they can take on the burden of home payments if the children are unable to. Also, the loan will show up on the credit report of the co-signers as an outstanding debt, making refinancing difficult down the road.

 

The holiday season can bring out the generosity in us all, but before assisting your children or relatives with the purchase of a home, make sure you consult a financial adviser.

Improvements that increase your home value

Bridget Alves - Monday, November 30, 2015


Sometimes, a new home is desired but moving just isn’t in the cards. Maybe you don’t have the money to buy a new house, or perhaps the market isn’t right. In situations like this, homeowners often turn to remodeling; it’s cheaper than moving and can provide that change of scenery that the homeowner desires. In situations like this, it’s important to know which improvements will increase the value of your home, enabling you to recoup some (if not all) of the cost when you decide to sell your home in the future.


The first, and most obvious change would be to repaint or replace the front door. Remodeling magazine’s 2014 Cost vs. Value report indicates that 96.6% of the cost of the door will be added to your home’s overall value. Just make sure you get a new door that actually goes with your home. If you don’t, you may end up creating an eye-sore that reduces your home’s value. 


Two of the most common remodels are to redo a home’s kitchen or the bathroom(s). Both are areas of the home where people spend a significant amount of time, and updating them can often pay off in both experience and in increased value to your home. When remodeling these areas, be very, very careful to ensure that the design fits in with the rest of the home. A rustic, “cabin in the woods” style kitchen is great, if you live in a rustic cabin in the woods. Installing a kitchen like this in a modern, suburban home would likely be weird, and turn off any potential homebuyers in the future.


No matter what additions or remodels you choose to make to your home, be aware of the cost of the remodel vs. the cost of the home. Just because you spent $50,000 remodeling your kitchen doesn’t mean it’s going to increase the value of your $150,000 house by that much. When your home doesn’t have the highest market value, making relatively minor cosmetic changes can make more sense financially. Instead of spending tens of thousands of dollars replacing your entire kitchen with high-end appliances and lavish tiles, try a smaller-scale renovation by replacing or repainting the cupboards and drawers. 


Last but not least, one of the most lucrative improvements you can make to your home is to increase the livable space without adding on extra rooms. Is the attic large enough to be a bedroom? Great! Turn it into one. What about the basement? Most basements are unfinished (they have concrete floors, ceilings with exposed pipes/wires, etc.) and finishing them will greatly increase the square footage of habitable space in the home, which will be reflected in the overall value.

The nitty-gritty on vacation homes

Bridget Alves - Monday, November 02, 2015

 

Owning a vacation home is the aspiration of countless American homeowners. Doesn’t it sound nice to have your own home-away-from-home, set in a glamorous location that you can escape to whenever your schedule permits? Buying a vacation home can be an amazing experience, provided that you know what you’re getting into before you decide to do it. If you’re thinking about making such a purchase, try taking these into consideration first:

  • Rental income: One way to help offset costs is to purchase a rental home in an area that other vacationers will need lodgings. Local real estate agents and vacation rental companies should be consulted about the possibility of renting out the property while it’s uninhabited. 
  • Be cognizant of the area’s “high” season: Depending on where your vacation home is located, there may be a certain time of the year when a large influx of travelers arrives. For example, most warm, sunny places see a rise in tourism during winter months, when those who dwell in frostier climes seek warmer surroundings. Scheduling your vacations during these “high” periods can significantly impact your rental income. 
  • Maintenance can be problematic: Who is going to maintain your property while you’re away? Just because nobody is residing in the home full-time doesn’t mean that things won’t need to be done. Foliage around the property will need to be maintained, lest you return to an overgrown nightmare, and indoor cleaning and repair will need to be taken into account. Contacting a local property manager and making use of their service will cost more in the short-term, but it will likely be well-worth it.
  • Location, location, location: Last but not least, the location in which you purchase your rental home will have an immense impact on how often you can use it. Purchasing a secluded cabin in the mountains can sound like a dream getaway, but how accessible is the place really? The further you have to travel, the less likely you’ll be to make use of the property as time goes on. Often, the most fulfilling and oft-visited vacation homes are those that are purchased just a few hours’ drive from your permanent residence. 

A few points on multi-family homes

Bridget Alves - Monday, October 05, 2015

 

What if there was a way to not only purchase a home to live in, but one that can help make you a bit of money, too? There is, and it’s been a growing trend in real estate the past several years. The way to do it is to buy a multi-family home, such as a duplex, live in one side and rent out the other. On paper, making this sort of purchase can sound like a fantastic idea. Renting out a portion of the home will make the overall mortgage payments lower, thus allowing you to pay off your house faster, or at the very least save some cash while you live there. Then, if you ever decide to move, you can just rent out the portion in which you live and everyone is happy. Right? 

 

Not always.

 

Here are a few things to consider before you purchase a multi-family home:


  • Taxes are much more complex for owners of multi-family homes. Because it’s 1-part home, 1-part investment, your taxes are going to be very different than if you purchased a single-family home. Always consult a tax professional before making a purchase like this.
  • Make sure it’s a legitimate multi-family home. Just because a home has an attached apartment or other living space doesn’t make it a multi-family home. A lot of times, a person will build an addition onto their house to produce income. Unfortunately, many of those people will not get the addition permitted, and if you buy that home, you now have an apartment that you cannot rent.
  • Proximity to your renters can be a double-edged sword. On the one hand, you’ll be right next door, and if your renters are trashing the place, you’ll likely find out quickly. On the other hand, you’ll be right next door, and if your renters are loud or obnoxious, you’re the one who has to deal with it. Additionally, if you have needy neighbors, they can easily find you.

 

Buying a multi-family home can be an excellent investment vehicle. If this is something you’re looking to do, make sure you do your due diligence beforehand in order to avoid some of the potential pitfalls like those listed above.


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