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The Senate and House voted in favor of extending the first-time homebuyer tax credit. As you know, the legislation extends, through April 30, an $8,000 first-time homebuyer tax credit and creates a new $6,500 credit for homebuyers who have been in their current residence for the last five years or more.
The Senate unanimously voted Wednesday night (98-0). The House just passed the bill this afternoon (Thursday, November 5th) (403-12).
President Obama is expected to sign the legislation tomorrow, Friday, November 6.
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One of the really hot button topics out there in the world of real estate right now is foreclosure. Foreclosures as real estate investments generally fall into two main categories: pre-foreclosure and REO or bank owned property.
Regardless of how a foreclosure deal is secured, the profit centers are very comparable to other kinds of real estate deals. Foreclosures can be wholesaled (although it is harder to do this with REO properties because of bank restrictions on contract assignment), rehabbed and sold, lease optioned, or held for monthly income. It all depends on the numbers and an investor who really wants to capitalize on the bad economy would be remiss to ignore foreclosures as a part of their investment repertoire.
How does the concept of foreclosure fit in with apartments, which is really the niche within the business of real estate that I most favor? Well, it stands to reason that if a single family home can be mortgaged and foreclosed if the mortgage does not get paid, the same sort of thing can also happen with larger pieces of real estate, including apartments.
Just as there are great deals to be had with single family homes in foreclosure, either by short selling the loan with the bank or picking up the property at a discount from the lender once the property has been repossessed, the same reasoning holds true for apartment buildings. The seller or banks motivation are still high in both these cases. The only thing that changes is the size and value of the property in question.
Imagine being able to pick up a 30% discount on a property in foreclosure. Sounds pretty good, doesn’t it? For a single family home valued at $300,000, the amount of the discount is $90,000, which is nothing to shake a stick at. Now, imagine the same percentage discount but for a $3,000,000 apartment building. The discount here is nearly a million dollars so you can see yet another example of how zeros can really benefit you in apartment investing!
Maybe you learned the business of real estate in the context of single-family homes. This is pretty common for real estate investors so there’s nothing wrong with that if it’s true for you. What I want you to see is that every technique you’ve learned, with respect to investing in single-family homes, can also be applied to apartments.
Apartments are just bigger deals; the strategies for uncovering opportunity largely remain the same. Can you visualize this? Once you do, the opportunities you’ll experience are limitless.
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When investors think of what it means to invest in real estate, there are two common things that come to mind. One is the holding of rental properties. The other is fixing up rundown properties and selling them for a profit.
Now, when it comes to working with apartments, which are my specialty, the idea of rehabbing gets really exciting. Nothing motivates an apartment owner to sell like having a bunch of rundown, outdated, or decrepit units that either can’t be rented or can only command either low rents or sub-par tenants. It’s all too common, especially for apartment owners who have been in the business for a while, to see a large scale need to update and renovate as a sign from above that it is time to move on and sell the building.
This situation can be your goldmine and it has been mine too in the past. Apartments that are in disrepair should command a significant discount, credits at closing for repairs, or both. What you want to look for are deals that have the greatest upsides. By this, I mean a rundown apartment building in a low rent part of town may not command that much more rent when it is renovated so the upsides are weak.
Conversely, a rundown apartment building in a decent area of town may have depressed rents that are more attributable to the property condition than market rents in the area. These are some of the best deals to pursue because the upside here is tremendous. Imagine a 100-unit apartment building that is only 70 % occupied and whose rents are 20% below market because the property is in dire need of an overhaul.
If the value of this property is normally $5,000,000 ($50,000 per unit), then you might expect to be able to purchase it for $3 million in its current condition, equivalent to $30,000 per unit. By most models, rents of $300 per month should cover the note on such a value. Let’s say you invest an average of $10,000 per unit to update the property, bringing your total investment to $4,000,000, or $40,000 per unit. Upon updating, the market rents of $550 per unit are now competitive and reasonable, making this property both an equity source and an income producer. See how this works?
Unlike single family homes, whose retail values after a rehab are subject to the whims of market sales conditions, apartments are more valued based upon income. When you can increase both occupancy rates and the rents, as a result of a rehab effort on an apartment building, both income and property values will increase.
Can you see how rehabbing applies as much to apartments as it does to single value homes? Can you see how the worst looking apartment building in the neighborhood could be your best investment opportunity? Real estate empires are built by both seeing things differently and knowing the proper actions to take to get maximum results from every investment. Rehabbing single family houses will make you money. Rehabbing and either selling or holding apartments can make you a fortune! Which do you prefer?
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Lots of people interested in house flipping (the fun term for buying and quick-selling real estate) have older tape programs and books sitting around teaching about deals in which a real estate investor purchased a home and sold it within a month, or two months to someone else – and made a ton of cash.
Great stories of buying a house for $15,000 and selling it in a month to a buyer for $45,000, or more, pocketing over $30,000.
Those are great stories, and lots of fun. They’re even fantastic motivational tools, great to listen to when you want to get yourself back on track in your real estate investing plan.
House flipping in a month really was a fantastic deal. You could find a property that was in need of repair, (or even just a little paint), fix it up, and have cash in your pocket in a matter of weeks – even before your bill was due to the lumber yard! Real estate flipping was like money in the bank!
But times have changed. Flipping houses by buying low and selling high in a few weeks isn’t really your best move anymore. There are now stiff prepayment penalties on most mortgages, and the capital gains on a short-term investment are twice that of a long-term investment. (You’ll pay 30% on short-term gains, and 15% on long-term gains).
Old style house flipping has gone the way of the dodo, right?
Nope – there’s no need to worry. Flipping houses still happens all the time, in all sorts of markets and all sorts of time frames.
Here are a couple of scenarios in which house flipping is still a great way to start if you’re just beginning real estate investing, or as a way to generate cash – to use for your investing, or even for a nice vacation!
The first way to still successfully get into flipping houses is to control the property, but never actually own it. By finding the property and a buyer, and getting in the middle, you can effectively flip it in a short period of time. This is called a simultaneous close, and details are outside the scope of this article, but this technique can be done with single family homes, apartment buildings… all sorts of real estate transactions.
Another way to get into flipping real estate is to hold for a little longer period of time – more than 12 months. So, for just 13 months, you own a property, with good tenants, good cashflow and in a good market, and when that magic month happens, the 13th month, you can sell to another person, and put money in your pocket.
Now, what if that other person is your tenant, and they’ve been living in the house right along? You’ve presold the house! That’s right, you’ve purchase the property, put the tenants in the property, collected rents (with a positive cashflow), and you have an agreement that the tenants will refinance the property during the magic month – the 13th month – so that your capital gains are less, and you put more money in your pocket!
Plus, for the trouble of babysitting and letting the tenants live in the home for over a year (which some tenants need to fix their credit or to save money for a downpayment), they buy the home from you for more than you paid.
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