Darren Kreski

A lot of clients ask me how to figure out what market rents are in a neighborhood. This is a critical input into the calculations an investor needs to make in order to determine what their return on investment will be on a rental property. So you don't want to screw this up! Unfortunately, this is one of the many figures new investors get wrong.

One place people go to get rents is Rent-o-Meter. Rent-o-Meter is billed as an online resource to get accurate market rents. In my experience it is anything but! However, I have a fairly simple solution. Multiply what you see on Rent-o-Meter by 80% and you'll probably be close. I can't explain why but I find rents on Rent-o-Meter to be about 25% high, so multiplying their rents by 80% will get you close (do the math, it works out).

So then, how do you get market rents? Simple: start at the subject property and drive concentric circles around the neighborhood. Call every For Rent sign you see (if you don't see any this is a good sign!). Interview the landlords. A subtle but telling sign is how polite the landlords are on the phone. If they act overly solicitous and desperate it's a sign that vacancies are high and they're desperate to get tenants - not a good sign for you. If they are breezy, abrupt, and even rude, that's GREAT! It means they have too many phone calls for their vacancy and it's a strong landlord market. This is what you want to hear!

In many neighborhoods around town today this is exactly what you'll find. I know. When the vacancy rate was 13% a few years ago I was very nice over the phone. Now that it's 4%...well, a little less nice. Nothing like good -ol' market research.

The talk around the water cooler these days is all about LOANS. Who can get them? At what price? What if I already have a few loans, do I still qualify? A year or two ago the question was at what price do I get a loan (those were the days!). Today it is "am I still in the game?"

Here's the deal: if you have an owner occupied loan and 3 investor loans you cannot buy any more properties and get Fannie Mae / Freddie Mac financing, meaning you can't get a conventional 30-year fixed loan. Now, my hope is that someone reads this and tells me I'm wrong. That would be great! But as far as I know that is the case.

Where does this leave you? You can pursue loans that are warehoused by lenders, meaning they are not sold on the backend to Fannie or Freddie. You are probably looking at a minimum of 20% down but more importantly it will be almost impossible to get a 30-year loan. But a 5/1 ARM is not out of the question. (Lenders, please start a dialogue here and let folks know who has what products available.) There is also Hard Money available. I met with a group of high-end Hard Money lenders today to discuss options and the consensus is that they are proceeding...but with extreme caution.

A final version is to contact smaller local lenders. You'll need 25% down, but if your story makes sense, you'll get your loan - and usually at an attractive rate. Let me know what your situation is and I'll try to refer you to the right person.

A few weeks ago, the first part of this series, "Getting Started", http://activerain.com/blogsview/684869/Investing-in-Real-Estate-Getting-Started-1 gave you an overview of the eight different types of real estate investments. Today we are going to learn more about this category.

What this investment is: An investor who is interested in Assignments gets a property under contract for an attractive price then assigns the contract to another buyer, usually another investor. The first investor will be paid a fee for the work. If you don't have much equity to work with, and/or if your credit power is limited, assignments can be a way to get started in real estate investing. You will need to have a strong "sales" personality to succeed at it, though.

Equity needed: None, just earnest money.

Importance of credit: Not important, since you are not purchasing the property yourself.

Importance of experience with contractors: Not important. The person that you ‘flip' the property to will be doing the work.

Important of experience with property managers: Not important. The person purchasing the property from you will be managing the tenants.

The next few blog articles explore related topics, such as rentals, fix and flips, and new construction. Next week, we'll continue to explore assignments in more detail!

A few weeks ago, the first part of this series, "Getting Started", http://activerain.com/blogsview/684869/Investing-in-Real-Estate-Getting-Started-1 gave you an overview of the eight different types of real estate investments. Today we are going to learn more about this category.

What this investment is: A lease option (L/O) is Acquiring control of a property (though not necessarily ownership), then leasing the property to a tenant. The lease is bundled with an option, so the tenant can (but does not have to) purchase the property for a given price within a given time frame. Again you are seeking a tenant for a property, but usually for a slightly longer term (12-18 months) and frequently (though not always) with the goal that the tenant purchase the property from you at the end of the lease. If you purchase the property, then it's an easier process; if you find a highly motivated seller to let you re-lease the property to another tenant, it can be a lot of work to set up. However, the re-lease method doesn't require any cash out of pocket and does not rely on your credit score, so it is appealing to many investors. Great for beginners with the right skills and attitude.

Equity needed: If you get seller financing, potentially just a few thousand dollars for your operating account. If you purchase the property, 10% down (best case); more likely 20% down.

Importance of credit: If you leverage seller carry, not important at all. If you purchase the property, credit is important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Importance of experience with contractors: Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Next week, we'll continue to explore lease options in more detail!

A few weeks ago, the first part of this series, "Getting Started", http://activerain.com/blogsview/684869/Investing-in-Real-Estate-Getting-Started-1 gave you an overview of the eight different types of real estate investments. Today we are going to learn more about this category.

What this investment is: Purchasing a home that needs work. The scope can range from the basic "paint and carpet" to extensive overhauls to scraping a decrepit property and completely starting over. Usually does not involve tenants, and the objective is to get in and out of the property as quickly as possible. Great for beginners with the right skill sets or the willingness to learn.

Equity needed: With hard money loans (defined in next paragraph), potentially 0% and they'll finance the construction costs, too. Expect a LOT of strings to be attached. A small local lender might give you 75% of the purchase price and the renovation budget, and the terms will be a lot more pleasant than the hard money option. Or you can do 20% down and get a convention, non-owner occupied loan and pay for the renovation with cash or your Home Depot credit card.

Importance of credit: If you get a hard money loan, your credit will not matter as much. These are harder to find than they were last year. If you get a traditional loan, it'll be a non-owner occupant loan, credit score will be very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical. A hard money lender will lend you money based on the value of the property you are purchasing. If the property is worth $200,000 and you are able to purchase it for $150,000, a Hard Money Lender will probably give you a loan regardless of your down payment or credit score. However, the fees and the interest rate will be much less desirable than more conventional forms of financing. Hard Money Lenders can usually close very quickly, and from the Sellers' point of view, you are purchasing with Cash.

Importance of experience with contractors: Critical. If you have never done it before, start with an easier "paint and carpet" project to build your skills. The more sophisticated the project, the better your contractor management skills must be to make money. Not surprisingly, the simpler projects have lower profit margins than the complicated projects. Make sure you can take the time to really focus on the project. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Important of experience with property managers: Not important.

Next week, we'll continue to explore fix and flips in more detail!