?Renting Back? After Your Home Is Sold

?Renting Back? After Your Home Is Sold

Sometimes it?s helpful to sell your home before you really want to move. This often happens when you are having a new home built, but aren?t sure of the completion date. Is there any way you can sell your home so you?re sure of the funds available for the new purchase, but continue to live in your old home until construction of the new one is complete. Yes, there is with the renting back strategy.

Enter the Lease-Back or Rent-Back Agreement

The particulars of this strategy vary from state to state, but in the strong seller?s market we?re experiencing, buyers will often agree to let the seller stay in the home for a period of time as long as rent is paid. In a competitive situation, the buyer willing to do this will often have the winning bid even though there is another offer as high as his.

The agreement covering the situation states the length of time the seller will remain. It can be done with a specific date named or wording that allows the seller to remain up to a specific date with the possibility of her moving sooner. The amount can be a fixed figure paid out of the proceeds of settlement or a monthly amount, or a daily amount. It is usually, but not always, tied to the amount of the mortgage payment under the buyer?s new loan. Sometimes there is a deposit against damage, sometimes not. There is usually a clause saying the seller will hold the buyer harmless for any damage to himself or his property which occurs after the sale is consummated and before the seller moves.

The attorney who draws up your contract offer can create such an agreement. If you?re using online forms, you should be able to find one for this situation. If you?re working with a real estate broker, he or she can handle it for you.

An Example

I?ve recently seen a very pleasant example of this idea in action. An elderly widow contracted to have a one level condo unit built in a new community which provides all exterior maintenance. She had had hip replacement surgery and wanted to get away from the drawbacks of the home in which she?d reared her children. The home was large, had stairs and was located on a large, partially wooded lot with many mature perennials and shrubs. Both the home and garden were beautiful, but high maintenance.

Her contract to purchase required a series of deposits and a firm indication as to her source of funds well before settlement on her new condo. The widow put her home on the market. A young couple with two sons was very anxious to buy it. The situation was competitive. They made the widow an offer. She countered their original offer. She did not raise their offer price, which was slightly below her asking price. She did not believe the young couple would qualify for a larger loan. Instead, she did something rather creative.

The widow countered with a proposal that she ?rent back? for a period of ?up to? a certain date (a date beyond her scheduled competition date on the condo) in exchange for a modest flat sum to be paid to the buyer at settlement. The total rent back period was less than two months. The flat fee was less than the amount of the new mortgage payment for the buyers. However, since they made no payment on their new mortgage the first month, it wasn?t too far out of line. The couple really wanted the home, so they accepted the counter offer.

Another win, win situation was created. The widow only had to move one time and the young couple got a house they probably wouldn?t have in a straight bidding war. If you find yourself in a situation similar to either the widow or the young couple, perhaps you can work out a similar solution.

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Houston Rental Apartments

Houston Rental Apartments

The city of Houston in the State of Texas is the fourth largest city and one of the most bustling in the United States. With several apartments sprawled across its length, Houston is a prime location for people looking forward to settle down in a cozy dwelling with all the facilities that they wanted. Finding Houston apartments for rent is not a big hassle if the person knows where to look for one. There are several apartment finders operating in every area of the city, which provide one with all the details of the available apartments, such as the facilities, rent, etc. Houston apartments for rent generally provide settlers with the most modern and necessary facilities and amenities. House security is an important issue and the apartments are frequently packed with state-of-the-art security systems to ensure safety for the dwellers. Most of the apartments in the area are equipped with a swimming pool, and some of them even provide pool lifeguards in case of any trouble. Besides these, Houston apartments for rent provide other services as well, such as fitness and health clubs, shopping centers, proper parking places, meeting and convention centers, laundry services, sports grounds, etc.

For the convenience of people looking for apartments in Houston, several apartment finders operate in the area. These apartment finders provide people with the option to search for the apartment of their choice. www.houstonapartmentfinder.com is one of those many apartment finders in the area that offers quality service and has proven itself a cut above the rest through it. Houston Apartment Finder is free service providing organization that employs highly experienced staff with thorough knowledge of the area and its apartments. The organization is equipped with fully computerized profiles of numerous apartments on its huge database that takes away the hassle of apartment hunting from people looking for apartments. Houston Apartment Finder is compensated by the Houston apartments, which is why it provides free service to its customers and arranges apartments at the best rent. With convenient options on their website for people to search for apartments, Houston Apartment Finder emerges as a popular choice making it better than most of the other apartment finder online.

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Playing The Real Estate Rental Game

Playing The Real Estate Rental Game

Real estate investing is a game. To play it well you must understand the four financial benefits of real estate and how to maximize them. Those benefits are:

1. Cash flow
2. Equity build up (the payoff of your loan)
3. Tax benefits
4. Potential appreciation

In this article we are going to look at benefit number one.

Benefit number one ? Cash Flow (cash flow before tax).

Investing in real state is game of numbers. To play the game well you must understand how to manipulate the numbers to get the end results you want. The result being positive cash flow.

The formula to calculate the cash flow is listed below:

Gross Rental Income
Minus: Vacancy
Equals: Adjusted Gross Income
Minus: Operating Expenses
Equals: Net Operating Income
Minus: Debt Service Payments
Equals: Cash Flow Before Taxes

Here is an explanation of each of the factors in the formula above.

Gross rental income is the first number that you need. It includes all the rents and any other miscellaneous income from garage rents, laundry machines or vending machine. This number is that total income that we expect to get during the year.

Vacancy is a percentage of the gross rental income. It is based on that you won?t collect from of the rent that is expected because of bounced checks, evictions and vacant units during the year. This percentage will vary depending on the supply and demand for rental in your area. I commonly use a 5%PRCTG% vacancy factor when I don?t have any data to determine this. It is important to ALWAYS have a vacancy percentage. Many times the seller will tell you that they have had no vacancy. It is just not true because people?s lives change. They get divorced; lose their jobs and other changes. This causes them not to have the money to pay rent and creates vacancies.

Adjusted Gross Income is the actual money that you are going to receive.

Operating expense are all the costs that apply to the property each and every year other than the loan payments. It includes things like taxes, insurance, repairs, utilities that you pay and any other expenses.

Net Operating Income is that amount of money that the property produces after all operating expenses. This is the most important number because this is the number use to pay any loan payments. This is also the number that we use to determine the value of the property (more about this later).

Debt Service Payments is the amount of payments that you spend per year for any loan that you have on the property.

Cash Flow Before Tax is the amount of money that is left over after you have paid EVERYTHING. This is the amount of money that is you get to keep for your self.

Ok, now that I explained what all the numbers are, here are the keys to creating more cash flow. There is only basically two ways to do it. You have to get more income by increasing the rents and/or reducing vacancies losses or you need to reduce your operating expenses and /or your loan payments.

If you are buying, it obvious that by paying less for the property would mean that your loan should be less, therefore your loan payments should be less and should give you more cash flow.

It is extremely important that before you every buy any rental real estate that you look at the cash flow and you should run the numbers using three different scenarios. The best case where you rents are high and expenses are low, the worst-case scenario where the rents are low and the expenses are high and then a middle scenario. If the worst-case scenario still makes sense then the property should be a no-brainer and you should go ahead and buy.

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Investment Property – Leveraging Rental Property Equity

Investment Property – Leveraging Rental Property Equity

Owning investment property is a tremendous wealth building strategy. Thousands upon thousands of individuals have amassed great wealth by investing in rental properties.

Unfortunately, few investment property owners learn how to leverage equity in a way that maximizes tax deductions while creating and locking in equity gains. Instead, they leave themselves open to price fluctuations in the residential property market. These fluctuations can wipe out or severely reduce equity positions in property.

Housing Boom To End?

There is little doubt we are coming to the end of a huge boom market in residential properties. For the last four years, properties have appreciated at unheard of rates. The question, of course, is what happens when the market cools off? Will we simply see a price plateau or an actual drop in prices? While nobody is sure, the clear consensus is property owners should move to preserve equity while they can.

Protecting Equity Gains

Protecting equity gains in your investment property requires careful planning. This leveraging strategy is fairly simple, but can sound complex. Please keep in mind this is just an introduction to the investment property tax strategy. You will need to contact us to learn more.

The investment property tax strategy protects your equity gains by separating and leveraging them. The leveraging process is best explained with an example.

Scenario 1 ? Without Tax Strategy

Assume you purchased a rental property in 1999 for %250,000 with nothing down. As of July 2005, the combination of loan payments and appreciation has resulted in a gain of %250,000. You have amassed wealth, but all of it is at risk. If prices drop twenty percent over the next year, you will lose %100,000 of your equity in the rental property.

Scenario 2 ? With Tax Strategy

We are going to use the same exact scenario. It is July 2005, you have %250,000 in rental property equity, but all of it is risk. You decide to implement the investment property tax strategy and the following occurs.

Our goal is to protect the %250,000 in gain on the rental property while also maximizing tax reductions. The first step is to refinance the property with, typically, an interest only loan. A percentage of the equity gain is taken out of the property and placed into an equity index insurance product. The equity percentage is arrived at by determining the payment amount you can afford on the loan. Typically, it is tailored to match your current loan payment amount.

Going back to our scenario, what happens if property prices pull back 20%PRCTG% over the next year? You do not suffer the loss of %100,000 because the gain is sitting in your equity index insurance product. Essentially, it is a wash and you have protected the capital gains while capturing a stock market-based rate of return.

Ah, but it gets better.

Equity Index Insurance

The investment grade insurance product isn?t just any policy. Instead, the policy we use is tied to a stock market index. What if the stock market suffers a loss? Not to worry, this policy carries a guarantee that you will never lose a dollar, even if the market crashes. If the stock market did crash, the policy would simply credit you with nominal growth for the year in question. In all other years, the policy would grow with the stock market. On top of all of this, the money in the insurance product grows tax-free.

So, what has been accomplished? First, you have protected your rental property equity gains from home price fluctuations. Second, you have leveraged your equity into two growth channels, the stock market and appreciating house prices. Third, you have converted taxable growth [property appreciation] into tax-free growth [insurance].

With housing markets ready to cool down, this strategy effectively locks in your profits. Preserving equity gains should be a primary goal of any investment property owner.

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Seniors Did You Know You Obtain A Reverse Mortgage?

With the state of the economy caught on the brinks of being fair, but still unmanageable for some. Those affected by the awful plunge will be pleased to know that there is a tool that seniors can use in order to ensure that their debts are rectified. This tool is known as a reverse mortgage.

If you are presently an American senior who is aged 62 or older, and you own your home you can qualify for this type of mortgage in order to assist you with your day to day living expenses. The qualifications for reverse mortgages are actually quiet flexible.

Inadvertently, the two main qualifying factors are that you’re a senior and you presently own your dwelling. However, keep in mind that reverse mortgages are loans and they only pertain to particular types of homes that are considered to be acceptable by lenders.

Reverse mortgages are taken away from the value of your home. Basically, you will be living off of the equity of your home that you have already accrued through the period of ownership. Your home does not need to be paid off in order to qualify for one of these mortgages either.

One thing that a lot of seniors simply enjoy about these mortgages is the pay back schedule. The mortgage is considered to be paid back once your home has sold after you have passed away. This means, that for the most part many seniors do not have to worry about paying the loan back because in the end your loan can pay it back.

However, if you want to keep your home in the family you can use the loan that you obtained to pay your mortgage off, and then gradually work on paying the loan back. A reverse mortgage calculator is often times used in order to determine the amount of money that you will receive with a reverse mortgage.

Before you obtain a reverse mortgage for your property, it is imperative that you speak with a licensed lender about the process.

Mobile Home Rentals – A Great Investment

Mobile Home Rentals – A Great Investment

Why mobile home rentals? Get past the prejudice and look at the numbers. In our town, for example, a two bedroom house costs %130,000 and rents for %800/month. A %50,000 mobile home on real estate gets %500/month. Cash-on-cash return on investment is obviously higher with mobile homes.

Don’t let the half-truth that mobiles depreciate in value keep you from investing in them. They lose value in a park, on a rented lot, but not on real estate. My first home was a mobile, bought for %19,000 and sold for %45,000 fourteen years later.

House rentals here usually have negative cash flow, while mobile home rentals have some cash flow. Still, investors prefer houses, believing they’ll build equity faster, but is that true? Only during times of fast appreciation.

Equity Building With Mobile Home Rentals

Buy a house for %120,00 with %20,000 down, and take out a %100,000, 6%PRCTG%, 30-year mortgage. You’ll have a payment of %599.60. Of the first payment, %500 will go to interest, and %99.60 to principal. You only built equity of %99.60. This ignores appreciation, but only for the moment.

Second scenario: Find a mobile home for sale on land, and borrow %30,000, at 8%PRCTG%, amortised over 10 years. Higher interest and a shorter term is normal with mobiles, but being done with payments in 10 years instead of 30 sn’t all bad. The payment will be %363.99. The first month, %200 will go to interest, and %163.99 to principal. You built more equity in this scenario.

Mobile home rentals on land might appreciate more slowly than the “regular” house, but faster loan pay-down usually covers this factor. Pay less per month, have positive instead of negative cash flow, and build more equity! Don’t expect your real estate agent to tell you this.

Mobile Homes – Cash Flow

In the example, you’d lose about %150/month on the house, after the payment, taxes, insurance, repairs and other expenses. You’d have cash flow with the mobile home, and after ten years (when the loan is paid off), you’d have a lot of cash flow.

Mobiles are cheap to maintain. The furnace died in rental I owned, and I replaced it for %1,200, much less than a furnace for a larger home. For %200 you can have the roof tarred, instead of %5,000 to re-shingle a traditional roof. Windows, plumbing, doors – they’re all cheaper. Property taxes and insurance are less too (be sure you can get insurance, since some old mobiles may be uninsurable).

The Bottom Line

%20,000 can buy two mobiles, with %10,000 down on each, or four with %5,000 down on each, instead of one negative-cash-flow house. The two investors in our town that own most of the mobile homes always have cash flow, and have built millions in equity. Others, following their prejudices, struggle to make money with their “nice” rental homes. So when you’re looking for a good investment, don’t forget those mobile home rentals.

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