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General Real Estate Tip: Leverage Investments, Maximize Profits

Often I am asked, “Is it better to buy properties using all cash or to finance with a loan?”  The answer is, “Both.”  The old saying, “Cash is King” is true… IF you never run out of cash…  but, since all of us, even the wealthiest people in the world, are on some kind of finite budget, having the ability to secure vast amounts of loan financing is often more valuable than having only an exhaustible amount of cash.  Knowing when to use your own cash or when to use someone else’s cash is the question you need to answer.  This blog is dedicated to maximizing your return from your income properties by recognizing the pluses and minuses to using cash versus loan financing.

When you purchase with cash, you will receive five distinct perceived advantages, but are they really advantages or just popular myths?  First, you will qualify for any type of sale that you are entertaining, i.e. REO properties, HUD properties, VA repos, Short-Sales, Conventional Sales, Courtroom Steps Auctions etc…  A seller may reject your offers on the grounds of price and terms, but, it’s a guarantee, no seller in their right mind is going to tell you, “hmmm…I don’t know if cash is going to work for me”… unless you’re our own government (there are certain government attached properties that give preference to certain types of financing).  When financing a property purchase while using a loan, your options can be restricted based on the type of sale, seller requirements, and property condition (many lenders will not lend funds if property condition is not at a certain expectation which is noted in the property appraisal).

Secondly, cash financing has an advantage in that it can allow for a quick closing.  That means, usually, less chance of a long; strung out, escrow process, hence less stress.  It also means you, as the savvy buyer, can quickly start making income from the property by renting or reselling it.  Furthermore, as a seller, your eyes light up because cash financing looks like a ‘sure thing’ and it’s perceived that a seller will be able to accomplish their goal of selling their property… at least in theory.  Therefore, a cash buyer usually receives preference from a seller, as long as the terms and purchase price are similar, over all other forms of financing (again some government sales this generalization is not true).

 The third major advantage cash has over financing is there is no risk of failing to finance.  Therefore, not only is the seller going to feel more at ease, but you, as the buyer, can too, which will free up time and energy to move onto other investments or concentrate on other aspects of your life.  Time is money.  Too often buyers fail to finance for many reasons, a property appraisal comes in low, a property condition comes in unsatisfactory to the lender,  or the buyer owns too many other liabilities such as other properties or vehicles that have loans on them also and the lender now feels uncomfortable issuing another because of the ‘debt to income ratio’ risk looks unsafe to the investors backing the new loan.

Fourth, it’s cheaper to use cash…really?  On one hand, yes, using cash can save you money on your closing costs, usually about 1% of the property purchase price and it can save you and the seller time.  However, on the other hand, your cash is now tied up in that property, upon purchasing, for usually a minimum of six months if you plan to refinance or about 30-90 days for if you choose to sell.  If you ever want the cash out of the property, you will need to commonly, sell, take out a home equity line of credit, or do what is called a cash-out- refinance, two of the three will cost you many more percentage points than the 1% extra you pay to use a loan during your original purchase.   So, perhaps, because of its rigidness, cash is not the cheapest way to go, figure out your own homework and keep track of your own bank account to know for certain.

Fifth, as a cash buyer, many people argue that you receive the ‘peace of mind’ of not having a monthly mortgage payment to cover.  This can be true.  Much like the time aspect pointed out in number two, having peace of mind and decreasing your stress level will allow you to think more clearly and focus on other things.  However, if you take a moment to contemplate life, you’ll see, often, you’re only kidding yourself.  Each year inflation, taxes, college tuition, retirement, entertainment, food, gas, and other ever climbing life costs grab a piece of your pie faster than your salary is probably increasing (in the last 10 years the average United States worker has actually had a 10% decrease in their salary/wages and an increase in their taxes).  You’re currently fighting a losing battle and need to find new ways to bring your income and quality of life back up to where you desire it to be.  When you purchase real estate using cash financing your return on your investment differs dramatically from the return on the investment you would receive when purchasing using loan financing.   A cash buyer may be receiving a 12% gross return on your investment if he/she purchases a property for 97K (estimated 3K closing costs equals 100K total) and the property rents for 1000K per month.  On the other hand, a loan buyer that has the same 100K in his or her bank account, purchasing the same 97K property (estimated 3-4K closing costs) places about a 20% down payment (20K) to receive their loan of about $600 per month on a 30 year fixed mortgage (figure roughly includes taxes and insurance in Las Vegas).  This would allow them to purchase five properties instead of only one for the same 100K.  As long as they receive a loan with a good percentage rate (today’s general investor rates are about 5%) they will come out far ahead in the game.  In this scenario, with five cash producing properties instead of just one, the actual dollar figure they would come out ahead would be rough $1600.00 (4 X $400) per month (That’s almost 20K per year), and that figure does not include possible tax write offs or property appreciation!  There you can easily see, if you’re limited on cash, cash becomes queen and leverage is king by using your good credit to obtain more financing from loans.

So, for all those pessimists and worry warts out there who are about to pipe in and say, “What happens when my properties are vacant or rental incomes drop and I now have to cover a mortgage?”  Remember, first, a savvy investor always ensures they purchase cash flow positive properties or have hard and fast rules for selling a losing investment when they do buy.  Second, with the rising costs of your daily world, doing nothing about it is really not an option and most people’s quality of life is currently continuing to deteriorate without solid investments. Third, you’re making $2000.00 per month positive cash flow when you are renting all five properties (5 X $400).  In a scenario where two of the five properties sit vacant for long periods of time (minus $800 from your cash flow and add $1200 to your expenses by covering your vacant mortgages out of your own pocket), you will still be at a breakeven point which can actually usually still be pushed into the green with tax incentives claimed on your “depreciating,” “losing”, “investments” when tax time comes around.

 For those of you who are still worried and want to play it ‘safe’, buying with cash will at least allow you to cover some of your everyday losses from economic inflation, however, remember, if your one and only property goes vacant, then you will have no income coming in at all.  The bottom line, all investments have risks, mediating those risks is key and doing nothing is really not a viable option unless you want to accept a lesser quality of life in the future.  If you don’t believe me and would like to verify, next time you drop by the grocery store, take a look at the prices of everything.   As a practical exercise, pick out a handful of your favorite items you used to purchase as a kid and compare them to the prices you used to purchase them for.  My example is Starkist Tuna fish; I used to buy these cans as part a staple diet all through college less than 15 years ago for 38 cents a can.  I just saw them at Sam’s Club, a usually ‘cheap’ vendor, last week for just over $1.00 per can.  When you conduct this experiment, if you notice one or more of your examples has not shot up in price, I challenge you to then check the quality.  Usually you’ll notice the quality dramatically went down if the price did not shoot up.  For those of you who still feel purchasing property is too much of a risk, perhaps real estate investing is not the right type for you, perhaps you would like to continue contributing to a 401K that ‘someone else’ overlooks, because we all know those ‘safe’ investments all preformed so well in the last few years.

Lastly, please notice how nowhere in the above paragraphs have I ever mentioned that cash will give you a ‘discount off the property.’   Sometimes people argue with me until they are blue in the face that, strictly because they are purchasing with cash, that entitles them to a huge discount on every property they deem interesting.   It is true the a cash buyer has a greater chance of creating a ‘low-ball’ scenario, however, this absolute ‘must be’ opinion is one of the biggest myths in the real estate industry as a ‘discount’ off a property has to do a lot more with the motivation of the seller than any kind of financing that is ever used for the purchase.   For example, at the courtroom steps auctions, banks liquidate their distressed property holdings for immediate cash.  They are willing to sacrifice money, in offering a discount to quick cash buyers, in exchange for saving the time and energy it will take to place a property onto the retail market and then waiting for a buyer to come.  On the other hand the buyer is willing to risk certain protection concessions and incur more liability.  Again, time is money on both sides.

Don’t be fooled, often a buyer using financing has received a better ‘deal’ than the cash buyer; it’s all in the motivation of the seller.  Remember also, terms of sale are more important than the purchase price itself.  If you get fixated only on price, you will always fail to maximize your profits.  As a true investor, you should be willing to buy absolutely anything as long as it provides the correct terms of sale.  Ask yourself, if you knew of a prospective rental property would provide you a 100% return on your money for many years to come, would you feel comfortable buying that property for more than it is worth (appraised value) or do you feel the need to buy a property at a 20% discount no matter what even while it may currently rent for a 5% return on your money and looks to be dropping in value?  I know your answer is, “I want both the discount and the return,” all investors say that, but the reality is, there are 24 hours in a day, seven days in a week, and 365 days in a year.  If you’re always waiting for the ‘perfect deal’ to come along, you just missed several ‘good deals’ that would make you a lot more money than the one perfect one that may never even come.  Furthermore, a sale type like an auction that provides very little safety measures for your money may end up being a money pit for you instead of a safer retail market investment that usually affords luxuries such as title insure and other contractual safety nets.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.

 

Sincerely,

 

 

James Bellile

Phone: 702-222-0815

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 

This blog was originally written 11-18-2011

Vegas Valley Real Estate: Sell my Current Residence Before or After Upgrading?

(This blog is written for a current real estate market that has rising or level prices, you may not want to use this philosophy in a declining market)  The other day I met a man who wanted to purchase a new place in Las Vegas.  He was an older gentleman who wanted to unload his current residence, a small two story condo, and buy a single story home with a pool.   Like many people who currently own in Las Vegas Nevada, he was looking to take advantage of the huge price reductions and upgrade to a larger place.  This gentleman was very serious about purchasing immediately…until… the reality kicked in that he would be losing money on the property he was planning to sell even though he would be gaining the same loss or coming out ahead from the next purchase.  Mimicking many people I’ve heard rant before he declared; “I don’t want to sell right now because I’ll lose too much money on this home.  I’m waiting for the market to go up before selling and then I’ll purchase a larger home then.”  It’s very important fact to point out, that this particular condo was owned free and clear and condos in his neighborhood, like many neighborhoods here in a Vegas currently, were lasting less than a week on the open market before being swarmed with multiple offers from hungry buyers.

At this point, I would really have liked to ask the simplest of questions, “Really?  So how’s that working out for you?”  But, logically, being in real estate as long as I have and knowing when someone is truly set in their ways, it seemed like a waste of breath.  However, if someone is reading this blog right now who may be my redeeming grace, an opinion I could possibly change, someone out there in the same situation as this gentlemen, whose sitting on the fence, stubborn as an ox in winter, but curious enough to read on, I’d love to break this man’s ‘logical’ argument down to the bare bones for you and show you just how totally irrational and, downright foolish, it is.

OK, let’s first start with the fact that this gentleman owns a condo.  Did you know that, in general, condos and townhomes are the first real estate types to go down in value during a crash and the last real estate types to recover during a boom?   Yep, that’s right, therefore, unfortunately, by the time this man can sell his condo for what he wants for it (which requires a real estate market that rises in value to meet his expectations), then spends two to six months or more looking around to purchase his new single family home in a market that was already rising, he’ll probably end up spending tens of thousands of dollars more than he has to on the future upgrade purchase.

Secondly, did you know that, during real estate crashes, larger homes generally sell for much cheaper per square foot than smaller homes of the same nature?  Why?  The answer is kind of complex, but it basically boils down to the ‘herd mentality.’  Warren Buffet was once quoted as saying, [if you want to make money], “Be fearful when others are greedy and greedy when others are fearful.” For those of you who paid attention during our real estate boom throughout the country, especially on the coasts, you may have noticed that during the mid 2000’s people were slinging money bidding on houses like it was going out of style.  To some extent, this is always true during a boom.  However, just the opposite happens in a crash.  People instead become extremely tight with their money, question everything, and try to spend as little as possible.  Investors buy smaller/cheaper properties because they are trying to minimize risks and primary residence and second home buyers don’t tend to overpay as grossly for a property they like because there are, or at least it is perceived, ‘many more fish in the sea’ if a particular house should not pan out.  And, of course, to everyone, investor or primary residence purchaser alike, ‘the economy is bad’ and unnecessary risks are to be avoided at all costs, hence larger homes tend to sell much cheaper in price per square foot during a crash.

Lastly, let’s just say you took this gentlemen’s advice and waited to sell your current home first.  Now let’s skip forward in time.  Your home is now sold; now what?  You’re now hurried to find a rental in a market that is more competitive than before? Or maybe you are encroaching on relatives and friends for a place to live ‘temporarily’ while you look for your new place?   This also causes a huge array of possible dilemmas.  Where’s all your ‘stuff’ being stored in the mean time?  Is your new ‘temporary’ residence large enough for all of it or will you rent storage space as well?  Will you feel pressure to rush and find the first place that is available rather than somewhere you really want to live so you can get back to a permanent living situation?  Will you feel stress about the uncertain length of time your new ‘temporary’ living conditions will be accommodating you?  How will your daily routines be interrupted?  All this time I’ve been saying ‘you’ and ‘your’, but what about those that live with you, if you are not single?  How will they be reacting to all this change?  Last, but not least, when you finally do get around to house shopping again from your new, unstable, living quarters, do you understand that in a rising real estate market, sellers have the advantage and buyers lose out on perks like having their closing costs paid by the sellers (several thousands of dollars in out of pocket expense now shifted to YOU).  Doesn’t this whole paragraph just sound delightful to you?

So, let’s revisit this gentleman’s core logic again.  What would have brought more merit to his way of thinking?   Is it savable at all?  The answer is yes.  If you cannot or are unwilling to rent for a while if you sell your current home first; if you cannot afford to float two mortgages for a reasonable length of time while you are trying to sell your previous home after your new purchase; or if you are unwilling to become a landlord; then YES, you would have made a solidly logical decision for erring on the side of conservative.  Unfortunately, like this man, that’s not why many potential upgrade buyers recall their decision to purchase immediately when faced with this dilemma, but, hey, it is what it is, and I’m willing to call a spade a spade if you are.  I’m hoping this blog may provide someone out there with the courage to do what is smart, not just what appears (be it falsely) to be the safe move.   Make the well planned, calculated risk, and purchase your larger upgrade home before you sell your current one.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.

 

Sincerely,

 

 

James Bellile

Phone:  702-222-0815

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

Las Vegas Real Estate: Where did all the houses go?

Perhaps you’ve been driving around looking at the condition of the Las Vegas valley.  If so, you’ve probably noticed that many new home builders have increased production substantially and are advertising their developments much more ferociously than they had been doing the last few years, correct?  You may also have noticed that a few commercial complexes are popping up here and there and some infrastructure is being added to the previously halted road construction projects throughout the city, but especially the south side and northwest corner.  How about downtown?  Did you notice that many of the older commercial areas off Las Vegas Blvd have been either knocked down or shut down and fenced off with steel mesh fencing?  Did you notice the freeway signs scattered throughout the city stenciled “Zappos” adopted highway?  During your escapades about, did you happen to notice the lack of residential home signs out there in people’s yards?  I wrote a blog almost two years ago titled Las Vegas Globalization.  It was a monster of a blog, coming in at 10+ pages, and I sincerely thank the one or two people who graced their eyes on it to the end.   Although it was long and dull to most, so far, it’s well worth the read, as, everything I’ve listed above, and more, I already predicted would happen, has happened, almost to the number.

This blog is dedicated to describing these tell tale signs of upcoming growth and exposing them for what they truly are, our government’s attempt to falsely inflate everything to appear much more stable than we really are.  Everyone knows that this is election year.  The last thing politicians, both Democrats and Republicans alike, want before new voters casting their ballots in November is the open existence of a stalled and stale economy which has remained throughout the last four years.  Did you know that there are still an estimated 100,000 properties alone in the Las Vegas valley that have missed payments and are in danger of foreclosing?  Yet we have barely 4,500 single family homes currently listed for sale on the available retail market, very few new properties being listed each day, and more than 3,000  properties (all types) a month being purchased by a frenzy of buyers continuously multiple bidding nearly every listing out there.  Top put that into perspective, those shortages of numbers are almost what they were during the crazy boom we had in 2004-2006 where people were bidding 10%-20% over listed prices and writing offers on car hoods so they could run back in the properties and present to the owner before the owner picked from a line of other offers.

Why does this shortage exist currently?  The largest reason is a law called AB284.  This was a law passed by our state government last year in October of 2011.  I encourage you to look it up for exact details, but, basically, this law forces banks to have all the necessary paperwork in order before proceeding to foreclose on a property (imagine that, they didn’t track it too well before, apparently, as there are estimates of several hundred to several thousand illegal foreclosures just here in the city) and then, if a property owner wants to work with the bank instead of foreclosing, the bank is encouraged to assist the property owner with a short-sale or loan modification.  Furthermore, the bank, in most cases, cannot place a new Notice of Default (a Notice of Default is the first legal step in the foreclosure process approximately 90 days of missed payments) against a property until all avenues of resolution, outside of foreclosure, have been exhausted.  Sounds like a good deal, right?  Wrong.  You see, the banks restrict loan modifications to a 2% interest rate on the remaining loan balance in 99% of all cases out there.  Principle modifications are unicorns, not just unicorns, but purple unicorns in velvet.   Here’s the problem with that, Las Vegas real estate has fallen more than 60% since 2006 so the remaining balance on many loans still offers a payment greater than what rent would be on the same property and stiffs the owner with an access of 40% debt on their loan so most loan modifications will never go to completion, but rather, they are used as a stall method by the homeowner to remain in the property for free (it’s important to note, because few Notice of Defaults are filed, the homeowner may actually want out, but may be stuck in the home) and they are actually liked by the banks as this stall tactic is stalling new inventory from hitting a buyer frenzied market that has falsely now increased in price 10% in most neighborhoods to as much as 30% in some neighborhoods since last Christmas.  So the question becomes can this go on?  The answer is YES it can, not inevitably of course, but until the game of musical chairs stops its music again just like it did in 2007 and the market crashes again.  You see our state legislators are not even convening until February 2013.  Therefore, at best case scenario, AB284 can’t be modified or overturned until the Summer of 2013 and the effects of the overturned law wouldn’t be felt until early 2014.

  So, now that I’ve disclosed these facts, I’d like to revisit the first paragraph and address this growth in new construction developments and downtown.  Because there is nearly zero move-in-condition inventory on our market, cash buyers have been snatching up most of that which is left.   This leaves normal, everyday, people who need a loan to purchase their home with no alternative than to go to the new home builders.  Hence the reason new home sales are now up almost 400% since Christmas and most builders have increased their prices by as much as 30% in that time as well forcing a loan buyer to overpay for a property if they want a nice home.  Likewise, people at the top of the food chain see this trend and, although they haven’t built yet, as many are recovering from bad business years themselves or are emerging from business bankruptcy, also the fact that the election results have not come in yet, they have taken steps to acquire land for future development which is why you are seeing so much new vacant land and steel fencing downtown.  Simply put, as always, the rich are getting richer and the poor are getting poorer… fast.  One more point of interest, how many people do you know who have gotten a raise in the last four years at their current jobs locally in Las Vegas?  If you’re a tip earner, you may notice a small increase to your paycheck, but how about the tips?  Are your tips anywhere near the same as what they were in 2007?

Furthermore, I mentioned Zappos above.  Zappos, for those who don’t know, is Zappos.com, a huge online shoe retailer that was purchased a while back by Amazon.com for 500+ million dollars.  The CEO of Zappos is Tony Hsiech and he is hailed for being responsible for the revitalization of downtown San Fransico a few years back.  Zappos headquarters was in Henderson, but, very early in the year, Mr. Hsiech moved his operation to downtown Las Vegas, where he has publically pledged to help revitalize downtown along with our mayor, previous mayor, and a few other influential figures throughout the city.  As you can see by the first hand growth of the new city hall, revitalization of some downtown businesses, and First Friday growth from what started as a few hundred people a few years ago to what is now thousands of people, they are having some good successes.

So, what shall be the ending of this blog?  I guess what I’d really like to convey to a reader, who fought this far, is that, whether it’s false growth or real growth, knowing when the music stops in the game of economic musical chairs is far more important than debating what’s real and what is not.  I saw a lot of people make A LOT of money flipping houses this spring.   I was even involved in a few successful ventures myself.  But, if flipping isn’t your thing, keep in mind, with inventory disappearing, how long before the supply of rental houses disappears as well?   Whether you are an investor or just the average person who doesn’t want to rent anymore, this should be of concern to you.  Move-in-condition properties are becoming harder and harder to find every single day and the acceptance of paying above the marked listed price is becoming a normal practice again already.  Are you starting to see a repeat of 2006 coming?  So when’s the crash again?  2017, 2018, 2020?  Maybe never, maybe our politicians will be able to convince or, at least, scare, enough people into holding onto their upside-down homes long enough to fight it off for another generation or longer.   The time to buy is now.  Act on it.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

Las Vegas Real Estate: Renting VS. Buying : The Truth: Why Buy Now?


We’ve all heard the cliché, “It’s better to own than to rent,” but is that always true?  NO!  This blog is the real scoop of when it makes sense to buy and when it makes sense to rent.   In these times of an economy that constantly spews doom and gloom, it’s hard to imagine why anyone would buy any ‘investment’, but that’s actually a pretty narrow sighted idea.  No matter what the economy atmosphere, buying a home can make perfect, logical, sense.

Why Buy?

The Positives

  1. Security— Your rent will never go up (as long as you have a fixed rate loan), but it can end (except for the property taxes).  Being a history major in college, I found it astounding that many people discourage others from purchasing real estate for the fear that it will no longer go up in value.  If you are talking about the short-term, then the idea of not buying is absolutely true, however, if you are referring to the long term, I have two questions for you, first, have you ever taken a glance at the history of homes in the United States?  If you did, you’d notice, in the 1920s, people discouraged buying of real estate because home values were a whopping $300.00 average across the nation.  In the 1950s, it happened again, this time the finger pointers boasted a $3,000.00 average.  In the 1970s, it happened again, this time in the tens of thousands.  Now in the 2010’s, just like every other year in the history of our country prior, it’s happening again.  This time average home values are in the hundreds of thousands of dollars.  In Philosophy, they call this negative way of thinking the theory of ‘Counter-Induction’, the idea that if X happens more and more times, the chances of Y happening becomes greater and, at some point in the future, Y becomes the only possible outcome.   In contrast, the theory of “Induction,” is the idea that if X happens more and more times, the chances of X continuing to happen into the future grows greater.   Unfortunately, although most economists would agree that Induction is their theory of choice, neither one of these theories have ever been proven to be fact, thus, I’ll take you into question number two, that being, are we creating more land?  Even if you are truly hard headed and argue with me that we are, in fact, creating more useable land through irrigation and new inventions which allow human beings to adapt to harsher climates, the reality is, even if we, as a global society, became wildly exuberant and expanded into space, the development all land costs money and this increases the prices of the end product housing tracks.  Using these advanced technologies to make land more appealing or, even, inhabitable, in some cases, is expensive, so this would push the price point of real estate even higher.   The bottom line, even if you don’t believe in Induction, supply and demand is going to prove eventual booming housing prices in any country that maintains a growing population and a stable government.   In the late 1980s Southern California home prices fell like a rock.  They became less than half their value in only a few years.  People thought it was the end, however, in only two short years; prices rebounded to what they had fallen from, and then proceeded to climb 10%-15% annually for the next 15 years!  One question, do you think rents remained the same rate during this time?  After all, if an investor (aka landlord) now is put into a situation that, in order to buy property at all, they must pay a whopping 200% more for property, can that investor even afford to keep rents the same as they once were?  Remember, even in a best case scenario that the investor paid cash for the property and does not have a mortgage to cover, increased purchase prices increase the tax burden on the property purchaser as well, therefore, they must raise rent just to offset the tax increase.  Now what if they had a mortgage on that property they had to cover the expenses of paying for as well?  Don’t forget, higher costs of living demands higher wages for all to have a comfortable lifestyle, now the cost of contractors and materials is higher for repairs.  Hence the reason why southern California’s rent more than tripled in the last 20 years.
  2. Stability— Your place of residence has stability i.e. no more hassling with changing your address: moving expenses, time spent finding a new place, mail missing, etc…  There are many things that can be said about living with stability.  Knowing where you will sleep, how you will live day to day, and where you can be found by others has a large amount of benefits.  Buying a home may increase your social network or, at least, allow you to occupy your mind with other things that need your attention now that the basic need of shelter has been met.
  3. Tax Benefits— Your ‘rent’ is now a tax write off.  Yes, the interest on your primary residence now has certain tax benefits for you.  I won’t go into it in detail, please speak with a licensed accountant for that, however, you will have an annual write off for the interest you pay on your loan each month and, in the future, should your home value go up and you should want to sell your property, provided you have lived in your home for more than two years (or three of the last five years) you can shield up to $250,000.00 of that appreciation from paying any capital gains tax.  If you have a spouse, that number is doubled, yes that’s right, a half million dollars.
  4. Creativity & Bragging Rights— With your home, your level of restriction for how you adapt and maintain your home is far different than should you rent that same property.   Make it YOUR castle.
  5. Buying is Less Expensive than Renting— Did you know, right now, today, in the Las Vegas Valley, you will pay 10-20% less to on your monthly mortgage payment to buy the same home as to rent it?  That’s across the board with almost no exceptions and this discount does not include your tax benefits and possible future appreciation.  Yes, for the first time in a very long time, pending you have no major maintenance issues, it is far cheaper to own than it is to rent.  Enough said.

The Negatives

  1.  Getting trapped by Falling Prices— Let’s face it, losing your freedom along with your wallet SUCKS!    If a tens of thousands of dollars loss doesn’t get you down, then, more than likely, the inability to move at your leisure will.   However, the reality is, if you’re a renter, you face these same exact fears.  First off, unless you are in a rent controlled environment, with the exception of some age restricted communities (Las Vegas currently does not have rent control) you’re landlord can choose to raise your rent at the end of your lease term.  Your landlord might also choose to evict you leaving you out looking for a new place, at which point, luck better be on your side to find ‘the one’ or you’re forced to settle for what’s out there.   Lastly, God forbid, you get into trouble with your home if you did purchase, there are plenty of viable solutions out there for you to alleviate this aliment; four of the most common are, one, rent your home out, two, short-sale your home, three, proceed with a loan modification or, four, claim bankruptcy.  Guess what?  All four of these options can have you escape from your situation and moving on with life in a reasonable timeframe giving you the freedom to move around or the buying power you need to enjoy other ventures.
  1. 2.       Maintenance issues— Unexpected expenses come up and you’re forced to make the hard decision to use your valuable money to repair your home.  Hey, such is life, stuff happens.  At the same time, you’ll find people like me; I’ve owned my home for over seven years at the time of this blog.  Thus far, I’ve replaced a tile floor ($550 for materials, I installed it myself), water heater ($550 installed), I’ve painted ($300 for material, I painted it myself), had the carpets cleaned ($300) and I had a dishwasher that needed to be repaired ($80).  Besides a simple light bulb here and there, that’s it.  Therefore, for just $1780.00, I’ve kept my house up to my standards for over seven years, that’s $21 dollars per month!    Considering, if you purchased right now, your monthly mortgage payment on a 30 year fixed note will average at a 10%-20% discount from what you would pay in rent on the same exact property, this maintenance expense is really offset quite well.  What you’re really telling yourself when using maintenance as an excuse is, “I don’t want to use the time to do it myself or I don’t want to use the money to pay someone else.”  Realize by the above examples, however, even if you are a renter, most landlords have you fix the smaller end stuff so you could throw out my costs of carpet cleaning, dishwasher repair (it’s less than $100 and many leases state this dollar figure to be the tenant’s expense), and the paint as these would all be expenses you would be responsible for as a renter as well.  Tiling was a personal choice so that one could be thrown out too, bringing my ‘extra’ maintenance costs of actually owning my personal home from $21 dollars per month to $6 dollars and 50 cents!  Many leases also wrap tenants into paying landscaping, trash, sewer, and even the HOA, so what becomes the big savings as a renter now? Therefore, using maintenance only as an excuse, it’s just impractical, what you’re admitting by default is really that you’re not responsible enough to save a nest egg just in case something should go wrongThis may be a much larger issue you need to address with yourself, which leads me to number three.

 3.       Saving Up For the Down Payment— Short on cash?  Sure you are everyone is; even the wealthiest Americans always seem to ‘need’ more every year.   The best business book I ever read is The Richest Man in Babylon.  At a mere 125 pages (very small pages at that), it really breaks down how simple it is to save.  Just 10% of your earnings every month will have you on the path to financial security sooner than you think.  I know what are thinking “10%, are you kidding,” but, like the book states, you usually won’t even feel it.  However, if you are short on cash, right now, and what to still purchase immediately, there are three low down payment loans that may work for you.   If you served in the military and were honorably discharged, a Veteran’s Administration loan (VA) is a dollar down loan.  If you buy certain types of properties you can qualify for a government loan known as a Homepath loan.  This loan requires a 3% down payment.  And, finally, there is the Federal Housing Administration loan (FHA).  This loan requires a 3.5% down payment.  Still need more cash just for this down payment?  Then ask a friend!  That’s right, a friend, business partner, employer, or, preferably, a family member can ‘gift’ you funds for a down payment.  Remember, however, although there are a wide variety of reasons you may be short on your funds to begin with, developing a good financial education is key to avoiding future pitfalls no matter if you are a buyer or a renter.

 

  1. My work is Unstable— the average American now changes jobs every three years.  If you’re work is ‘unstable’ welcome to the club.   If you’re work really is unstable, or, at least, the perception is to you that it is, and this force is so powerful that it is changing your major life decisions (buying a house aside) you may want to consider other companies you can jump to for greater stability or shifting into a new line of work all together.
  1. 5.       Because I like paying more— Because your pockets are so heavy they are constantly getting in the way, weighing you down, and make life tough to navigate.  Perhaps you are not an extraordinary wealthy individual and are, in fact, a radical hippy that believes, “possessions are the devil man.”  Perhaps you are an individual within the population that does not have any self worth and, rather than seeking counseling to correct this behavior, have planned to drink the spiked cool-aid yourself at any moment, removing yourself from the genetic pool and rendering the rest of us free of your infectious stupidity for generations to come.   In any case, I applaud you.  Be yourself!  However, using the “reasonable person’s test”, as it’s commonly known by in our court system, by studying the facts above, if it makes sense to YOU, then give me a ring, ask some questions before proceeding further,  and then start identifying yourself to the world as a ‘buyer’ and, eventually, an ‘owner’.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 

 



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Real Estate : Top 5 Tricks of the Trade to Sell Your Property Fast

#5   Make small repairs and neutralize your property! — Unless you absolutely don’t have the time or money to repair your property, even just a little bit, do it, the payoff is usually huge.  Don’t forget, when you are using your property, it’s important to make your property your own, but when it comes time to sell, make it someone else’s vision of comfortable living.   I’m not talking about remodeling for the sake of remodeling, I absolutely 100% promise you that no matter what you remodel, someone touring your property is not going to like it or many of the other items that are pre-existing, which you chose not to remodel.  People’s choices in properties are as unique as their choices in everything else in life.  The key is to make it appeal to the majority without going so far over the top that you, not only, bust your budget, but also create a bland property that everyone likes, but no one wants to purchase  because none of them feels a connection with the property due to it becoming so neutralized it now lacks a personality.  What I am saying is that if you know certain things within your property are only popular with a small fraction of the population; change those items BEFORE you place your property on the market.  Some examples are radical paint colors, a theme room dedicated for only one specified specific function like a movie theater or hobby room, and collectables and knickknacks.    Oh, and don’t forget, your children and your pets.  Buyers may or may not have children and/or pets and, even if they do, you, as a savvy seller, do not need them, as your prospective buyers, concentrating their attention on anything, but the property that you actively trying to sell.

Out of all the Top Five, point number five gets the most personal and can become quite awkward.  Let’s face it, nobody what’s to hear that their taste is, to say it politely, ‘not appealing’, but a seller NEEDS to hear it in order to get the results they desire, i.e. the most money in the shortest time on the market with the least amount of hassles.    For this, as a Seller, don’t try to determine a sour point in your property by yourself, ask your professional, as he or she is the person who should be completely detached from any emotional attachment to your property.   If you, my reader, does not think much of a Realtors opinion, perhaps we are all, “the equivalent of a shady used car salesmen,” (I actually was called this by a patron one time at an open house) then think of it this way, did you know that doctors and lawyers rarely take themselves or family members on as patients/clients.  Why?  Because they know that they will probably make mistakes due to their own emotionally clouded judgment.  Why would picking repairs and neutralizing your home to successfully sell it be any different?  Side Note:  By the way, that gentleman from the open house was shocked once I showed him my resume.  He then asked, “Why do you do this [for a profession]?”  I simply responded, “Because I not only love this job, but I know many people think the way you do and I’d like to change that.”

#4   Clean and Declutter your property! — Good God reader, you cannot imagine some of properties Realtors walk into.  Simply cleaning your property and removing most of your belongings and storing them outside of the living area you are trying to sell is important.   Buyers want to see where THEIR stuff fits together nicely within your property so they can make an educated decision if they would like to live there.  Lastly, make sure your property smells just as good as it looks; music and food can do wonders too.  Most people were given, at least, five senses with which to observe the world, make absolute sure your property appeals as well as possible to all of them as people will notice if something is missing or just ‘not quite right’.

#3  Put yourself in the Buyers shoes! — People take this for granted, but this is an absolutely crucial item a seller must understand with their property.  Ask yourself, if you were the buyer, who are you i.e. what might you do for a living, do you have a family and/or pets, what kind of active or inactive lifestyle might you live, who are the people you would associate with in your life etc…?  Next, who within this population of perspective buyers can truly afford your property?  There’s a big difference between buyers and lookers, right?  If a perspective buyer can afford it, what do they want/expect from this property? When do they want to move in or place tenants and what are some obstacles that may arise because of this time urgency (or lack thereof) that you must deal with in order to achieve your goal of selling?  Where is their stuff going to be placed or can you currently only see your stuff?  How will the buyers’ own agent maneuver to make this deal happen (think strategy)?  Is there another property that a buyer would rather buy with their hard earned money?  Remember, you want to sell high because your planning on keeping the extra money.  The buyer wants to buy low because he/she wants to do the same thing.  There are a lot of other questions you can ask yourself, but just simply think, do your best to create a WIN-WIN scenario when selling your property and, strangely, this ‘simple’ concept will usually bring Sellers the most money and least hassle too.  Follow the golden rule and it’ll make you rich… imagine that.

#2   Advertise! — If no buyers know about your property, it’s a guarantee; no buyers will ever buy your property.  Although a Realtor can help you excel with all the points on this list, this point is truly where having a Realtor on your side is really worth its’ weight in gold.  Having an experienced agent with access to a large amount of mass media and business networks is a must.

#1 The absolute #1 Thing a Seller Must Do for a Smooth Sale…   Drum Roll Please… Price Your Property Listing Right the First Time!  — Even if a property has fallen short in all the points previously and doesn’t catch perspective buyers’ eyes, somehow a suitable price tag can always make it THEE PROPERTY for them.  Now, that point of shift is different for every perspective buyer and you, as the seller, may never even consider some of the dollar amounts that would sway certain buyers, but trust me, if it doesn’t work for them, 99% of buyers will make it work at some point on that sliding dollar scale.  Don’t forget the ‘terms’ of sale as this is considered as good, sometimes better, than actual money. Strangely, however, most buyers, whether it’s courtesy to the Seller, or simply laziness, always pass up properties that are overpriced for the market and have spreads in price they foresee as being insurmountable and, thus, decide to move on without a second thought.  With this fact, Mr. or Mrs. Seller, my reader, I implore you to realize, statistically, if a home does not sell within its’ first 45 days on the market, it will not sell.  The hard truth is, it doesn’t matter if the Seller reduces the price or remodels or concedes a number of items to a perspective buyer down the road.  The bottom line is, pay attention to the market facts before you list your property.  Whether the market is going up or down it does not matter, what matters is that you understand which way it is going and are priced to where the market WILL be at the time you project your home to sell.  Never, NEVER EVER, NEVER EVER, EVER, say, “well, we’ll just place the property on the market for this [higher than market rated price] and see what will happen.”  Listen reader, if you have any desire to actually sell your property when you become a seller, if you mutter this sentence, you mine as well throw 10% out the window because that’s what’s it’s going to cost you 99.9% of the time and that’s IF you’re even lucky enough to acquire a buyer when you are chasing the market down the road.  If you like to gamble, go down to our strip here in Las Vegas and play any game you choose with the proceeds of your sale, I assure you, you’ll have multiple times better odds of winning that extra padding of price your trying to acquire than when you price your property listing too high for the market.  Lastly, it’s statistically proven that your first offer is usually the best offer you will receive the entire time your home is listed.  Therefore, you have one shot, when it comes to listing your home, do it right!

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 



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Recovering From Bankruptcy and/or Tough Financial Times

They say in many sports, true champions are athletes that consistently overcome adversity to emerge victorious. Coincidentally, the more times adversity is conquered, the more respect an athlete or team receives from their fans and critics. Complete domination is a very rare and, sometimes, an unappreciated, stagnant, pinnacle within athletics, convincing fans to turn off their televisions or protest for the addition or modification of rules, in hopes of spurring an explosion in competition once again. Furthermore, there always seems to be the ‘rematch,’ that classic battle in which legendary giants war with one another in a struggle to achieve that one monumental moment we all strive to live.

Yet, when observed under the microscope, a sports event is only a microcosm of our everyday life in which rules are all laid out neatly, precisely, and deliberately and each event has a near precisely known end time. Within life we all know the rules are much more extensive and their variables are infinitely extensive as well. You may not just have a broken finger or pulled hamstring you are waiting to recover so you can play in game three of a high profile five game series, but, as a player in the game of life, you may also be contending with a car that won’t start, a broken family, and a company that is fishing for a larger annual profit and is downsizing your position next week. Like the classic rematches, sometimes it’s necessary to start things over, train ferociously, and make a second effort to truly capture the energy of the crowd. And, also like the classic rematches, many times, the second time around is just what that person needed to inspire the world that is theirs’ of their own worth within it.

Again, like in sports, those athletes that were beaten may be embarrassed, but their training, inner drive, and professionalism keeps them returning for another shot at glory. In life, when a clean slate is needed, a huge burden of shame is normally carried by the person needing to make that fresh start as well. This feeling of loss, of being a quitter, or a failure, often accompanies the person long into the future, making the task of reemerging the winner endlessly more daunting than it needs to be and, often, impossible. This blog is dedicated specifically to overcoming tough financial times and helping you with rebuilding your personal credit and restoring your financial life when things come off track. Consider yourself just the athlete training hard repetitively and learning to suppress that kneejerk reaction to give up. There is plenty of room for a come- from- behind victory or a gloriously epic rematch, all you need to know are the ‘Hows’.

Your financial well-being can be split into three key ‘periods’; one, keeping your head in the game, two, dealing with problems, and, three, knowing when to throw in the towel and call for a rematch. If you haven’t already done so, I highly advise you to read the book The Richest Man in Babylon by George S. Clason. This book is less than 150 very small pages and is, in my opinion, hands down the best financial planning book ever written. It’s a very simplistic, easy read, yet full of wisdom and good advice.

Point Number 1: Keeping Your Head In the Game: This is, hands down, the simplest of the three periods to learn and enact, the problem is, very few of us ever take the time to implement it and end up getting entangled with a web of unnecessary problems first before backtracking to finally do things right. Please take the time to do this step, self awareness is an absolute necessity for financial success. Point number one is ALWAYS REMIND YOURSELF TO EDUCATE YOURSELF AT ALL TIMES AND KEEP TRACK OF THE NUMBERS. As time moves forward and changes, so do financial policies. Being aware of your own financial situation, i.e. your assets, your expenses, and your earnings, at all times is a must. Keep a written record of these items and actively keep yourself in the green a minimum of 10% of your income each month. Set aside this money for a savings fund you can dip into down the road to use for investments that will work for you, paying you back multiple times over while, simultaneously, taking the burden of work off your own shoulders. If you fail to keep your head in the game and do not keep track of your own money, the famous saying, ‘a fool and his money are soon parted’ will eventually happen to you too. If this happens, like it happened to me, you will look around wondering why you have been working 50 or 60+ hours for the last X number of years with little or no savings and very few assets to show for it. Don’t get discouraged, fight that feeling of failure, and remind yourself it has happened to many other people smarter than most of us, and then, as one of my old drill sergeants used to say in his very educated English, “Drive on more smartly the next time soldier.”

Point Number 2: Dealing with Problems: From large to small, our world is full of problems, obstacles that will eventually come in contact with you and your own dreams and desires, to think otherwise is to only be kidding yourself. Accepting this statement as factual is the first step towards defending against problems. SPEND A LITTLE TIME EACH DAY REFLECTING ON YOURSELF, predicting problems before they become overwhelming, having reserves and plans set to react, and then dealing with these problems in an appropriate manner i.e. perhaps avoiding them all together or tackling them head on. In an ideal world, most of us would say that problems wouldn’t exist. If you could enact that environment and then somehow avoid the inevitable boredom that would loom in a life without any drama at all, life would be simpatico, the truth is, however, realistically, in this life, it ‘aint gonna happen.’ Therefore, the best thing I think anyone can do is to embrace a problem at each stage, either, before, during, or after it appears and then have that problem work for you, providing you energy, rather than sapping it from you. ‘Beauty is in the eye of the beholder,’ as they say. In regards to finances, I think the simplest thing that can be done is to save. As I pointed out in point number 1, do your absolute best to save 10%, or more, each month and try to live off the other 90%. There are going to be times when you are tempted to spend that 10%, either out of necessity or just desire, however, usually what you will find is that, although the first month or two may be tough, after a while, you will not miss or, even, notice that extra 10%. This is most easily accomplished when you have a raise in salary at your work. Try to continue living on what you were already making and taking the extra ‘raise’ and putting that into savings. Having a nest egg will help you sleep easier and provide more options to you when problems do arise. And remember the saying, ‘Make money work for you, not you work for money.’

Point Number 3: Knowing When to Throw in the Towel and Call for a Rematch: OK, so we are now at the probable reason you came to this particular blog. Just like me, in your own life, you failed to pay attention to point number 1, you failed to pay attention to point 2, and now your head is spinning, you’re stressed beyond belief, you’re wasting a ton of valuable time, and you’re wondering, “How the hell am I going to get out of this mess?” I have good news, YOU’RE ALMOST THERE. The simple fact that you are brave enough to now take the time to search for answers is the biggest thing you can do. Your time and effort will be rewarded, I do have helpful answers for you, in detail, below. Many people, when they’re getting into financial hot water, stick their heads in the sand and hope everything just disappears. Whether their reason for this is embarrassment, insecurity, or, simply, their own ignorance, I can assure you, this tactic never works and will end up costing you a ton more time, energy, and stress than just sucking it up, facing your monster, and doing it right the first time.

First and foremost, assess the reality of your situation. Ask yourself, “How bad is my financial situation, really?” If you aren’t sure, gather all your paperwork and track your own numbers starting now. Start recording, in detail, your assets, your expenses, and your earnings. Next, go to your own trusted loan officer or banker and have them pull your credit report to see who you owe what to or call me and I will point you in the right direction. Your credit score is made up of three different credit reporting agencies’ facts and figures, you need all three to accurately fix things. Most loan professionals will pull these for you free of charge, for $15.00, or for $30 max. You need this report. Once you have this report in hand and have your own financials documented call me and I will put you in contact with someone who can take you further. Depending on your personalized scenario, you may only need to create some kind of payment arrangement, you may need to short-sale or modify a loan on one property or more, or bankruptcy may be your best option. After being a loan officer for three years, a Realtor for four years, successfully dealing with my own financial perils, and having the experience of hundreds of customers and clients as models to work off of, a simple 10 minute phone call can give you a world of options. You might need a credit specialist, you may need a bankruptcy attorney, or you might just need a good Realtor to get you back on the right track. Below, I will just share three options that might fit you along with a few bits of information that you may not have known. These are not phony advertising gimmicks, these are, no BS, real options for people in trouble with their finances in which I can provide you with, highly recommended, real names of law firms, real short-sale agents, real credit card companies, and real credit building services.

1. Payment Plan— Because our entire economy is in shambles currently and everyone is hurting for money, did you know that many creditors will settle or completely delete a collection inquiry from your credit history for less than 20 cents on the dollar? Did you know paying certain items without following the proper procedures will hurt your credit score and your buying power? Even if you think you’re doing the right thing, always get, at least, a second opinion from a professional or it may cost you big time.

2. Short-Sale— Did you know that many people who successfully short-sale their homes never need to miss any payments first allowing them to get rid of 100′s of thousands of dollars of debt with minimal hits to their credit and having more legal protection than simply foreclosing? Did you also know, there are now multiple banks available willing to provide new loans to customers wishing to buy homes as little as one day out of a short-sale? If you have missed payments, did you know there are already banks that will issue new loans only one year after your completed short-sale?

3. Bankruptcy— Did you know that you can qualify for certain credit cards to begin rebuilding even the worse credit possible literally one day out of bankruptcy? Did you know you can often already qualify for a house loan one year out of bankruptcy? Did you know creditors have to legally stop harassing you once you have an attorney representing your bankruptcy? Did you know that I personally have seen, met, and worked with many people who achieved 700+ credit scores only one year after they had claimed bankruptcy? Did you know, if you have already claimed bankruptcy or just have poor credit currently and have not taken on any new credit, there is a huge probability that your interest rates will be huge once it comes time for you to make your next large purchase? It doesn’t need to be that way, but you need to start rebuilding credit immediately following a bankruptcy or learn how to build credit when you have none or its’ poor.

In conclusion, if you feel confused about how credit works, you have small issues on your credit report, you have dug a hole you can’t seem to get out of that is collapsing on top of you at every angle, or you can see the freight train flying down the tracks straight at you from a distance, my team of professionals is here to assist, please contact us.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.


Real Estate Investment: Maximizing Profit

Often I am asked, “Is it better to buy properties using all cash or to finance with a loan?”  The answer is, “Both.”  The old saying, “Cash is King” is true… IF you never run out of cash…  but, since all of us, even the wealthiest people in the world, are on some kind of finite budget, having the ability to secure vast amounts of loan financing is often more valuable than having only an exhaustible amount of cash.  Knowing when to use your own cash or when to use someone else’s cash is the question you need to answer.  This blog is dedicated to maximizing your return from your income properties by recognizing the pluses and minuses to using cash versus loan financing.

When you purchase with cash, you will receive five distinct perceived advantages, but are they really advantages or just popular myths?  First, you will qualify for any type of sale that you are entertaining, i.e. REO properties, HUD properties, VA repos, Short-Sales, Conventional Sales, Courtroom Steps Auctions etc…  A seller may reject your offers on the grounds of price and terms, but, it’s a guarantee, no seller in their right mind is going to tell you, “hmmm…I don’t know if cash is going to work for me”… unless you’re our own government (there are certain government attached properties that give preference to certain types of financing).  When financing a property purchase while using a loan, your options can be restricted based on the type of sale, seller requirements, and property condition (many lenders will not lend funds if property condition is not at a certain expectation which is noted in the property appraisal).

Secondly, cash financing has an advantage in that it can allow for a quick closing.  That means, usually, less chance of a long; strung out, escrow process, hence less stress.  It also means you, as the savvy buyer, can quickly start making income from the property by renting or reselling it.  Furthermore, as a seller, your eyes light up because cash financing looks like a ‘sure thing’ and it’s perceived that a seller will be able to accomplish their goal of selling their property… at least in theory.  Therefore, a cash buyer usually receives preference from a seller, as long as the terms and purchase price are similar, over all other forms of financing (again some government sales this generalization is not true).

The third major advantage cash has over financing is there is no risk of failing to finance.  Therefore, not only is the seller going to feel more at ease, but you, as the buyer, can too, which will free up time and energy to move onto other investments or concentrate on other aspects of your life.  Time is money.  Too often buyers fail to finance for many reasons, a property appraisal comes in low, a property condition comes in unsatisfactory to the lender,  or the buyer owns too many other liabilities such as other properties or vehicles that have loans on them also and the lender now feels uncomfortable issuing another because of the ‘debt to income ratio’ risk looks unsafe to the investors backing the new loan.

Fourth, it’s cheaper to use cash…really?  On one hand, yes, using cash can save you money on your closing costs, usually about 1% of the property purchase price and it can save you and the seller time.  However, on the other hand, your cash is now tied up in that property, upon purchasing, for usually a minimum of six months if you plan to refinance or about 30-90 days for if you choose to sell.  If you ever want the cash out of the property, you will need to commonly, sell, take out a home equity line of credit, or do what is called a cash-out- refinance, two of the three will cost you many more percentage points than the 1% extra you pay to use a loan during your original purchase.   So, perhaps, because of its rigidness, cash is not the cheapest way to go, figure out your own homework and keep track of your own bank account to know for certain.

Fifth, as a cash buyer, many people argue that you receive the ‘peace of mind’ of not having a monthly mortgage payment to cover.  This can be true.  Much like the time aspect pointed out in number two, having peace of mind and decreasing your stress level will allow you to think more clearly and focus on other things.  However, if you take a moment to contemplate life, you’ll see, often, you’re only kidding yourself.  Each year inflation, taxes, college tuition, retirement, entertainment, food, gas, and other ever climbing life costs grab a piece of your pie faster than your salary is probably increasing (in the last 10 years the average United States worker has actually had a 10% decrease in their salary/wages and an increase in their taxes).  You’re currently fighting a losing battle and need to find new ways to bring your income and quality of life back up to where you desire it to be.  When you purchase real estate using cash financing your return on your investment differs dramatically from the return on the investment you would receive when purchasing using loan financing.   A cash buyer may be receiving a 12% gross return on your investment if he/she purchases a property for 97K (estimated 3K closing costs equals 100K total) and the property rents for 1000K per month.  On the other hand, a loan buyer that has the same 100K in his or her bank account, purchasing the same 97K property (estimated 3-4K closing costs) places about a 20% down payment (20K) to receive their loan of about $600 per month on a 30 year fixed mortgage (figure roughly includes taxes and insurance in Las Vegas).  This would allow them to purchase five properties instead of only one for the same 100K.  As long as they receive a loan with a good percentage rate (today’s general investor rates are about 5%) they will come out far ahead in the game.  In this scenario, with five cash producing properties instead of just one, the actual dollar figure they would come out ahead would be rough $1600.00 (4 X $400) per month (That’s almost 20K per year), and that figure does not include possible tax write offs or property appreciation!  There you can easily see, if you’re limited on cash, cash becomes queen and leverage is king by using your good credit to obtain more financing from loans.

So, for all those pessimists and worry warts out there who are about to pipe in and say, “What happens when my properties are vacant or rental incomes drop and I now have to cover a mortgage?”  Remember, first, a savvy investor always ensures they purchase cash flow positive properties or have hard and fast rules for selling a losing investment when they do buy.  Second, with the rising costs of your daily world, doing nothing about it is really not an option and most people’s quality of life is currently continuing to deteriorate without solid investments. Third, you’re making $2000.00 per month positive cash flow when you are renting all five properties (5 X $400).  In a scenario where two of the five properties sit vacant for long periods of time (minus $800 from your cash flow and add $1200 to your expenses by covering your vacant mortgages out of your own pocket), you will still be at a breakeven point which can actually usually still be pushed into the green with tax incentives claimed on your “depreciating,” “losing”, “investments” when tax time comes around.

For those of you who are still worried and want to play it ‘safe’, buying with cash will at least allow you to cover some of your everyday losses from economic inflation, however, remember, if your one and only property goes vacant, then you will have no income coming in at all.  The bottom line, all investments have risks, mediating those risks is key and doing nothing is really not a viable option unless you want to accept a lesser quality of life in the future.  If you don’t believe me and would like to verify, next time you drop by the grocery store, take a look at the prices of everything.   As a practical exercise, pick out a handful of your favorite items you used to purchase as a kid and compare them to the prices you used to purchase them for.  My example is Starkist Tuna fish; I used to buy these cans as part a staple diet all through college less than 15 years ago for 38 cents a can.  I just saw them at Sam’s Club, a usually ‘cheap’ vendor, last week for just over $1.00 per can.  When you conduct this experiment, if you notice one or more of your examples has not shot up in price, I challenge you to then check the quality.  Usually you’ll notice the quality dramatically went down if the price did not shoot up.  For those of you who still feel purchasing property is too much of a risk, perhaps real estate investing is not the right type for you, perhaps you would like to continue contributing to a 401K that ‘someone else’ overlooks, because we all know those ‘safe’ investments all preformed so well in the last few years.

Lastly, please notice how nowhere in the above paragraphs have I ever mentioned that cash will give you a ‘discount off the property.’   Sometimes people argue with me until they are blue in the face that, strictly because they are purchasing with cash, that entitles them to a huge discount on every property they deem interesting.   It is true the a cash buyer has a greater chance of creating a ‘low-ball’ scenario, however, this absolute ‘must be’ opinion is one of the biggest myths in the real estate industry as a ‘discount’ off a property has to do a lot more with the motivation of the seller than any kind of financing that is ever used for the purchase.   For example, at the courtroom steps auctions, banks liquidate their distressed property holdings for immediate cash.  They are willing to sacrifice money, in offering a discount to quick cash buyers, in exchange for saving the time and energy it will take to place a property onto the retail market and then waiting for a buyer to come.  On the other hand the buyer is willing to risk certain protection concessions and incur more liability.  Again, time is money on both sides.

Don’t be fooled, often a buyer using financing has received a better ‘deal’ than the cash buyer; it’s all in the motivation of the seller.  Remember also, terms of sale are more important than the purchase price itself.  If you get fixated only on price, you will always fail to maximize your profits.  As a true investor, you should be willing to buy absolutely anything as long as it provides the correct terms of sale.  Ask yourself, if you knew of a prospective rental property would provide you a 100% return on your money for many years to come, would you feel comfortable buying that property for more than it is worth (appraised value) or do you feel the need to buy a property at a 20% discount no matter what even while it may currently rent for a 5% return on your money and looks to be dropping in value?  I know your answer is, “I want both the discount and the return,” all investors say that, but the reality is, there are 24 hours in a day, seven days in a week, and 365 days in a year.  If you’re always waiting for the ‘perfect deal’ to come along, you just missed several ‘good deals’ that would make you a lot more money than the one perfect one that may never even come.  Furthermore, a sale type like an auction that provides very little safety measures for your money may end up being a money pit for you instead of a safer retail market investment that usually affords luxuries such as title insure and other contractual safety nets.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 



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Investment Tip: Maximize Returns Using The Rule of 72

Many people are a little apprehensive when it comes to any kind investing; real estate is not an investing exception.  There are many different ways to make money using your real estate, some of the most common are from purchasing below market value, cashing out on appreciation, renting your property, or running a goods and services sales business from your real estate.  However, there are still many more methods of generating cash from your real estate, for example, just to name a few more, withdrawing an equity line of credit to leverage into another investment, tax incentives, and industrial potential such as mining, foresting, and manufacturing, or agricultural use.  If you wanted to get really creative, I’m sure you could think up 100s, if not, 1000s of potential uses for a piece of real estate within these categories alone.

In all of these many examples, there is a simple mathematical rule all investors should take advantage of in order to maximize their return on their investments.  That rule is The Rule of 72.  The Rule of 72 works by taking the number 72 and dividing it by the return on your investment, which will give the answer of the number of years it will take for your investment to double in value.  For example, if you are making 9% on your money in the stock market, then every eight years, your investment will double.

Although the Rule of 72, in itself is extremely simple to use, remember, you always need to think of how many ways your investment is actually making you money (and losing money) before generating a true number for a rate of return.  For example, in real estate, your renter may be paying rent each month which is returning 10% annually; however, you may also be making 5% in appreciation on your property annually, and also receiving an additional percentage of X discounted on your taxes each year.  Perhaps you have even sold some rights to your land to another “renter” who is using part of it for storage or perhaps taking raw materials such as trees, dirt, minerals, water, wildlife, or other valuable items which are also providing you income.  All of these sources of income are called “income streams” and a good investment will almost always have more than one.

And, of course, every investment has some form of maintenance.  In the case of real estate, perhaps hiring a professional property management company, maintenance, repairs, and now and then, evicting a bad tenant, are some of the upkeep expenses that you will encounter.  Keep in mind, although a percentage or two seems miniscule in many respects, when using the Rule of 72, one or two percent can actually be the difference of several years in doubling your money.  For example, that same 9% return on investment which doubles your initial investment money in only eight years, if dropped to an 8% return, will take a full extra year to double.  This adds up significantly over the course of a lifetime.  A good poker player will tell you that it’s not the rare huge pot that wins a poker game, it’s the many small ones that do.   Holding out for only that one rare mega win will usually just make it so that someone else is building a new casino for you to play and pay, leaving you empty handed and scrabbling with an unsatisfying income.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 

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