5 Low-Budget Ways to Spiff Up Your Investment Property

Investment Property, new backsplash

Investment Property, new backsplashWhether you are skimping and saving for your next real estate purchase or putting off any major renovations on a rental home until they are inevitable, you can still give your investment property a facelift without spending a small fortune. Low-budget overhauls can have a significant impact on vacancy rates. Similarly, if you were to sell the home, you might get more money for it.

We have rounded up some creative ways to give your investment property some oomph on a tight budget. Check it out:

  1. Lighting

Upgrade the lighting with dimmable LED bulbs. In addition to their energy efficiency, these lights can help create more intimate ambiances or even make your kitchen look brighter and fresher. While you are at it, you might also want to consider changing out the light fixture!

  1. Storage Space

A home with plenty of storage space is something most tenants look for. While building in new cabinets or closets can be pricey, you could opt to invest in more affordable shelving units. Additionally, be sure to add new hangers, rods, hooks, and baskets to allow tenants to store sundries. A fresh coat of paint to existing cabinetry can also make a big difference in your investment property.

  1. Backsplash

If you have a boring, plain backsplash, consider painting it over. If you have a tile backsplash, you can check out tile stickers and decals to cover them with. They are inexpensive and easy to apply.

  1. Tile Grout

Speaking of tiles, while they can be incredibly beautiful and timeless, the grout will inevitably begin to show signs of wear and tear. This can make your tiles look rather lackluster. If you notice cracks and discoloration in the grout, it is time to renew it.

  1. Garage door

We know what you’re thinking. A new garage door might not be the cheapest way to update the look of your investment property, but it is worth every penny! A garage door that doesn’t match the overall aesthetics of the home can take away from the home’s curb appeal.

With around $1000 to $2000, you can replace your garage door with a newer and higher-quality one, which will allow you to raise your property’s rent a bit to recoup the costs and make more money over time.

Would you like to speak with a member of the RLG team to discuss the value of your current investment property portfolio and determine areas for improvement? Give us a call today! We would love to help you with the properties you currently have and multiply your investment portfolio.

Maximize the Value of Your Investment Property

Energy efficiency rating on smartphone app by woman real estate agent and home interior in background

The goal of every real estate investor is to make profit on an investment property. If you are renting out a property, you’ll want to minimize vacancy losses and deduct the cost of improvements and repairs from your rental income to reduce your tax liability. Thus, it’s important to understand the difference between capital improvements and repairs, as the former is calculated differently and will adhere to a set depreciation schedule.

A capital improvement is a property update that will extend the useful life of the property. Rather than being a short-term fix, these upgrades add value to your home for years to come and may include a kitchen remodel, window and roof replacements, new plumbing, and more. Conversely, repairs are made to maintain the home in good condition and neither add significant value to the property nor extend its life. For example, repainting a room, staining the deck, or updating old appliances are all considered repairs.

In some scenarios, investors will find it more beneficial to classify an expense as a repair because it would maximize the investor’s after-tax dollars for the given year. If you fall into this category, here are some inexpensive ways to increase the value of your investment property for future revenues:

  1. Energy Efficiency

Energy-efficient systems and appliances are particularly appealing to many renters and buyers who are willing to pay a little bit extra on rent or the sale price if it means that they will save on electricity later on and help the environment by decreasing power plant emissions. Some simple ways to make your investment property more energy-efficient include:

  • Changing existing windows to ENERGY STAR certified windows
  • Adding solar panels
  • Installing a smart thermostat
  • Installing low-flow toilets and showerheads
  1. Curb Appeal

Enhancing the curb appeal of your investment property will help attract more prospective buyers and renters. There are several things you can do to make the yard more look inviting to tenants that do not require a lot of money or effort:

  • Pressure-washing the walkways
  • Adding mulch and pine straw for ground cover
  • Upgrading lighting with sconces and lanterns
  • Installing window box planters
  1. Maintenance

To ensure your property continues to provide an income stream throughout its useful life, you should invest in professional cleaning and small maintenance jobs in between tenants. Maintenance work includes gardening, plumbing and electrical checks, pest control, and more.

  1. Kitchen Upgrade

The kitchen can make or break a deal. Many, if not most, prospective buyers and renters see the kitchen as one of the most important places in a home and will gravitate toward an investment property that boasts a clean, modern, and ready-to-use kitchen. With this in mind, here are some ideas to give your investment property’s kitchen a facelift without breaking the bank:

  • Repainting cupboards and doors
  • Replacing old hardware with new handles and knobs
  • Installing new countertops
  • Mounting new kitchen taps

Finding Undervalued and Off-Market Properties

real estate

real estateInvesting in real estate is one of the best ways to build wealth. While the market may fluctuate, people will always need a place to live. Finding undervalued and off-market properties to resell at a profit is key to ensuring you make a sound financial investment. However, some properties such as FSBO and pocket listings may not be listed on your local MLS and will sometimes require a little more digging if you want to find them.

Undervalued properties – Properties may be undervalued for various reasons: a distressed seller in need of quick cash; a property that needs major repairs and renovations; or an underperforming cash flow from a rental property, to name a few. There are many undervalued homes on the market, the trick is knowing how to find them. Use tools at your disposal such as Mashvisor’s Property Finder and Point2 to gain insight on potential investment properties.

Off-market properties – Real estate brokers will often try to create interest in a property by word of mouth or social media before listing it publicly. The best way to find off-market investment properties is to network with real estate agents and local wholesalers. Another avenue for finding off-market properties is through direct marketing. Direct marketing includes cold calls, mail campaigns, and social media. Spreading the word is key. 

Have you been thinking about expanding your portfolio of investment properties or purchasing your first? Ridge Lending Group would love to help you! RLG prides itself on providing the education you need use real estate investment to build wealth. Call us today!

Measuring Success of Your Investment Property Portfolio

Investment Portfolio

Investment PropertiesHaving a portfolio of investment properties is a wonderful way to build wealth, but what good is it if it is not providing positive cash flow? When assessing the value of your portfolio, consider each property individually. Here are some metrics that can help determine value:

  • Net cash flow – Your income minus your expenses equals net cash flow. Include all expenses, such as maintenance, utilities, and payroll. This will determine if your investment properties are producing a positive cash flow.
  • Cash-on-cash return – Divide net cash flow by the initial investment. This result will show how an investment property is performing over time. Compare the cash-on-cash return results of your investment properties to those of other properties in the local market and see if there are any improvements you could make to increase the value.
  • Appreciation – This refers to the increase in value of an investment property over time. Compare this appreciation to the local market and determine if this property provides long-term benefits.

After determining the value of your portfolio, you should have a good idea of the investment properties that are worth keeping and those that may not be. In some cases, it makes sense to cut your losses and walk away from an investment property if it is not providing positive cash flow or does not seem to have the potential to provide it in the near future. Investment properties that are not profitable or take up too much time are likely not worth keeping, and the assets are better allocated elsewhere.

Would you like to speak with a member of the RLG team to discuss the value of your current investment property portfolio and determine areas for improvement? Give us a call today! We would love to help you work with the properties you currently have and multiply your investment portfolio.

Growing Your Real Estate Investment Portfolio

Purchasing real estate is key to earning passive income and financial freedom. As markets and access to capital ebb and flow, adaptability is a critical trait for real estate investors. While there are no hard-and-fast rules to real estate investing, there are a number of tried-and-true ways to grow your portfolio. Let’s take a look at some of these strategies!

  1. Start Wholesaling

If you are new to real estate investing, know that it’s never too late to get your foot in the door. For your first purchase, consider starting with less expensive wholesale properties. Wholesaling is the process through which the wholesaler contracts a home—usually one that is distressed—with a seller, shops that home around to potential buyers, and then assigns the contract to one of them. It is a less risky method for new investors, as it does not require a significant amount of capital to get started. Having a solid list of potential buyers prior to making an initial offer to the seller is a good idea to help mitigate risks.

  1. Leverage Equity

Once you purchase and rehab your first property, the next step is to leverage your equity by either selling the property and reinvesting the cash profit or borrowing money against the equity. There are other financing options for investors looking to fix and flip homes. Some of them include bridge loans, fix-and-flip cash-out refinance, and investment property line of credit. Speak with your mortgage professional to find out what is best for your endeavors.

  1. Get the Word Out

If you are looking to quickly grow your portfolio, you will have to put in the work and reach out to brokers and sellers in your quest for the best deals. By networking with real estate agents and attending real estate auctions, investors will often find undervalued off-market properties that will produce incredible returns. Cold calling potential sellers can be hit-or-miss, but it may be worth a try. If you choose to go down that route, make sure you have a solid call script.

  1. Invest in Rentals

While flipping houses may provide quicker returns on your investment, renting an investment property will generate passive income over a long period of time. You can then use the additional passive income stream to reinvest into your real estate purchases. In addition, your property’s value should appreciate over time as real estate benefits from inflation and the state of the economy.

  1. Hire a Property Manager

As your real estate portfolio continues to grow, so does the amount of time you will need to dedicate to managing the properties. As they begin to scale, many real estate investors will hire a property management team to handle daily operations. This frees up their time to focus on researching, networking, and closing more deals.

Are you ready to plunge into investing in real estate? RLG has the tools and resources at its disposal to get you on your way and not waste a moment of your time. Call us today to learn more and experience firsthand the dedicated, personalized customer service and undivided attention that RLG has to offer!

Creative Strategies to Maximize Real Estate Investment Gains

Real Estate Investor

Real estate investment

Real estate investors are always on the lookout for the most profitable opportunities, whether it be renting out properties or flipping houses for resale. While it is undeniable that these proven strategies offer great potential, it often pays off to think outside the box and look at properties from different standpoints. Here are four creative, long-term strategies for new and seasoned real estate investors, as outlined in a Forbes article.

  1. Buy a single-family home on a lot with multi-unit zoning

If you are considering buying a single-family home, take zoning into account. By purchasing a single-family home that sits on lot zoned for multi-family development, you can reap more benefits in the long run than meets the eye. For example, you could rent out the home for income until you have the wherewithal to raze the house and build a multi-unit property in its place. Alternatively, you could sell the home to another developer who might be interested in building a multi-unit property on the lot.

  1. Buy a multi-unit property near an area marked for development.

When plans for a new development such as a commercial district are afoot, a planning permit will be posted long before the building permit is issued. Keep your eyes out for these advance notices on your county’s website and search for multi-unit properties in the vicinity of the new development. Once the new development is near completion, you can expect your rental rates to rise significantly as the demand for the area increases – even if you don’t update the units.

  1. Buy parking lots during the economic downturn.

With the shift to remote work due to the pandemic, the value of parking lots in downtown areas have dropped. This is a good time to purchase a parking lot at a reduced price. As more people get vaccinated and the commute to downtown areas picks up steam, you can expect higher returns on investment (ROI) from such a deal. Not only do parking fees in high-density zones provide steady income, but the lot also has a high resale value for potential developers.

  1. Buy a single-family home near a university with zoning to build an ADU.

Pay close attention to the zoning regulations and consider purchasing a single-family home that allows the possibility of building an additional dwelling unit (ADU). This is especially appealing in properties near colleges and universities, as buyers may derive income from these secondary housing units. Many families buy an investment property with an ADU near their child’s college so the student can rent out the space and offset their expenses.

Are you ready to invest in real estate and see the value it can provide? RLG would love to help you! Call us today to learn more!

4 Habits Successful Real Estate Investors Share

Real Estate Investors

Real Estate InvestorsNot long ago, it seemed as though an entire generation had been doomed to live out their adult years paying rent. Millennials were often portrayed in the media as a generation of renters. Other outlets spoke of the housing crunch affecting millennials in rather striking terms and likened the debate around housing policies to “generational warfare.”

While rising home prices still present a formidable challenge to the cohort of young adults – especially in larger urban areas – more and more millennials have taken the jump toward homeownership in the last few years. A 2021 report by the National Association of Realtors on generational real estate trends revealed that millennials currently make up the largest group of homebuyers at 37 percent.

The allure of homeownership comes from the fact that owning a property is one of the fundamental ways of accumulating wealth. In addition to the amount of equity you accrue as you pay down your mortgage, cash flow is a key part of the equation when it comes to building up a stronger financial future. That’s where real estate investing comes into play.

The benefits of investing in real estate include passive income, stable cash flow, tax advantages, and more. If you are ready to jump on the real estate investing bandwagon and take advantage of the current low mortgage rates, make sure you have a game plan in place that will set you up for success and pave the way to financial freedom. Here are four habits successful real estate investors share:

  1. Build Credit

Before you get started in real estate, make sure your finances are in good shape. There is no easy answer as to what credit score you need for a residential or commercial investment property loan as credit requirements can differ greatly among lenders and are based on numerous factors.

As is the case with other loan types, a good credit score will help you secure lower interest rates and more favorable conditions that might require little to none of your own cash up front. Another key factor lenders will look at is debt-to-income ratio (DTI). Your DTI is all your monthly debt payments divided by your gross monthly income. With a lower DTI and the income to support it, you are able to qualify to borrow a larger amount of money.

  1. Make a Plan

Figure out what your short and long-term goals are and solidify them into a business plan. The investment model best suited for you really depends on why you are in real estate investing and for how long you plan to keep the property. Some people may be eyeing passive income, while others have a goal to invest for retirement. Setting your goals from the outset will allow you to zero in on the type of property you should invest in.

  1. Develop a Niche

When you develop and invest within your niche market, you are better able to outperform your competition and secure superior deals as you can target your audience more efficiently and identify pain points to minimize your risks. Once the investor has dominated a particular niche, they can then move on to other niches using the same in-depth approach.

Single-family or multifamily homes, retail or office buildings, industrial or commercial properties, mobile homes, land, student housing, and short-term rentals are just some types of assets you could potentially invest in.

It bears mentioning that a focus on a niche does not necessarily mean being confined to a single location. Make sure that the numbers make sense for you, whether it be investing in smaller cities where prices are lower or in large metropolitan areas.

  1. Invest Now

The current low interest rates make it the perfect time to start investing in real estate. In addition, home prices are expected to continue to rise throughout 2021 for various reasons, one being a bullish stock market.

Are you ready to invest in real estate and see the value it can provide? RLG would love to help you! Call us today to learn more!

Commonly Used Investment Lending Terms from A-Z

There are many terms commonly used in the investment lending world. When you apply for a loan with Ridge Lending Group, here are some that you may come across:

Annual Percentage Rate (APR) – This calculates the cost to the applicant for borrowing money. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that the applicant pays to get the loan. As APR is an easily manipulated number, it may be difficult, if not impossible, to compare different programs and products based on the APR.

Adjustable-Rate Mortgage (ARM) – This is a type of mortgage that has a fixed rate for a set period of time and then the rate is adjusted. The fixed period can be as short as 1 month or as long as 10 years. All ARM’s are based on an adjustable index + a fixed margin = the Fully Indexed Rate

Borrower: Borrower is the primary applicant on a mortgage application.

Consumer Financial Protection Bureau (CFPB) – An agency of the United States government responsible for consumer protection in the financial sector.

Co-Borrower – The additional applicant on a joint mortgage application. A borrower may apply with a co-Applicant/co-Signer, who can be anyone; however, the application will not be considered a joint application.

Debt to Income (DTI) – This is the ratio of the borrower’s gross monthly income to their debt. Front End DTI refers to all housing related debt. Back End DTI refers to all debt, including Front End DTI. It is typically expressed with both numbers separated by a dash. Example: 30/50 (30% Front End DTI, 50% Back End DTI. Back End DTI will always be more than Front End DTI.)

Desktop Underwriter – An automated underwriting engine. DU is used for underwriting Fannie Mae, Freddie Mac, FHA, VA and USDA loans. Each loan product will have its own DU.

Federal Housing Administration (FHA) – The Federal Housing Administration is a United States government agency founded by President Franklin Delano Roosevelt, created in part by the National Housing Act of 1934. The FHA sets standards for construction and underwriting as well as insures loans made by banks and other private lenders for home building.

Federal National Mortgage Association (FNMA or Fannie Mae) – One of two GSE’s (Government Sponsored Enterprises) created by Congress to increase access to mortgages. Mortgages offered under Fannie Mae guidelines are called “conforming” mortgages since they conform to Fannie Mae guidelines.

Federal Home Loan Mortgage Corporation (FRMC or Freddie Mac) – The second of two GSE’s created by Congress to increase access to mortgages. Mortgages offered under Freddie Mac guidelines are also called “conforming” mortgages since they conform to Freddie Mac guidelines.

Home Equity Line of Credit (HELOC) – A revolving line of credit based on the equity in a property. Generally, HELOC’s are based on the prime rate. The All in One First Lien HELOC is based upon the 30-day U.S. Dollar LIBOR.

Housing and Urban Development (HUD) – HUD is responsible for national policy and programs that address America’s housing needs and enforce fair housing laws. It also oversees the Federal Housing Administration (FHA), the largest mortgage insurer in the world.

Interest Only – This is a payment type where none of the required payment goes towards principal. While the required payment will generally be lower than an amortizing payment, the amount owed does not go down since nothing is going towards principal. Like a fully amortizing mortgage, a borrower is allowed to pay extra towards principal.

London Inter Bank Offered Rate (LIBOR) – A benchmark rate that banks use to lend money to each other. It is typically a marker of the state of the economy. In a bubble, the rate will be high. In a recession, the rate will be low.

Loan To Value (LTV) – The maximum percentage of the appraised value of a property that a lender is willing to fund on. This figure will change with loan product, occupancy and property type.

Mortgage Backed Security (MBS) – These are the investment instruments that are bundled by Fannie Mae, Freddie Mac, and Ginnie Mae for sale on Wall Street.

Mortgage Loan Originator / Loan Officer – A licensed professional who receives a residential mortgage or loan application and offers or negotiates terms of a residential mortgage loan.

Non-Owner Occupied (NOO) – Refers to a rental or investment property.

Owner Occupied (OO) – This is the borrower’s principal or primary residence.

Principal-Interest-Taxes-Insurance (PITI) – This is the total housing expense on a monthly basis.  It also includes homeowner’s association fees and monthly mortgage insurance if applicable.

Private Mortgage Insurance (PMI) – This is charged on conforming mortgages that are over 80% LTV. After the loan is paid down to 80% of the properties appraised value, PMI will be canceled by the servicer.

Prepayment Penalty (PPP) – In states that allow it, this is charged by subprime lenders and the occasional conforming lender to assure the lender of making a profitable mortgage investment. A PPP can be either hard or soft. A hard PPP means that the borrower will pay a penalty for paying the mortgage off before a specific time period whether they sell or refinance. Most PPP’s are for 3 years or less. With subprime lenders, the time period will generally be the same as the fixed period of an ARM mortgage. A soft PPP means that the borrower will have to pay a penalty if they sell or refinance within the first year or refinance within the remainder of the PPP.

Prime Rate – A prime rate or prime lending rate is an interest rate used by banks, usually the interest rate at which banks lend to customers with good credit. Some variable interest rates may be expressed as a percentage above or below prime rate.

Real Estate Settlement Practices Act (1974) (RESPA) – Federal law that regulates what must be disclosed to a consumer during a loan transaction and prohibits abusive practices by lenders to consumers.

Truth In Lending Act (1968) (TILA) – Federal law that requires the manner in which banks disclose fees and costs associated with a loan transaction be standardized to enable borrowers to comparison-shop lenders.

TILA-RESPA Integrated Disclosure Rule (TRID) – Instituted by the CFPB as a combination of TILA and RESPA requirement. When TRID is triggered, the loan estimate must go out to a borrower within 3 business days of a complete mortgage application.

The United States Department of Agriculture (USDA) – The U.S. federal executive department responsible for developing and executing federal laws related to rural economic development. The USDA has two loan programs for Primary Residences, the USDA Direct and the USDA Single-Family Housing Guaranteed, which both offer 100% financing on a primary residence purchase or refinance for eligible (low-income) borrowers and eligible (rural) properties.

VA – The United States Department of Veterans Affairs. The VA has loan programs for veterans to receive 100% financing on a primary residence purchase or refinance.

Verification of Deposit (VOD) – This is a form sent to the bank/credit union/savings bank to verify the amount of funds in the account and to provide an average balance over a specified period, usually 60 days.

Verification of Employment (VOE) – This is a form that is sent to the employer to verify employment. Many times, a VOE will be done verbally by the lender just prior to closing.

W-2 – W-2s are tax forms provided by the employer to show total year’s income.

2-4 Unit – Duplex, Triplex or Quadplex. The most units RLG will lend on is 4. Anything more than 4 units will be a commercial transaction.

Investing in Real Estate for Your Financial Future

investing in real estate

Investing in real estateAccording to a recent HousingWire article, investing in real estate could be less risky than investing in the stock market. While the stock market has hit all-time highs this year, it likely belies a market that will be more volatile in the future. During 2020, home prices increased 10% to levels not seen since 2014, while inventory dropped across the country. This created a seller’s market and a successful investment environment.

Investors commonly share the following advice, “Don’t wait to buy real estate, buy real estate and wait.” Home prices are expected to continue to rise throughout 2021 for various reasons, one being a bullish stock market. When you invest in real estate, you invest in a tangible item that is not managed elsewhere. As home prices remain on an upward trajectory, real estate investment continues to be a lucrative way to financial freedom.

To learn more about the benefits of real estate investment in 2021, click here.

Are you ready to invest in real estate and see the value it can provide? RLG would love to help you! Call us today to learn more!

What Are Capital Gains Tax, Short-Term Capital Gains Tax and Taxes on Rental Property Income?

Person doing taxes, rental property taxes, investment lendingIf you are a new investor, you will quickly learn that buying investment properties adds an extra layer of complexity when the time comes to file taxes. The IRS taxes all capital gains but has different approaches for long-term and short-term capital gains. Long-term capital gains are the returns earned from a property that was held for more than one year and sold for more than its purchase price. The taxes are determined by a unique tax bracket that is lower than the ordinary tax rates that apply to income. A capital gain rate of 15% applies if your taxable income is $78,750 or more but less than $434,550 for single filers; $488,850 for married filing jointly or qualifying widow(er); $461,700 for head of household, or $244,425 for married filing separately.

In contrast, short-term capital gains are taxed as though they are ordinary income. Because income tax rates are higher than those of long-term gains, it can be a good idea to hold on to a property for a year prior to selling if your transaction gains cause your income to jump into a higher tax bracket. While it is possible to turn higher profits by cashing in and reinvesting, the tax policy in place incentivizes individuals to hold their properties for a year or longer.

Regarding rental property income, your earnings are taxed as ordinary income. However, there are an array of allowable expense deductions that will lower your tax bill. These include:

  1. maintenance expenses
  2. repairs
  3. mortgage interest
  4. insurance costs
  5. advertising costs for the property
  6. payments to property manager
  7. HOA or condo fees
  8. property taxes
  9. services you pay for, such as utilities
  10. legal and other professional fees related to owning the property
  11. depreciation

It is worth underscoring the positive impact that depreciation deduction can have on your taxable rental income, which can often bring the property’s income down to zero for tax purposes. This is in fact one of the best advantages of investing in rental properties.

Do you want to know how else you can benefit from real estate investing? Contact the RLG team today to schedule some time to discuss how RLG’s vast experience in the sector can help guide you to success