How to Be a Dependable Landlord

Landlord handing keys

Landlord handing keysPurchasing rental homes is a tried-and-true investment strategy that provides passive income while providing you the option to sell when the time is right. In this line of business, your success will depend on your ability to attract and retain high-quality tenants.

But to retain good tenants, you must be a good landlord. Trust is a two-way street after all. We have rounded up some tips to help you stay on your tenants’ good side and be a dependable landlord.

Take Complaints Seriously: A wise landlord will listen to a tenant’s concern and look for ways to address it. If tenant disputes arise, you can act as a mediator to help promote a peaceful and safe environment. Noise complaints, for one, can often be settled with a warning.

Respect Tenants’ Privacy: In many states, a landlord is required to give tenants 24 to 48 hours’ notice before entering the property, save for an emergency. If you are showing a property with tenants inside, be considerate about their schedule and tactful in your approach as they may have the right to refuse viewings.

Be Responsive: Quick responses to maintenance and repair requests are a top priority for tenants. Because maintenance jobs can be a major stressor for both parties, it is important to have in place a system that keeps you notified when a request is submitted. There are many apps out there that allow landlords and tenants to track repair progress and communicate in real time, such as Avail and Buildium.

Know Your Rights and Obligations: Make sure to familiarize yourself with the laws that govern landlord-tenant relationships. In general, landlords are required to provide a fair and safe housing environment, properly maintain the property, carefully manage security deposits, and provide notice before raising rent or entering the premises.

Would you like to speak with a member of the RLG team to discuss the value of your current investment real estate 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.

6 Things to Know About REITs

REIT

REITA real estate investment trust (REIT) is a publicly traded entity that owns, operates, or finances income-generating real estate. By putting your money into a REIT, you are essentially buying a tiny piece of a portfolio owned by a corporation (or trust). As their portfolio appreciates, the trust pays out dividends to the investors.

Relative to other investment options, REITs are far less time-consuming and labor-intensive and may generate steady income stream for investors. On the flipside, they offer little in the way of capital appreciation. Here’s what you need to know about this investment strategy!

Equity REITs vs Mortgage REITs vs Hybrid REITs

There are three types of REITs: Equity REITs, mortgage REITs, and hybrid REITs. Most REITs are equity REITs, which own and operate income-producing real estate. As its name suggests, mortgage REITs provide financing for income-producing real estate by purchasing or originating mortgages. This model earns income from the net interest margin. Hybrid REITs are a combination of the other two strategies: equity and mortgage REITs.

Publicly traded REITs vs non-traded REITs vs private REITs

A traded REIT trades on a public stock exchange, such as NASDAQ and NYSE. They are regulated by the U.S. Securities and Exchange Commission (SEC). Non-trade REITs are registered with the SEC but don’t trade on public stock exchanges. Though they are less liquid than publicly traded REITs, they tend to be more stable. Private REITs, on the other hand, are not registered with the SEC and don’t trade on a public stock exchange. Private REITs aren’t accessible to most investors.

Dividends

REITs distribute dividends to investors on a monthly basis. As required by law, they must pay 90% of income back to investors. The other 10% can be reinvested into the REIT to buy new holdings.

Fees

There are management fees associated with all REITs. REITs are managed by a board of directors and trustees. It is important to find out who’s behind the management team, their track record, and compensation model. If the compensation model is performance-based, there is an incentive for the team to pick the right investments and strategies.

Taxes

The dividends you earn from REITs are taxable up to the maximum rate of 37%. However, taxpayers may deduct 20% of their dividend income.

Goals

REITs are an accessible investment strategy. You can invest in publicly traded REITs by purchasing shares through brokers, such as Fidelity or TD Ameritrade. You can also buy shares of non-traded REITs through a broker or financial advisor who participates in the non-traded REITs offerings. The SEC has a free search tool that allows you to look up if an investment professional is licensed and registered.

When investing in REITs, be sure to consider your financial goals and how they align with the strategy you want to pursue. Publicly-trade REITs are easier to buy and sell than actual properties, but they are subject to market volatility. The longer you hold on to it, the more time you’ll have to recover from potential dips.

Are you interested in learning more about real estate investing? RLG would love to help you find a suitable investment strategy for your goals! Call us today to learn more!

4 Reasons You Must Run Tenant Background Checks

background checks

background checksRental properties are a tried-and-true investment strategy that provides passive income while giving you the option to sell when the time is right. Additionally, owning a rental property allows you to diversify your portfolio. That said, any real estate investment comes with risks, and your profitability is contingent on being able to attract and retain high-quality, dependable tenants.

A tenant background check is a critical piece when determining whether a prospective tenant is suitable. A thorough screening should provide a comprehensive look at the applicant, including everything from rental history to criminal record. This may not only save you thousands of dollars down the line, but also a lot of headaches.

Here are four reasons landlords should never skip tenant background checks:

Safety

Landlords are responsible for providing a safe place for renters to live. Whether you own a multifamily property or a condo unit, it is your duty to ensure that every new tenant is carefully vetted.

Renting to someone with a violent criminal history could get you embroiled in a legal nightmare if the tenant harms someone else at your property. By the same token, renting to a registered sex offender could potentially lead to a lawsuit if your property is located near a school, park, or areas frequented by children. Note that sex offenders are not protected under the Fair Housing Act, so landlords can turn down a registered sex offender and face no legal retribution.

Liability

The Fair Housing Act prohibits discrimination based on a number of different criteria, such as sex, religion, race, color, national origin, familial status, and disability. If you do not screen an applicant and end up denying the application, you may face legal issues from people who may claim the refusal to rent was discriminatory. A background check helps lay the groundwork for denied applications based upon merit.

Eviction

Evictions are lengthy and costly processes. Tenants with poor past rental history and many evictions are more likely to fall behind on rent and damage the property. By running a background check, you can ensure that the applicant has a stellar payment history and minimize the chances of having to file eviction lawsuits against delinquent tenants down the road.

Turnover

When a property manager cannot collect rent due to vacancy, real estate investors must account for the loss of income as well as utility bills and potential vacancy taxes levied on underutilized properties. In other words, vacancies can put a significant squeeze on investors’ profitability. While background checks may set you back a few bucks, it pays off hugely compared to costs associated with vacancy losses.

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.

Happy Holidays!

Happy holidays

The Ridge Lending Group wishes all of our clients and partners happy holidays! May this new year bring you amazing new opportunities.

 

Happy Holidays

 

What Is a Real Estate Exit Strategy and Why You Need One!

Exit strategy

Exit strategyJust as a great deal of planning goes into crafting a business plan, so too must an equal amount go toward preparing a solid exit strategy. By having a robust exit plan, you can hedge against the occasional bad purchase and maximize the total return on your investment when the time comes to divest.

The more exit strategies you can come up with, the more control you may have over external forces. For instance, if you purchase a house to flip and find yourself stuck with a property you cannot sell at a profit, you may rent it out instead and protect your investment.

In real estate investing, you should hold on to properties that best suit your goals and divest yourself of those that do not. When formulating goals, make sure to follow the time-honored S.M.A.R.T. model, which stands for goals that are Specific, Measurable, Attainable, Realistic and have a Timeframe.

When divesting, the best way to go about it is to spread the sale of your properties over a number of years so as to minimize capital gains taxes. If possible, try to sell assets that are at least a year old so you can qualify you for the long-term capital gains tax rates instead of short-term capital gains tax rates. In addition, by strategically harvesting gains in certain tax years, you can potentially reduce your tax liability. Many investors will purposefully await years in which they fall into a lower tax bracket to realize capital gains on their investments.

Here are some common property investment exit strategies:

Sell and Walk Away: If you go this route, keep in mind that you’ll be looking at capital gain taxes. Investors who can bide their time are more likely to maximize returns as they are able to harvest tax gains, make improvements and repairs to increase home value, and take advantage of favorable market conditions.

1031 Tax Deferred Exchange: To minimize capital gains taxes, some investors opt for a 1031 exchange and move all of their equity into a like-kind property. Like-kind properties are real estate assets of a similar nature that can be exchanged without incurring any tax liability under Section 1031 of the Internal Tax Code.

Lease Option: A lease option is an agreement that gives a renter a choice to purchase the rented property during or at the end of the rental period. This is a great option for investors who want to exit an investment in the near future but do not want to rush.

Seller Financing: Seller financing is a real estate agreement where financing is provided by the seller instead of a traditional bank or lender. These arrangements typically include a down payment of at least 30% and a balloon payment due from two to five years. While it allows move a home faster and get significant return on the investment, it is not without its risks. A buyer may default on the payment forcing you to take the property back.

Cash-Out Refinance: If you have equity in a home, a Cash-out Refinance is a method you might consider that allows you to both refinance your home and borrow money at the same time. A cash-out finance replaces your existing mortgage with a new loan with a higher balance, sometimes with more favorable terms. The difference goes to you in cash so you can perform upgrades to your home, consolidate debt, or for other financial reasons.

Do you have any questions about real estate investing? RLG has the tools and experience to guide you with your personal and investment properties. Call us today to learn more and experience firsthand the dedicated, personalized customer service and undivided attention that RLG has to offer!

How to Find Motivated Sellers

Motivated sellers

Motivated sellersThe primary objective of real estate investors is to find motivated sellers from whom to buy homes at discounted prices. But what is a motivated seller? In a nutshell, motivated sellers are people who want or need to sell their home for a host of reasons. Whatever their motivation may be, these sellers are most often willing to agree to a lower offer price or discount in exchange for a quick close.

Here are some scenarios where real estate investors are more likely to encounter motivated sellers:

Foreclosure

A foreclosure occurs when a homeowner is no longer able to make mortgage payments as needed, which allows lenders to recoup the balance of the loan by forcing the sale of the property. When a foreclosure looms large, homeowners will usually seek to offload the property in order to repay the lender and avoid negative hits on their credit history. This is the best time for investors to negotiate and snap up a pre-foreclosure home.

Delinquent Taxes

When homeowners fall behind on taxes, many will list their home and resort to the sale proceeds to repay overdue taxes. Note, however, that once the local authority places a lien on a property, it cannot be sold or refinanced until the taxes are paid and the lien removed. Investors are allowed to purchase property tax liens from municipalities and collect the payment themselves. If the owner cannot pay the lien by the deadline, the investor has the authority to foreclose on the property and assume ownership.

Distressed Property

If a homeowner cannot afford to maintain or repair a property, they will often sell it in its current condition for a discounted price. There are numerous distressed homes available on the market. It is important that investors establish the extent of the renovation far in advance as the repairs may sometimes be too costly.

When determining the maximum price you should consider paying for a property, many real estate investors abide by the 70% rule, which states that the highest price you should pay for the property is 70% of the ARV minus costs of repairs. Imagine the after-repair value (ARV) for your property is $100,000, and it needs $25,000 in repairs, then the most you should pay for it is $45,000.

Relocation

Whether it be due to a sudden job loss, a career change, or to care for ailing relatives, people are constantly on the move. Real estate investors can profit from this opportunity to close great deals. As few people relocating have the means to afford a second mortgage in a different city or part of town, these motivated sellers will put their home on the market and typically favor immediate, all-cash offers.

Are you interested in learning more about real estate investing? RLG would love to help you find a suitable investment strategy for your goals! Call us today to learn more!

5 Ways Real Estate Investors Can Make Money

Real estate investors

Real estate investorsReal estate investors can profit off their properties in myriad ways. The best investment strategy ultimately comes down to individual short- and long-term goals. Some folks chase cash flow while others go for appreciation. Either way, as long as you know the tricks of the trade and your local market, you can generate income in real estate.

Following are some of the most common strategies real estate investors pursue to make more money from their portfolio:

Rent Out

While flipping houses provides quicker returns on your investment, renting an investment property can provide passive income over a long period of time. The key to success is to be able to retain high-quality tenants and regularly maintain the property. If you don’t want to deal with the hassle that comes with being a landlord, you can hire a property management company to take care of everything – from screening potential tenants to completing any repairs and maintenance needed.

Buy and Resell

There is no doubt there is much money to be made in the fix-and-flip market. Investors typically buy a property at a discount because of its condition, get it repaired, and resell it at a higher price. This strategy not only brings tremendous potential for profit but also a great deal of satisfaction from seeing through a makeover.

The best piece of advice here is to understand the costs and process and to have a sound grasp of your local real estate market so you can recognize a good deal and confidently project how much the property can sell for. Overall, an investor should pay no more than 70% of the after-repair value (ARV) of a property minus the repairs needed. The ARV is what a home is worth after it is fully repaired.

Try Short-Term Rentals

Platforms such as Airbnb and VRBO are just a few examples of numerous platforms that allow homeowners to monetize their vacation rentals. To compete against several other properties in your area, it is essential to first understand the ins and outs of the short-term rental industry. While short-term leases may offer less stability than yearlong agreements, rates are oftentimes much higher. When managed efficiently, a short-term rental property can be incredibly profitable.

Invest in Commercial Real Estate

While the risks of investing in commercial real estate (CRE) are typically higher than those of residential real estate, the prospects of large margins of profit can be enticing. It is important to understand that CRE comes in a wide variety of asset types, ranging from industrial buildings to office and retail buildings to mixed-used properties and warehouses. As your portfolio grows, you can beef up your net income through upgrades and renovations.

Hold Events

Another great opportunity in real estate is to monetize vacant properties as event venues. Whether you plan to hold weddings, birthdays or conferences, the location of your property is key if you are considering going down that route.

Are you interested in learning more about real estate investing? RLG would love to help you find a suitable investment strategy for your goals! Call us today to learn more!

What You Need to Know About Seller-Paid Appraisals

appraisal

appraisalA home appraisal — conducted by a professional home appraiser — is a neutral opinion of a home’s value. If you are buying, selling, or refinancing a home, the home appraisal is an important piece of the financial transaction. When you are buying a home, the appraisal determines if the contract price of the home is appropriate. In a refinance transaction, the appraisal ensures that the mortgage lender is not lending more money than the home is worth.

Now, if you are selling a home, opting to hire a professional appraiser may provide you with an unbiased valuation of your home. Though the vast majority of home appraisers are independent experts with years of experience, some may lean in favor of the buyer or make mistakes.

But the benefits for sellers go beyond that. Following are some advantages to enlisting the help of a professional appraiser:

Avoid Surprises: if your appraisal report comes back with a market value below your asking price, you will be armed with the information needed to take action and increase your home’s value. Whether it be damages you did not account for or the changing housing market, you may opt to make repairs or hold on to the property for a while before selling. Conversely, a higher valuation may warrant a price hike.

Save Time: By being proactive and footing the bill yourself, you may speed up the process and save time. Appraisals are normally scheduled weeks in advance, so a deal that falls through may set you back months.

With that said, most buyers will still need to pay for an appraisal to obtain financing, as lenders are unlikely to accept a seller-paid appraisal alone.

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!

FHFA Increases Conforming Loan Limit for 2022

Conforming loan

Conforming loanThe Federal Housing Finance Agency recently announced a raise in the conforming loan limits (CLL) for Fannie Mae and Freddie Mac in 2022. In most of the U.S., the maximum conforming loan limit for one-unit properties will rise to $647,200 in 2022 — an increase of $98,950 from the 2021 level of $548,250.

The 2022 CLL reflect the changes in the 2021 housing market when home prices skyrocketed virtually everywhere across the country. According to the latest quarterly report from the National Association of Realtors®, the median sales price of single-family homes rose in 99% of measured market areas nationwide, with double-digit price gains in 78% of the markets.

For high-cost areas in which 115% of the local median home values exceeds the baseline limit, the new ceiling loan limit for one-unit properties in 2022 will be $970,800. For multiple-unit properties, the changes are as follows:

  • For 2 units, the baseline limit will rise to $828,700 and up to $1,243,050 for high-cost counties.
  • For 3 units, it will be up to $1,01,650 and $1,502,475 for high-cost counties.
  • For 4 units, it will be up to $1,244,850 and $1,867,275 for high-cost counties.

Limits on the rise

The Housing and Economic Recovery Act (HERA) requires that the baseline CLL for the Enterprises be adjusted each year to reflect the change in the average U.S. home price. After a lull in increases from 2006 to 2016, the FHFA has been continually raising the conforming loan limit year after year. Since resuming the increases in 2017, the FHFA has expanded the conforming loan limit by more than $230,000.

In determining 2022 CLLs, FHFA used the nominal, seasonally adjusted, and expanded-data housing price index (HPI) to calculate the proportional change between the 2020 Q3 and 2021 Q3 index values. The FHFA has a great map showing conforming loan guidelines across the country.

What does this mean for homebuyers?

These new limits should allow homebuyers and investors to secure larger loan amounts with lower interest rates since rates are typically lower for government-backed loans. If loan limits held you back in the past or you are in the process of getting a Non-QM or alternative loan due to loan limits, call us now.

For more information on this announcement, click here.