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

Know Your Goals: Cash Flow vs. Appreciation

Property investment and house mortgage financial concept, Hand putting money coin stack with wooden house, cash flow, appreciation

Property investment and house mortgage financial concept, Hand putting money coin stack with wooden house, cash flow, appreciationWhen looking for real estate properties, real estate investors commonly debate whether to chase cash flow or appreciation. Let us first define these terms. In real estate, cash flow is the net difference between money coming in and money going out from a rental property. Positive cash flow is what you are going for. In contrast, an appreciating property is one that is typically in a desirable area and whose value may increase over time. Both have obvious benefits, but it really comes down to what your goals are. Let us take a closer look.

Cash Flow

  • Positive cash flow provides passive income; when the market is down, you can still earn income from renters.
  • Positive cash allows you to hedge against future issues with the property.
  • You can invest the positive cash flow to further broaden investment goals.
  • You will be able to pay down your mortgage with a positive cash flow.
  • Positive cash flow is more predictable and therefore less risky than appreciation.

Appreciation

  • Allows you to build potential wealth for the future.
  • Your focus is on a larger sale payout that you can cash out or reinvest.
  • Compound interest: Not touching your principal and allowing it to gain in value.

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. If your goal is to buy a property in a desired area and sell the property down the road once prices have risen, real estate appreciation may be for you. If your goal in real estate investing is for extra monthly income, cash flow investing might be a wise choice for you.

The good news is the experts at RLG are here to help you figure out which approach is better for you. Call us today!

RLG is Hiring a Mortgage Underwriter!

Hiring Poster MU

Ridge Lending Group is looking for a mortgage underwriter to start immediately! Are you interested? Email us your resume to find out more details!

 

CDC Eviction Moratorium: What Landlords Need to Know

CDC Eviction Moratorium: What Landlords Need to Know

In September 2020, the Centers for Disease Control and Prevention (CDC) announced the issuance of an order under Section 361 of the Public Health Service Act to temporarily halt residential evictions through December 31, 2020 in an effort to curb the spread of COVID-19.
With this year’s rise in unemployment and stalled talks in Congress to push through a second coronavirus relief bill, the eviction moratorium allows authorities to implement stay-at-home and social distancing directives more easily. The idea behind the order is that by limiting the number of homeless people, shelters can operate in compliance with social distancing guidelines and thereby help prevent the spread of COVID-19 among this vulnerable population, which includes many who suffer from underlying medical conditions.
For landlords, however, the renewed moratorium brings a slew of concerns and uncertainty, so it is important for landlords to understand the rules and their rights for dealing with evictions. Although the order applies nationwide, it is not automatic. To be covered, tenants must write a declaration to the landlord under penalty of perjury.
Filing for Eviction
Landlords can still carry out evictions for reasons other than missed rent payments. These reasons include property damage. While the CDC order temporarily stops evictions for nonpayment, it does not mean overdue rents are forgiven. Once the moratorium expires, tenants may be asked to provide the back rent as a lump-sum payment.

Suing for Rent

While the eviction moratorium is in place, landlords can still sue tenants for rent. When landlords file a lawsuit in Small Claims Court, the judge will weigh in on the case and determine the amount due on the lease. Once a judgment is rendered, the landlord can garnish wages or go after the tenant’s bank accounts.

Month-to-Month Rent

Many landlords have been left to wonder if month-to-month leases would be better under the current circumstances. In general, terminating a month-to-month lease is permissible as long as the landlord gives the tenant at least a month’s notice. Keep in mind, however, that some municipalities and states have passed temporary rules that prohibit landlords from evicting tenants — no matter the terms of the lease — and restrict landlords from giving tenants termination notices.

Communication and Documentation

Landlords and property managers should maintain frequent communication with their tenants. Putting all agreements in some form of writing will help landlords avoid headaches down the road. Text messages should be printed out if they are to be used as evidence of an agreement. Additionally, some lawyers advise landlords to add a clause into rental agreements that holds tenants’ failure to communicate as evidence of a non-monetary default on the lease.

Using Your Voice

It’s not a good idea to push for evictions before the moratorium expires. Violators may be fined up to $250,000 and face up to a year in jail. The best way for landlords to make their voices heard is by letting their Congressmen know if they believe the CDC order isn’t fair. The National Real Estate Investors Association has an ongoing advocacy campaign opposing the CDC eviction moratorium.

What is investment lending?

Simply put, an investment loan is money borrowed by individuals or companies looking to invest in properties that are rented or fixed up and resold. Investment properties can be residential or commercial as long as the property is not the investor’s primary residence.

While different home loan programs can be tapped to purchase an investment property, a conventional loan is often the preferred choice because rates are typically much lower than with a specialty loan product. Qualified individuals have access to 10 conventional loan spots. After exhausting those 10, you may be allowed an additional 25 loan spots under specialty products.

Whether you want to buy properties at a distressed purchase value to renovate and sell for a profit or you plan on expanding your rental portfolio, the allure of investment loans lies in the opportunity to potentially earn huge returns and invest more than you could when using your own money.

From a lender’s standpoint, the loan amount is based on the lender’s loan-to-value requirements. Typically, hard-money lenders will finance 60% to 80% of the property’s estimated after-repair value (ARV). Conventionally speaking, however, the loan you are going to accept as a cash-out refinance will be at 75% of the ARV, as set by mortgage loan providers Fannie Mae and Freddie Mac. For example, let’s say you can negotiate a purchase price of $110,000 and the estimated repair costs are $55,000. If the ARV of the property is $200,000, the lender would finance up to $150,000.

In addition to conventional loans, it is possible to use government loans, such as those provided by FHA, VA and USDA programs. If you meet the qualifications, you can get up to 100% of your investment property financed with no down payment. It is noteworthy that these programs have specific eligibility requirements and some limitations.

At Ridge Lending Group, we do loans for primary residencies, FHA, VA and USDA, and we offer a variety of specialty (portfolio) loans. Whichever path you choose, mortgages on rental properties often require a credit score of 640 or higher. Regardless of the exact score, you could pay higher interest rates if your score is below 740.

For helpful tips on improving your credit score for more favorable investment property loans and terms and all things investment, subscribe to our YouTube channel. You can also contact us regarding commercial properties by calling 855.747.4343 or sending an email to info@ridgelendinggroup.com. Also, visit our website for any additional questions related to investment property funding and real estate investing.

Trends in Real Estate Investment

Thanks in large part to a global pandemic that has required swift and perhaps long-lasting adjustments in everyday life, the real estate investment arena looks much different now than anyone could have expected when the year began. Whether you are buying, selling or staying in your current home, here are a few trends that real estate investors should consider for at least the rest of 2020.

A Slow Rise in Home Prices

U.S. home prices rose 5 percent last year from 2018. In April 2020, however, home prices were up only .6% compared to 2019. This slower growth trend is likely due to the coronavirus and market uncertainty. But by the third week of May 2020, home prices had experienced a 3% growth rate, which is closer to the rate that existed pre-pandemic. For sellers, this means a potentially higher profit, of course, but it’s important to be mindful that fewer offers may exist due to stiffer competition. Meanwhile, buyers and investors absolutely must find out how much they can really afford to spend on a house. Don’t rush into any purchase that isn’t financially shrewd and beneficial. If you were mulling the idea of getting out of a market, now is probably the time to cash in a property. For a more cautious investment, consider apartments rather than single-family homes.

A Live-Work-Play Lifestyle & a Greater Sense of Community

Residents of urban areas typically want easy access to housing, around-the-clock amenities and commutes that can be done by foot rather than by vehicle. According to at least one report, investors should expect more communities to embrace the live-work-play lifestyle. Prior to the onset of the COVID-19 pandemic, co-living and co-working spaces were being built at a rapid pace, and the rise of community living was particularly seen in investment vehicles such as crowdfunding where many investors come together to purchase small shares of ownership in the same property. This trend may return in the next year, because even amid all the uncertainty that comes with a pandemic, people still crave a strong sense of community.

Increased Technology

While the real estate industry was in bygone years a bit reluctant to fully embrace new innovations in technology, high-tech systems are now the rage. Building systems management, artificial intelligence and other advancements will further accelerate the use of technology in most all areas of the industry while also creating new opportunities for investment and growth.

For helpful tips on improving your credit score for more favorable investment property loans and terms and all things investment, subscribe to our YouTube channel. You can also contact us regarding commercial properties by calling 855.747.4343 or sending an email to info@ridgelendinggroup.com. Also, visit our website for any additional questions related to investment property funding and real estate investing.

Who is Ridge Lending Group?

With a specialty in residential investment property financing, Ridge Lending Group comes to you equipped with a vast portfolio of knowledge and experience suitable for all aspects of real -estate finance. RLG maintains a continued commitment to being the best resource it possibly can to its customers all while setting itself apart from other lenders as a leader in both education and technology within the lending industry. The overarching goal of RLG is simple but powerful: to educate investors on the options that are best suited for their situation and help them achieve real estate investment success both now and in the future.

Caeli Ridge is the president and CEO of RLG and brings a wealth of personal experience to the world of real estate investing. With 18 years in the lending industry, Caeli has the knowledge and expertise to help her customers make smart, well-thought-out real estate investments. Caeli has held up to 42 investment properties at a time across the U.S. and has worked with tens of thousands of real estate investors throughout the country to help them realize and passionately pursue their dreams of homeownership as an investor.

When someone comes to RLG to inquire about real estate investment financing, RLG focuses on educating that person while also using competitive programs and rates to help them finance an investment property that works especially for them. RLG is committed and will stop at nothing to be a dedicated resource to all of its clients — from the beginning of the loan transaction through closing and even far beyond the closing date. In short: RLG creates clients for life.

Are you ready to take the plunge of 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!