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how to analyze real estate deals

How To Analyze Real Estate Deals

 1000 500 Sam Radbil
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How to analyze real estate deals?

That question is asked by millions of Americans every single year.

While investing in real estate is a goal shared by many Americans, it is a stable asset class that has the potential to produce life-changing wealth, provided you know how to analyze real estate deals and take action when the opportunity arises. 

white and brown concrete building under blue sky during daytime

If you harbor ambitions of taking your first steps in real estate investment, you’re in luck. The objective of this post is to provide a high-level overview of what you need to know to analyze fix and flip projects and investment properties. Let’s get started. 

How To Analyze Fix and Flip Deals

You Need To Know the Expected Return On Investment

There are a large number of variables that you need to consider when analyzing a fix and flip deal. Of these variables, Return On Investment (ROI) is arguably the most important.

Here is a simple way to analyze the ROI of a fix and flip property. For every dollar that you spend on the project, how many dollars do you expect to get back? The actual formula for ROI is relatively simple. You take the net profit, divide it by the total amount invested, and multiply that number by 100.

To help solidify the importance of ROI, it’s worth using an example, based on actual property flipping stats. According to Attom Data Solutions, it is common for property flippers to achieve an ROI of 40% (the average ROI from US property flips ranged from 38-42% in each quarter during 2019). 

In other words, if you were to invest $200,000, it is conceivable to make $80,000 dollars in the process, based on the 40% ROI figure taken from Attom. 

In this example, it is worth demonstrating the ROI formula in action. 

  • ROI = Net Profit / Total Amount Invested * 100
  • ROI = $80,000/$200,000*100 
  • ROI = 40%

At this point, it should be clear that flipping properties can be a powerful way to build wealth, whether you pursue it full time or as a secondary income source. However, in order to gain a more concrete understanding of the potential ROI, you need to factor in all the projected expenses.

Fortunately, a hard money loan calculator can make this reasonably simple to do. The calculator will help you understand the expected loan costs, broker fees and property taxes that will ultimately form part of your final ROI calculation. 

You Must Be Able To Identify, Acquire & Improve Undervalued Properties

Of all the skills that a property flipper needs to possess, the ability to identify undervalued homes sits right at the top of the list. When analyzing a potential flip, you need to have a firm grasp of how you can dramatically improve the selling price. 

For instance, modern homes with premium finishes leave very little room for improvement. While some interior design changes could create a small lift in property value, the reality is that it would be difficult to sell a property of this nature for more than the original purchase price, in a short space of time (naturally the property value could appreciate significantly over a number of years). 

white and brown house during daytime

However, older homes with outdated finishes, ugly exteriors and isolated kitchens can be a dream come true for property flippers. In such cases, there is potential to improve the exterior and the interior components of the property, which can result in a dramatic increase in property value. 

Knowing the After Repair Value Is Super Important

It is common for property flippers to refer to the ‘After Repair Value’ or ARV for short. This represents the expected value of the property after all the renovations have been completed. 

While there are a few ways to calculate the ARV, assessing similar properties in the area is by far the most common. 

Comparable properties are often called ‘comps’ for short and they can make or break a property deal. The basic premise is fairly simple. If a medium size 3 bedroom 3 bathroom house in a particular suburb of Dallas Texas is worth $300,000, there’s a good chance that a house with similar features will be worth roughly the same price. 

To learn more, this guide provides a fairly detailed overview of how to calculate ARV. 

Remember To Use The 70% Rule To Calculate The Maximum Purchase Price

This is a rule that many property investors use to quickly assess if a property flip is likely to be profitable. Once you have established the expected after repair value of the property, you simply multiply that amount by 70%. This gives you a fairly reliable maximum purchase price to work with.

When you are ready to enter negotiations with the seller, you can approach them with a concrete understanding of what you can afford. Pre-calculating the maximum purchase price is a safety mechanism that you can and should build into the deal. Fortunately, this doesn’t take very long to do, and it is something you will become increasingly familiar with as your experience with property flipping grows. 

How To Analyze Rental Property Deals

Investing in rental properties presents a different set of challenges to a typical fix and flip. Where property flipping requires you to have a discerning eye for a property’s true potential, rental property investing is less demanding in this respect.

man climbing on ladder inside room

For instance, it is entirely possible to buy a turnkey property that requires absolutely no improvements before your first tenant moves in. This increases the pool of potential properties to choose from and it also introduces a series of relatively simple mathematical tools that you can use to analyze the deal.

We will now take a look at 3 very useful tools for analyzing rental properties specifically.  

Tool 1 – Cash Flow: 

A basic estimate of potential cash flow is a good place to start when analyzing a rental property. This basic summary from fool.com sums it up quite nicely:

  • Determine the gross income from the property.
  • Deduct all expenses relating to the property.
  • Subtract any debt service relating to the property (ie the cost of the loan)
  • The difference is the property’s cash flow.

In other words, to work out the cash flow of the property, you simply need to calculate the gross income, subtract all the expenses, and then subtract the mortgage payments. Once you’ve calculated the cash flow, you can turn your attention to the expected cash-on-cash return. 

Tool 2 – Cash on Cash Return: 

The point of calculating the cash-on-cash return is to figure out how much money you are likely to make from the money you have invested into a rental property. It is calculated on a pre-tax basis, which helps reduce the complexity of the calculation, and it relies on a 1-year time horizon. 

The Cash on Cash Formula is straight-forward: Cash-on-cash Return = Annual Pre Tax Cash Flow / Total Cash Invested * 100

Crucially, the ‘Total Cash Invested’ is the total amount that you have invested into property, excluding the mortgage repayments. Usually, this would be the down payment, closing costs and repair costs, plus any other administrative fees that you may incur. 

The main benefit of calculating the Cash-on-cash return is that it allows you to compare the expected return against other investment opportunities, be it another rental property or even stock and bonds. 

Let’s say you’ve identified two similar properties, and the one is expected to produce a cash on cash return of 4%, while the other is likely to produce a cash-on-cash return of 6%. If all else is equal, you now have a solid platform from which to make a decision. 

Tool 3 – Cap Rate: 

This is another relatively simple formula that can help you assess the profitability of two competing properties. 

The actual formula is pretty straightforward: Cap Rate = Net Operating Income/Property Value

It might be worth clarifying that net operating income is simply the annual rental income, minus the annual property expenses. Also, the net operating income excludes the bond costs, so there is no need to factor these into the calculation. 

Like cash-on-cash return, Cap Rate can be very useful for comparing two properties. You are essentially just using the projected rental income, property expenses and property price to gain a basic understanding of the returns you can expect with a rental property. Because it is so quick and simple, you can analyze a large number of properties in a short period of time.

How To Analyze Real Estate Deals in Your Preferred Area

When analyzing any property, ‘Location, Location, Location’ is often touted as the most important consideration, and not without reason. Area analysis plays an important role in any real estate investment deal. For this reason, we are now going to highlight 8 things to consider when analyzing the overarching area. 

  1. Schools – Good schools and universities can be a huge drawcard for investors. It means more families and businesses are likely to settle in the area.
  2. Proximity To Parks – Quick access to parks can increase the desirability of an area.
  3. Scenery – There’s a reason houses with sea views and mountainous backdrops tend to increase in value over time. Stunning scenery can have a huge impact on property price.
  4. Transportation Facilities – Suburbs and cities with good transportation systems help improve the economic output of the area, while increasing the convenience of living there.
  5. Entertainment Features – Exciting entertainment features can be a big drawcard for tourism and residents alike.
  6. Job Opportunities – Assessing unemployment rates is always a good call when analyzing an area. If the unemployment rate is slowly increasing, you may need to extend your property research period before making a long term commitment to the area.
  7. Are Grocery Stores Investing In the area – You might be surprised by just how meaningful this is. If retail stores like Trader Joes, Whole Foods or Aldi have established themselves in the area, it can act as a green flag, indicating potential for an aspiring property investor.
  8. Are Property Prices Going Up or Down – You can easily assess the property prices of an area using Zillow or Trulia. If property prices are stable or increasing. However, if property prices are declining steadily, it might indicate a red flag that you should steer clear of.

Of course, these are not the only factors to consider when analyzing an area, but it should be enough to get you started. 

Final Thoughts 

Although the process of investing in real estate can be complex (keep in mind there are many books you can read to get started), there are ways to filter through all the available options and make a good decision. 

When looking at a fix and flip, place ROI at the forefront of your thought process. If you’re considering a rental property, be sure to use all the mathematical tools at your disposal to help make a good choice. And always remember to conduct a thorough area analysis before you make your final decision. Choosing the right location is a skill that you need to hone in order to become a successful real estate investor. 

How Technology Can Help Improve Your Rental Property Business  

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Regardless of the type of investment property that you are renting, there’s a lot to think about when you are a landlord. Luckily, there are a number of technological advances that are here to help.

Rather than attempting to do everything alone and risking something being missed, you can rely on technology to help streamline things. Here are three of the key ways you can boost your rental property business with the help of modern technology. 

By Going Paperless

There’s no denying that paperwork takes up a lot of space and there’s a fair amount of paperwork that comes with a rental property. Not only do you need to store the hard copies but you also need to find time to file, organize, and locate the paperwork when the time comes.

That’s not including the likelihood of irreplaceable paperwork going missing, something that all landlords dread. This is why a lot of landlords are choosing to go paperless.

There’s also the major benefit that by going paperless and using better real estate software, you immediately reduce the costs that come with paperwork. Don’t forget, the cost of paper and printing ink soon adds up.

You are likely to find that going paperless is a budget-friendly option. There are a number of other benefits that come with going paperless as a rental landlord, for example:

  • There is no need to worry about storing paperwork.
  • There is no need to worry about paperwork becoming accidentally damaged. For example, a leak or fire may occur at any time.
  • When documents are cloud-based, they can be accessed from anywhere.
  • You won’t find yourself faced with hard to read handwriting and illegible applications from tenants.
  • It’s very easy to send paperless documents to tenants. 

By Handling Maintenance Requests Online

As a landlord, you are sure to have a fair amount of tenant maintenance requests to deal with. These can be hard to manage if they are done via telephone or in-person. To avoid forgetting about an important request, everything can be handled online. There are online systems that allow tenants to log maintenance requests with ease, while also allowing you to track and manage them.

As a landlord, it’s a lot easier to prioritize the importance of requests when they are all in an easy to manage the system; urgent ones can be handled first, with others being dealt with a little later.

It’s also very helpful when it comes to deciding whether or not to renew someone’s lease.

If the tenant has made a lot of complaints and required a lot of maintenance, are they someone you want to continue renting to?

Not only does it simplify the way you handle requests as a landlord, it simplifies the way tenants make them. Tenants are able to log a request at any time and from the convenience of their own home, something that is a huge selling point when it comes to marketing a rental property.

By Offering Online Payments to Tenants

When it comes to property management, there are certainly a number of benefits that come with the development of technology. One of the main benefits is online payments for tenants. According to Mobiliti, this can also be a huge help for commercial tenants and commercial real estate owners as well!

There’s no need for tenants to worry about sending a check on time or worrying about late payment fees if the office closes, as paying online is hugely convenient and can be done at any time. You could make it even easier by putting an app into place, allowing tenants to pay from their smartphones wherever they are. There are few things more convenient for tenants than allowing them to pay their rent online, but it’s also a major convenience for you. Even if you have landlord insurance in place, rent arrears are common and a headache for landlords, so making it easy for your tenants to pay you is win-win.

Think about the time and money that comes with managing rent and accounting – a lot of these are reduced when you take things online. There’s also the benefit of being able to quickly check to see who has paid and when, making handling payment disputes a lot simpler.

Landlords and tenants are all privy to the same information, meaning that arguments are unlikely.

 Thanks to technology, you can improve your rental property business by boosting production and efficiency. This will save you time and money in the long run, while also reducing stress. 

5 Tips to Recruit and Retain Skilled Real Estate Agents

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One of the most crucial elements for ensuring your real estate brokerage can steadily generate revenue is agent productivity. Indeed, it can be argued that real estate agents are the main income generators of a brokerage. At the same time, however, it’s not enough to rely on your current lineup of skilled, veteran agents.

You have to consider recruiting real estate agents who are still starting out, yet possess a desire to prove themselves. This can help your company earn more and sustain its growth. With fresh perspectives and a drive to succeed, young and skilled real estate agents can push your brokerage into greater heights.

The question is: how do you recruit and, more importantly, retain these young and skilled real estate agents? Here are some tips you might want to consider:

Be a Mentor

Young professionals, no matter the industry, and eager and hungry to learn from the best. They’re constantly looking for individuals and companies that can help them achieve their goals. If you can provide knowledge and training for young agents, they’re most likely to join you. Make sure to come up with programs that enhance your new recruits’ skill sets or even teach them new ones. When these young talents know that they are constantly growing with your brokerage, they will be more likely to stay.

Don’t be afraid that your new recruits will leave after they’ve received mentorship. Rather, focus on cultivating an environment suitable for their growth. Remember the quote from Richard Branson: “Train people well enough so they can leave. Treat them well enough, so they don’t want to.”

Build a Strong Online Presence

Young millennials and Gen Z-ers are digital natives. They are always online reading real estate blogs and thus expect brands and companies to be online as well. As such, make sure that your brokerage not only has an online presence but a strong and streamlined one. Don’t just post on social media; engage!

Get to know your potential new recruits instead of just posting for likes, shares, and retweets. More importantly, study how you can use each social media site effectively. For example, LinkedIn is ideal for knowledge sharing aside from being a recruitment platform.

You should also keep your website sleek and easy to use, not to mention mobile-friendly. Don’t forget to provide helpful content in the form of articles or videos. Use a sound SEO strategy; in fact, hire an SEO company to ensure that your brokerage will appear in relevant searches as one of the top results for potential brokers and customers alike.

Don’t Just Hound Social Media

It’s true that most young candidates spend a lot of time online and on social media. However, when actually recruiting candidates, it’s best to combine techniques. Use online platforms and at the same time consider more personal methods to really connect. One good way is to host industry events.

This is a perfect venue for networking, not to mention learning (which, again, young real estate agents are keen about). Think of recruitment as a form of dating. It’s not enough to create a dating profile and meet people online. After you get to know them digitally, it’s time to meet on an actual “date.” This shows sincerity and creativity on your end, and seriousness on the candidates’ ends.

Compensation Beyond Money

Everyone has to make a living.

However, for many young and talented candidates, compensation is more than just about money. While you have to think about providing just and livable wages, you also have to think about offering something unique to your recruits. In particular, young professionals are looking for companies with cultures and values that echo their own. Training and networking opportunities are also crucial since, as earlier mentioned, young recruits are always looking for ways to improve themselves. 

You should also think about providing and encouraging activities outside real estate. Indeed, there is life outside of work and you should be promoting this as part of your company culture. If you can provide other benefits such as health insurance and paid time off, then all the better.

Use Data to Monitor Progress

If you’re recruiting real estate agents, you need actionable data on two fronts. First, you need to track the performance of every recruiting activity you conduct. If something doesn’t work, then you either need to think about a new activity or optimize based on your data. Ideally, you should conduct a week-on-week analysis. 

Second, you should monitor the performance of your potential recruits. Ask them the same interview questions for a balanced result. Once they make the cut, you should have a standardized criteria to measure their effectiveness. If they’re lagging, make it your mission to find out why and initiate ways to help them improve.

Recruitment is not an easy process, especially if you’re looking for true talent. Every brokerage is after top-tier candidates, after all. Consider these tips to find and retain real estate agents that will help steer your company to greater success. Good luck!

Contract for Deed

[2019 UPDATES] Contract For Deed: The Ultimate Guide

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Contract for Deed Home Financing in 2019

Contract for deed home financing is a great option for those individuals struggling to get a traditional loan from the bank. Now, let’s get into the details.

Conventional financing, in 2019, as we all know, is the preferred home loan vehicle. This refers to a standard mortgage loan from a licensed lending institution, and typically can be a15 or 30 year loan with a down-payment that ranges from 3 percent to 20 percent. The higher your credit score, the better deal you will get.

Even before you find your dream home, you should obtain mortgage pre-approval from your lending institution. While pre-approval does not guarantee that everything will go smoothly, it does provide you with significant negotiating power when dealing with sellers.

Applying For Conventional Financing

Your parents probably had to spend an afternoon at a banker’s office when they applied for their first home loan. Now, you can do this by phone or online, although you will eventually have to sign closing documents in person. Some important things to do and factors to be aware of are:

  • Know your credit score.
  • You can easily see this number at Credit Karma, and the service is free.
  • Determine what factors make you less attractive.
  • High student loan balances, maxed out credit cards, judgments, liens, unpaid taxes and underreported income can hurt you.
  • Analyze your actual credit report and correct errors. The FTC reports that one of every five credit reports contains inaccuracies.
  • Optimize your credit status by paying down card balances to below 30 percent; do not make any large credit purchases while attempting to secure home financing.

Understanding What You Can Afford

Banks have certain debt to income ratios that they do strictly enforce. The Consumer Financial Protection Bureau (CFPB) explains:

“Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income.  This number is one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed.”

To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.  For example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6000, then your debt-to-income ratio is 33 percent. ($2000 is 33% of $6000.)

Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. The 43 percent debt-to-income ratio is important because, in most cases, that is the highest ratio a borrower can have and still get a qualified mortgage.

Housing Affordability

Finding Your Home

You can spend all day trolling Trulia and Redfin, but many times you can be missing out on homes for sale that only Realtors can easily access. Remember, sellers pay real estate commissions—you don’t—so avail yourself of this free service and find a good Realtor.

Finding Your Home With Contract For Deed

Working With A Contract for Deed Realtor

The Realtor/client relationship is a two-way street. If you are a type A personality and want all of your texts answered within two minutes, make sure your Realtor is as hyper as you are. Conversely, don’t expect your Realtor to work miracles with incomplete or false information. For example, don’t inflate your income and/or minimize your debts at your first meeting. In the credit world, there are no secrets, so be upfront with you Realtor.

Turned Down For Traditional Financing?

Mortgage Rejection

Those that give up after being rejected for a home loan end up renting apartments while those savvy enough to understand that there are alternatives to conventional financing will look at the rejection as a bump in the road and move forward. Rent to own is one way to become a homeowner, but a preferred method is MN contract for deed. In a rent to own situation, you pay rent to a property owner that may put aside a portion of your monthly rent as a down payment for a future purchase.

If everything works out, either the seller provides financing or you obtain it at some later date. In a contract for deed sale, you sign a contract that states that you will be given the deed to the property you are occupying after you make all of your required payments. Contract for deed is seller financing, and while interest rates can be a bit higher than conventional financing, credit requirements are typically significantly more lenient.

Finding Contract For Deed Opportunities

There are a limited number of MLS contract for deed listings.  If you’re lucky, you might find the right opportunity in a nice location. At C4D, however, we give you an advantage that others that wish to utilize contract for deed just don’t have. Just bring the home you wish to purchase to us. If we can do the deal, we will purchase the home and sell it to you on a contract for deed basis. We have paved the home ownership road for many that were rejected for conventional financing. Application is easy—just go to our website. C4D has the financial power behind them to make these deals happen.

Contract For Deed Documentation

While C4D offers less stringent credit requirements, we still will need pay stubs and bank statements. We look, however, at your situation today, and we care a lot more about what you can do now than what bad things have happened to you in the past. At C4D even high student loan balances and recent bankruptcies are not necessarily the hindrances they would be at a large bank.

Contract For Deed: How It Works

Although the nightmare of waiting 60 days or more to close on even great credit deals is generally behind us, banks take longer than we do at C4D. We usually can close deals in as fast as two to three weeks.

MN Contract For Deed Costs

We’re upfront about all of this. We do require an origination fee and we do add a small initial property markup. And, the interest rate you pay will be higher than the prevailing conventional mortgage interest rate.

Contract for Deed: What Problems?

We have many satisfied former renters that are now homeowners. We are transparent and forthright. If we can help you, we do everything possible to get your deal done. We are MN contract for deed experts, and happy customers are our paramount concern.

If you deal with an individual that is offering a contract for deed, you have to do serious vetting to ensure that there will be no problems with your deal in the future. With C4D, this is not necessary.

Contract for Deed: True Disclosure

When we purchase your home, we get a loan from our bank. With the blessing and full knowledge of our bank, we then sell the property to you with a MN contract for deed. You make your monthly payments to us and we, in turn, make our payment to the bank. But check this out:

We’ve never missed a payment and don’t ever plan on it.  In addition, we’ve worked with our bank partner to have an assignment of contract included in your documents that basically says if we stop paying our lender, you can pay them directly and your contract remains intact.

You won’t find this protection with most individual contract for deed sales. In fact, many times the seller’s bank isn’t even made aware of the transaction, and this can throw the original mortgage into default because of the due on sale clause that is embedded in almost every mortgage note. Our agreements with our bank do not have due on sale clauses.

Everything is upfront and at closing the contract is recorded at the appropriate County.

Helping You Refinance

Our goal is to get you into a home and ultimately help you refinance with a traditional lender.  We have relationships and systems in place to help make this happen. Typically, we can help people refinance within three years of purchase.

For the Realtor: Turned Down? There Is Still Hope!

So you spent weeks trying to get your buyer and seller agree upon a price. Both were difficult at times, and when you finally got all sides to listen to reason, an old unpaid judgment appeared and derailed the financing. After you’re done binge watching House of Cards to ease your pain, give us a call. We have been able to resurrect many deals that have been turned down by others.

Realtor Contract for Deed

We are a reputable, experienced and recognized company that does MN contract for deed. You bring us the buyer and the property, we buy the property and sell it to your client on a contract for deed. Even if you have an iffy buyer with shaky credit and you have not yet found the perfect property, bring them to us; we will get many of them pre-approved and send them back to you.

Is My Commission Protected?

Realtor Commission

You betcha! 80% of our referrals come from realtors, and they wouldn’t keep coming back if we didn’t guarantee that their commissions would be protected.

The Deed

Contract for deed means exactly that.

  • We buy the property.
  • We hold the deed.
  • We sell the property to the buyer.
  • They occupy the home.
  • They make their monthly payments.
  • At the end of the contract period, we turn over the deed and they are homeowners!
  • They can also refinance early with a traditional lender, and this is something that we will facilitate.
  • In addition, the buyer actually has equitable title, and can sell the property at any time if they wish to move on.

What About Financing?

Yes, we use a bank.

  • Our bank gives us a mortgage.
  • Our bank knows what we are doing.
  • The buyer pays us and we pay the bank.
  • We are never late.
  • We never miss payments.
  • Our mortgage with our bank does NOT include a due on sale clause.
  • In fact, we have an assignment of contract put in place that basically says if we stop paying our lender, the buyer can pay them directly and the contract remains intact!

The Final Paperwork

We will hold your client’s hand from application to closing. We will assist with all documentation and paperwork.

When The Offer Is Accepted

At this point, Taylor and the C4D Crew take over.  We work directly with the lender and title company to schedule closing and work out all the paperwork.  The C4D Crew will also work directly with the C4D buyer on all the paperwork and logistics for the day of closing This will be one of the easier transactions you do this year!

Down-Payment

Contract For Deed MN Down Payment

A down-payment is of course necessary, but the down payment be gifted to the buyer in a C4D transaction. Just make sure your clients speak with their accountant for possible tax implications.

C4D Crew Reputation

We can provide you with client references. Just by looking at our website you can see that we provide tons of valuable and free information about MN contract for deed. Of course, we are in business to make money—so are you—but we are also dedicated to helping those with compromised credit become homeowners.

How Long Does It Take?

From the time you and your client find a home they’d like to buy, and an offer is accepted, we can close as quickly as two to three weeks.

Credit Score Minimum?

We don’t have one. We look at every deal individually. Prior BKs, student loans, judgments divorces and tax liens are all issues we can work around.

Credit Score

Can You Approve Any Deal?

In short, no. We are not going to lie and tell you that we can do anything, but you would be amazed at what we can accomplish.

Call Us About Contract For Deed

MN Contract For Deed

Again, just because the loan officer rejected your client’s loan, your deal is not necessarily dead. Contact us and we’ll quickly get started on a contract for deed program that can make your client’s home ownership dream a reality.

first time home buyer with bad credit

First Home with Terrible Credit: Is It Possible?

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Getting your first apartment, whether that’s a studio in Milwaukee, Wisconsin or a 2-bedroom place in Minneapolis, and moving out of your parents’ house is great, but when you get married and start a family, you’ll want your own home. If you have a great job and a stellar credit history, you might sail right through the loan process but what if you have terrible credit? Bad credit does happen to good people and here a few reasons why, if you are a first time home buyer with bad credit that you may be having difficulties getting loan approval:

  • Divorce
  • Job loss
  • Over use of credit cards
  • High student loan balances
  • Judgments
  • Liens
  • Arrests
  • Tax warrants
  • Bankruptcy

Miss a payment here and there and your credit rating can take a huge hit, and if you have to declare bankruptcy, your credit score can instantly drop 100 – 150 points or more. If something bad has occurred, does that mean you can never buy a home? The simple answer is that no, you may be able to purchase a home, but it will take some work.

Check Your Scores

Credit score

First, don’t enter the battle without ammunition. Make sure you know what your credit score is, and also examine your credit report for errors. The Federal Trade Commission reported that “One of every five American consumers has an error on his or her credit report and 5 percent of us endure errors so serious that we likely are being overcharged for credit card debts, auto loans, insurance policies and other financial obligations, according to a comprehensive study issued … by federal regulators.” A simple late payment error can take your score down by 30 points so if you see errors, dispute them.

Raise Your Limits

A large portion of your credit score consists of your credit usage ratio. If you have $10,000 in various credit lines and have balances that equal $4500, your usage rate will be 45 percent. Your credit score will be higher if you can keep the ratio below 33 percent. One easy way to lower that ratio without paying down your cards is to get a credit line increase. Increase your $10,000 lines to $15,000,you’re your $4500 usage will yield a 30 percent rate, and that will raise your score.

Trouble as a First Time Home Buyer with Bad Credit

If your score is still ugly, and you are having problems get approved for a loan, look to government programs. If you are a veteran, you can get a VA guaranteed loan for your first-time home purchase. This is a great way for a first-time homeowner with bad credit to get a loan even with a credit score in the mid-500s. FHA loans are another avenue to pursue if you have credit issues.

Rising Interest Rates Loan Rejection

Contract for Deed

Many persons, however, just can’t qualify for conventional financing, and this is where a contract for deed might work for you. Find a reputable company like C4D. They will but the home you are interested in and then sell it to you with a MN contract for deed. You can live in the home, and after you have made all of your payments, you will own your home.

It sounds simple, and while you still have to qualify, companies like C4D look at more than your credit score. If you are a first-time home buyer with bad credit, check all of your options, but be sure to add contract for deed to the list.

Home Buying in 2019

Buy in 2019? 7 Must-Do’s Before Homeownership

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Buying your first home can be an exhilarating but exhausting experience. Before you even worry about the ins and outs of finding a great plumber, you not only have to find the place you want, but you must get your financial life in order in a hurry if you haven’t done that already. Here are seven important things to do before you purchase your first home:

Get A Realtor to Represent You

buying your first home

Important technical point #1: Sellers pay all real estate commissions, including those of a buyer’s agent. You should find the best and most knowledgeable real estate professional in your area and sign them up to represent you. They will flood your inbox with listings, they will help you negotiate, and they will draft purchase offers. And you won’t have to pay a penny, so there is no reason to purchase a home without the help of a buyer’s agent.

Look at Your Budget

Understand what you can afford and what you can’t. Principal and interest aren’t the only components of a monthly payment. You have to add real estate taxes, property insurance and maybe even private mortgage insurance (PMI) to the equation. You can’t start the process of buying your first home without understanding exactly where to draw the affordability line as there is no sense in wasting time looking at properties you can’t afford.

Credit score

Buying Your First Home: Get Your Credit Score

A few years ago, you had to pay for your credit score, but not anymore. Today, there are many vendors and credit card companies that will provide your score in seconds. If you have a low score, research what you can do to improve it, as your credit score is the first thing lenders look at.

Seek Pre-approval

While pre-approval from a lender does not necessarily guarantee that you will get a loan, it does give sellers assurance that you are creditworthy. When a seller accepts your offer, they are tying up their property until the deal closes, and if you are not a good risk, sellers will look at other offers.

Gather Your Down Payment Resources

Down Payment Resources

Substantial down payments can work magic because:

  • They lower your monthly payment amount.
  • They show the lender you are committed and serious.
  • They show the seller that you have resources.

Yes, you can but a home with no down payment—a VA loan is one example—but your financing options may be limited, and your interest rate could be higher.

Don’t Fear the Inspection

When buying your first home, you will want to have the property inspected by an impartial third party after your offer is accepted. Many persons worry that the inspector will find something bad and the deal will die. Some deals need to be killed, however, especially if an inspector finds glaring defects and problems. Your dream home can quickly become your nightmare if you don’t have it properly inspected while you still can void your purchase contract.

Have a Contingency Plan

If a deal falls through, or if you are turned down for a mortgage, it’s not the end of the world. There are other homes out there and other financing methods available. MN contract for deed is a great way for those with some credit issues to participate in home ownership. Be sure to contact us if you need an alternative to traditional financing.

The Major Tax Benefits of Homeownership in 2019

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Home ownership is still a great deal, and you can save substantial tax dollars because of it. In 2019, however, some of the benefits of home ownership have been curtailed, and those interested in exactly what a homeownership tax credit does should read on.

What is a Tax Deduction?

There is a difference between tax deductions and tax credits. A tax deduction is an amount that you can subtract from your gross income. In previous years, the IRS allowed what they call the standard deduction; that was $12,000 per year per married couple.

That meant if you earned $60,000 in 2018, and were filing jointly, you would be about to immediately deduct $12,000 from your income and pay taxes only on the remaining $48,000.

homeownership tax credit and deductions

An image of a Five Most Common Tax Deductions Chart.

For the tax year 2018, the standard deduction has been increased to $24,000. That means that on a combined income of $60,000, you and your spouse could deduct $24,000 and pay taxes only on $36,000.

The caveat here is that you can either take the standard deduction, or you can itemize expenses, add those up, and use that amount as your deduction. The purpose of doubling the standard deduction was to keep people from having to itemize and save receipts.

What Is a Tax Credit?

A tax credit is something that would actually reduce the amount of taxes that you owe, like the American Opportunity tax credit that applies to attending college.

Capital Gains Tax

There is not a national homeownership tax credit per se. Yes, you can deduct a certain amount of mortgage interest and property taxes, but it may be more advantageous to just take the new higher standard deduction. The mortgage deduction amount for the year 2019 has been capped, and so has the property tax deduction amount.

IRA Considerations

If you are considering the use of your IRA to fund a down payment, tax laws do allow you to forego paying IRA withdrawal taxes up to a certain amount. Be sure to check with your CPA regarding this.

Home Equity Interest Loan Deduction

Again, this is not a homeownership tax credit, but you can deduct a certain amount of home equity loan interest if you have taken out a home equity loan.

Capital Gains Exclusion

Capital Gains Exclusion

Our friends at NOLO tell us:

“Married taxpayers who file jointly get to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. Single folks (including home co-owners if they separately qualify) and married taxpayers who file separately get to keep up to $250,000 each, tax free.”

The Comparison

Remember, if you are renting, there are no possibilities for mortgage or property tax interest deductions, and you can’t take out a home equity loan so that deduction will be unavailable also. There are certain states that offer a homeownership tax credit, and renters from Bloomington, Indiana to Eugene, Oregon are out of luck here also.

As you can see, home ownership still provides a lot of tax incentives, and states provide worthwhile homeownership tax credit. If you are unable to get traditional financing, these tax breaks can still be yours through the use of MN contract for deed.

MN Real Estate

Minnesota Real Estate: C4D’s 2019 Outlook

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Minnesota real estate has been strong in 2018.

Bigger metropolitan areas like Minneapolis-St. Paul have seen months where the median number of days on the market for typical homes was only 47. And check out these stats from the Minneapolis Area Realtor’s Association:

Minnesota Real Estate

  • New Listings increased 9.5% to 702
  • Pending Sales decreased 6.7% to 723
  • Inventory increased 1.0% to 9,487
  • Median Sales Price increased 8.2% to $265,000
  • Days on Market decreased 7.1% to 52
  • Percent of Original List Price Received decreased 0.1% to 97.3%
  • Months’ Supply of Homes for Sale increased 10.5% to 2.1

Median Sales Price Prior Year Percent Change

The trend is neatly summarized by this simple report about Minnesota real estate:

  • December 2017: $248,000 – $226,000 (+9.7%)
  • January 2018: $244,000 – $222,500 (+9.7%)
  • February 2018: $250,000 – $221,650 (+12.8%)
  • March 2018: $258,100 – $235,000 (+9.8%)
  • April 2018: $267,000 – $245,000 (+9.0%)
  • May 2018: $271,000 – $250,000 (+8.4%)
  • June 2018: $270,500 – $257,250 (+5.2%)
  • July 2018: $268,000 – $251,500 (+6.6%)
  • August 2018: $268,000 – $252,000 (+6.3%)
  • September 2018: $262,000 – $247,000 (+6.1%)
  • October 2018: $265,000 – $244,000 (+8.6%)
  • November 2018: $265,150 – $245,000 (+8.2%)
  • 12-Month Median: $264,100 – $245,000 (+7.8%)

As you can see, Minnesota real estate prices have climbed steadily, and are continuing to do so.

Positive 2019 Factors in Minnesota Real Estate

First, let’s look at the 2019 factors that may keep this real estate train running. The price of oil took a serious tumble in late 2018 to a present-day value of only approximately $45 per barrel; oil prices ripple through the U.S. economy and affect many sectors.

Minnesota Real Estate Factors

  • Jet fuel prices will be cheap and that will help airlines make more money without ticket price increases.
  • Gasoline and winter heating oil prices have declined with gas falling below $2.00 per gallon in many parts of the country.
  • Anything made with petroleum like plastics will be cheaper to produce.

These trends mean stable prices and more money in the pockets of Americans. This is turn strengthens the economy as a healthy consumer sector makes the chance of a recession less likely in 2019.

Employment

The unemployment rate is nationally at record lows, and at what is considered full employment, wages start to increase, and that also leads to greater consumer spending power.

All of these factors mean consumers will be in better shape, will have better credit scores (you can still buy with bad credit!), and will be ready to buy more homes.

Minnesota Real Estate Negatives

Two main problem areas are rising interest rates and stock market volatility. The Fed, concerned that the strong economy will overheat has been steadily raising interest rates from zero to a more “normal” level. This has caused mortgage rates to cross the psychologically perilous fiver percent mark, and higher mortgage rates may cause some potential buyers to sit on the sidelines.

Also, the recent stock market volatility has many wondering is a recession is indeed on the horizon as stock market declines usually predict a near-term downturn. As you know, a weaker economy will impact housing prices, and at the very least would flatten the market for a while.

Stock Market Chart 2018

So, our prognostication for 2019? We feel that if the economy even chugs along at a slower pace, housing prices will continue their increase. If a recession occurs, we really don’t see homes losing much value, but instead feel that things may just level off for a while.

Homeowner's Insurance Cost

Homeowner’s Insurance: A Guide to Your First Policy

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While homeowner’s insurance cost is always a major factor, there are other important things to look at as you purchase your first policy. In fact, many insurance and real estate professionals state that focusing only on homeowner’s insurance cost can cause trouble if a major disaster strikes and property insurance is to be relied upon for reimbursement. Let’s look at steps you can take to avoid future issues.

Get Enough Homeowners Insurance

homeowner's insurance costs

Being underinsured is a big problem. If you insure your home for $200,000 but it costs more than that amount to restore everything to pre-disaster status, you can find yourself with a costly problem. Work with your agent make sure that your home is totally covered for replacement cost. Sometimes the extra premium amount to do this is minimal, but if construction costs have risen since you first bought your insurance, a hurricane, tornado or fire can present you with a big bill to restore your premises, even after insurance has paid its share.

Deductibles: What Does That Really Mean?

Homeowners Insurance Deductibles

Your deductible is the amount of money you have to pay toward a claim before your insurance kicks in. Simply, if you have $5000 in roof damage due to a covered peril like hail, but you have a $1000 deductible, your insurance will pay only $4000 and you’re stuck with the rest of the bill.

Furthermore, deductibles used to be expressed in monetary terms like $250, $500, or $1000. Now, it is more common for deductible limits that are equal to a percentage of your home’s value. So, on a $300,000 home, a tiny-looking one percent deductible amount would actually be a whopping $3000.

Discounts on Homeowners Insurance Cost

Do check for discounts since the combination of auto and homeowner’s policies can get you a great break on homeowner’s insurance cost. There are also discounts available for fire protection, security systems, remote security solutions, and even wind-resistant shutters in some areas.

Customization of Your Policy

Customized Homeowner's Insurance

The flood damage experts at BMS CAT told us that, “there are some policies in some areas that do not cover every peril like floods. In fact, true flood damage is usually not covered, so if you live in a flood-prone area, you may be able to purchase FEMA flood insurance, although this isn’t cheap.” Also, watch out for stingy insurance company history. Sometimes insurance companies fight about water entering a home. They may consider it an uninsured flood event, while you may maintain that the water was wind-driven rain. Check with your agent on this.

Video for Proof

Finally, take a video of all of your belongings and upload the files to a cloud-based server. That way, your record of exactly what you own will be preserved. Also, make sure you disclose special possessions like jewelry and musical instruments as these may have to be “scheduled,” or you may even have to buy a separate personal articles policy in order to ensure coverage.

Insurance Claims for Home

Image source: ValuePenguin

If you thought that your days of carefully vetting documents were over when your purchase offer was accepted, think again, personal finance is more complicated than that. Your homeowner’s insurance policy is your lifeline to security, so remember to spend time choosing the proper policy, and don’t base your decision totally on homeowner’s insurance cost. Also, be sure to read up on the best personal finance books, so that you know exactly what you’re reading!

As always, feel free to contact us with any questions!

Contract for Deed Homes: What Realtors NEED To Know

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There are a number of reasons Minnesota residents looking to buy contract for deed homes have had success. But you might ask: why not just buy your home with a traditional mortgage from the bank? Let’s talk about that.

We’ve all had it happen. 

Loan Rejection

After a difficult and protracted negotiation period, you finally got both your buyer and the seller to agree on price, contingencies, and before-closing repairs. At the end, everyone came to their senses, gave a up a little, and all parties were looking forward to closing.

Then the bank stepped in and killed the deal. Even though your buyer was pre-qualified, they made a mistake, didn’t follow your instructions and decided to finance an expensive vehicle. As the bank did a final credit check, the new car loan appeared and skewed the buyer’s debt to income ratio. The deal was dead, but you could have brought it back to life.

Contract for Deed Homes

Image result for home buying process

Contract for deed is a widely accepted Minnesota financing tool where a seller finances the property purchase on an installment basis, and they buyer receives the deed upon making the final payment. Many think that for this to work they need to find free and clear properties where a seller agrees to be the bank.

Why free and clear?

Because sellers can’t usually sell encumbered properties without breaching the lender’s mortgage contract. Therefore, those interested in contract for deed financing look specifically for contract for deed homes. There is another way, however.

Companies Like the Contract for Deed Crew (Yes, that’s us!)

There are quality companies out there like C4D, and it works like this: You bring a deal to C4D. Like a bank, C4D analyzes the deal to ensure that the seller can make the required monthly payments.

Unlike a bank, however, C4D can look past problems like the vehicle purchase mentioned above. With a good contract for deed homes company, you will be dealing with the company owner—not a bureaucratic bank loan officer. If C4D approves the deal, they will buy the property.

They do this with a bank loan, but the company’s bank does not include a due-upon-sale clause in its mortgage to C4D. Therefore, C4D legally and ethically buys the home, and with the bank’s blessing, C4D sells it on a contract for deed to the buyer.

Contract for Deed Homes

Benefits to the Realtor using Contract for Deed

  • You can explain difficult situations to C4D and they will understand. A debt to income ratio that has recently changed can be worked with if the buyers can legitimately afford the home.
  • Contract for deed revives dead deals. Banks can be arbitrary and unforgiving, but with a contract for deed transaction, the seller has more leeway to analyze what really makes the buyer worthy.
  • While a down payment is needed, the actual percentage is not necessarily set, and there are even ways the contract for deed companies can facilitate payment assistance.
  • Buyers can look at any home—not just contract for deed homes. With a MN contract for deed sale, the seller is unaffected since a company like C4D is the only purchaser they need to deal with.
  • All real estate commissions are protected.
  • Sellers can move their homes more expediently because companies like C4D have lots of buyers waiting for their dream homes.

Also, if you’re looking to understand property value event more, check out this presentation:

Presentation courtesy of LoseTheAgent, a listing platform for homes for sale by owner.

Don’t let loan officers and finicky banks get in your way. Consider using MN contract for deed for any deal where the lender is causing you trouble. It’s worth an email!