Monthly Archives: June 2018

Smart Investment

When it comes to making a smart investment in real estate, there’s really only two ways to go: mortgage foreclosures, or tax foreclosures. Everything profitable is some offshoot of one of those two things. Certain aspects of both are profitable, but hands-down, the smart investment is in tax foreclosures, one of two ways. Which way you go depends on whether or not you’re interested in owning property – and we’re not talking liens or deeds here.

First, if you want to own property, you’re not going to have much luck at the tax sale. There’s too much competition, and too much risk associated with buying property you can’t inspect first. Would you ever buy a home to live in you couldn’t inspect? Obviously, if you want to make a smart investment, you’re going to have to know what you’re getting into – and it doesn’t hurt if there’s little to no competition for it.

It’s simple: wait until after the tax sale, and then buy directly from the owners during the redemption period (where they can still get their property out of foreclosure). Most investors don’t realize that this is legal – in most places – and thus, you’re not going to find a lot of competition for these deeds. Owners that can pay off during this period, will, and those that can’t need to do something, to avoid losing everything.

You can easily buy up these deeds for a few hundred dollars – no strings attached, with a lot of owners. With other owners, maybe of nicer properties, you can make a deal with them to give them a percentage of whatever you can make off the property. This is an amazing way to make a lot of money without having much money to start with – the definition of “smart investment.”

Second, if you don’t want to own property, you can still make money hand over fist from the foreclosure process – both mortgage, and tax, by going after the overages. When more is paid for a property at auction than is owed in debt, usually that money is available for the owner to collect. But frequently, the owner just assumes that he’s lost everything and doesn’t realize it.

Unfortunately for him, if he doesn’t collect it, after a year or two it becomes legal property of the government. He will lose it permanently. Your knowledge of the location of these funds is valuable, and you can easily make a deal with this owner to collect the “found money” that you know about. Here’s the best part: these funds aren’t subject to money finder fee caps in most states. This means you can collect up to a 50% finder’s fee – or more, depending on the complexity of collecting the money.

While maybe not a “smart investment,” since it’s not exactly an investment, any business that can make you six figures a year and needs about $1000 in operating capital is arguably rocket-science level intelligent.

You’ve got to know how to find lists of these funds, and how to find and approach these owners so that they don’t try to collect without you and avoid your fee.

Cost of Low Deposit Investment Mortgages

Interest rates on home loans in the UK have been steadily dropping since 2012 assisted by competition between lenders and government schemes such as Funding for Lending and Help To Buy. Rates on residential loans are sitting at historic low levels as the UK economy begins to display signs of recovery and a boost in confidence.

The government program’s were implemented in order to encourage banks to lend to households and small businesses at more affordable rates and with less stringent lending criteria. However, these schemes are also having the positive effect of increasing the supply of highly competitive ‘buy to let’ mortgages. It appears that many lending institutions are much keener to offer landlords good interest rates for higher loan to value mortgages meaning that landlords can borrow with a smaller deposit than has been the case since the start of the recession in 2008. This has resulted in an increased supply of buy to let mortgage deals available with smaller deposits.

So just how are landlords benefiting from improved buy to let home loans secured with a smaller deposit?

Many of the major lenders and also smaller building societies and private banks are increasingly targeting buy to let mortgage borrowers at increasingly high loan to value percentages and at competitive interest rates according to a report by specialist company Mortgages for Business. This report revealed that the difference between interest rates on 75 per cent buy to let mortgages and 65 per cent loans is half what it was in 2012.

In early 2012, 75 per cent loan to value mortgages for landlords had interest rates approximately 1 per cent higher than 65 per cent mortgages. Now, the differential in the average rates between these two types of loan is only 0.46 per cent.

The report also suggested that banks and building societies were also offering more competitive arrangement fees to entice borrowers seeking buy-to-let products. The only exception noted was that interest rates on long term fixed rate loans were rising, perhaps as a reflection of the expectation that the base rate will rise in the next few years.

Taking into account all the costs of buying a property: arrangement fees, valuation and legal fees, the average buy-to-let mortgage rate dropped by 0.25 per cent between 2012 and 2013.

Naturally, this is good news for existing or aspiring landlords in the UK because it suggests that banks and building societies have an increased appetite to offer buy to let mortgages at higher loan to value percentages. With many investment borrowers looking to borrow as much as they can in order to retain control of their capital this is certainly a positive development.

It is preferable to only put down a 25 per cent deposit rather than a 35 per cent deposit when purchasing an investment property if the difference in interest rates between the two deals is less than half a per cent, which is what investment borrowers are currently seeing with large mortgages in the marketplace. However, it is likely that lenders will increase fixed rate offers on buy to let mortgages in the near future, in particular those over longer terms such as 5 years or more in an attempt to improve their profit margins.

Investment Mortgages Property

When it comes to your investment strategy there is nothing more important than protecting your assets you have worked so hard to acquire and build up.

Insurance is a vital part of your asset protection however for many it is neglected and has terrible consequences.

Insurance is a real financial pain as it is not cheap when you may be starting out with your first investment property. It’s hard to justify the cost when there is a very low chance you will ever need to claim. Depending on your local taxation regulations (speak with your qualified tax professional) it may be tax deductible though which helps.

There are two types of insurance that would apply to an investment property.

– Building and Landlords.
– Personal Insurance (Life, Trauma, TPD, Income).

Building and Landlords Insurance

Building insurance covers total building loss/replacement as to agreed policy amount. This is usually required for any mortgage that a bank holds over your property. They would want to see the valid certificate of insurance before settlement.

Landlords insurance on your investment property is optional however highly recommended. It covers two main things – loss of income and tenant damage. Loss of rent cover for up to 12 months if property become unfit for letting due to an insurable event. Rent default by tenant cover, Cover for theft, malicious acts or vandalism by tenants. $20 million legal liability cover for injuries to people, or damage to property. Electric motor burn out and power surges. Accidental glass breakage.

Most insurers also have pay by the month premiums at no extra cost.

By needing building insurance to satisfy the banks lending, you have covered the major risk -losing everything (your capital).

The second risk is cash flow and outgoings – Your rent and property damage. If you lose rent you lose cash flow, if your property gets damaged, it can dramatically increase your outgoings and temporarily halt your cash flow.

Now the third and not thought of risk is being sued by a tenant for accidental injury or the like. This is uncommon however in our litigated world lawyers love this kind of thing (court battles, court proceedings and suing people in general).

Being sued because your tenant tripped over a wet and twisted board on your balcony because the gutter was leaking over the top of it is an all too real circumstance which could leave you seeking your lawyers protection in court. Having legal liability included in landlords insurance allows you to sleep at night.

Having insurance does however lift your game as a professional property investor, as the insurance companies that are billion dollar risk insurers will only insure events that are actual accidents. They will investigate as to whether or not you for-filled your policy requirements and provided a fit and safe dwelling for your tenants to live in.
Gone are the days of just “getting in some tenants”. You have to run it like a business and ensure it has all the makings of a well run and maintained house fit for tenants that lives up to the tenancy requirements. Leaving that balcony railing with some termite damage might not seem like a big deal however who would be sued if your tenant fell off the balcony because of that lack of maintenance. I’m sure you would also be thinking about how thorough your managers are now too. As some insurers also require regular inspections as to maintain the required level of maintenance.

Personal Insurance

Personal Insurance is not everyone’s cup of tea however if passing on debt free assets to your siblings, next of kin or desired charity is a priority on your unfortunate passing then you will need personal insurance.

A burden many face is being laden with their next of kin debt upon their untimely death or passing. Having debt is sometimes essential to buying investment property however passing this on to an unready sibling or family member could be a horrifying ordeal.

Also most children do not fully realise that if their parents insure their lives for the full amount of debt owing they could get a free hold property portfolio.

Personal insurance usually covers two things.

– Life, Trauma and TPD Cover
– Income Protection.

Life, Trauma and TPD cover is about insurance covering accidents/circumstances which cause death (life cover), a serious health issue like cancer and illnesses that impede your ability to work for a certain time (trauma cover) or a serious impairment that would take away your ability to ever work again (TPD cover).
These all are usually paid out by a lump sum amount.

Income Protection Insurance cover is a cash flow protection method to ensure you can fund your outgoings of daily life and the possible shortfalls of your property portfolio.

Most would view this is a must have if you need your regular income to pay the bills etc. Living with out your income could be a dire situation and the last thing you want is to start selling up your assets to pay short-term bills. This sort of cover is by regular payments for a predetermined time period with the intention of you recovering and retaining your income.