Real Estate Crowdfunding – How These Investments Work, Pros & Cons

Real estate offers a fantastic counterbalance to stocks in your investment portfolio, especially in an era of low interest rates and bond yields. But not all of us have $300,000 just sitting around to start snapping up properties.

Enter: crowdfunded real estate investments. A relatively recent addition to the arsenal of investment options, crowdfunding allows thousands of investors to pool their funds, so each investor can invest a small amount of money in larger projects.

Like all investments, real estate crowdfunding has its own pros and cons, and comes in many flavors and varieties. Before you invest a cent in any asset, you must first understand the risks, rewards, and the role the investment plays in your portfolio.

How Does Real Estate Crowdfunding Work?

On the simplest level, real estate crowdfunding involves many people each contributing a small portion of the greater cost of a real estate-related investment.

But “real estate-related investment” can carry many meanings. Keep the following variations in mind as you explore real estate crowdfunding investment options.

Equity vs. Debt

When you invest money through a crowdfunding platform, does the money go toward the direct purchase of new properties, or toward loans servicing other people’s properties?

If you know publicly traded REITs, you understand the difference between equity REITs and mortgage REITs. The former buys and manages real estate; the latter lends money secured against real estate.

Crowdfunding works similarly. In fact, many real estate crowdfunding investments are REITs — they’re simply sold privately rather than on public stock exchanges subject to traditional SEC regulation (more on regulation differences shortly).

Many private crowdfunded REITs offer both equity and debt REIT options. As a general rule, debt REITs generate more immediate dividend income, while equity REITs include an element of long-term appreciation in addition to income. For example, Fundrise offers several broad basket portfolios weighted more heavily toward either real estate equity or debt investments.

Not all real estate crowdfunded debt investments come in the form of REITs, however.

Peer-to-Peer vs. Fund Investments

In the case of private debt REITs, you invest money with a pooled fund, and the fund lends money to real estate investors as it sees fit. The alternative model for crowdfunded real estate debt involves lending directly to the borrower.

Crowdfunding platforms that follow this model allow you to browse individual loans, so you can pick and choose which loans you want to put money toward. For example, Groundfloor caters to real estate investors — mostly house flippers — lending them money to buy and renovate fixer-uppers. As a financial investor, you can log into your account and review available loans, including details about the project and borrower, and then put varying amounts of money toward as many or as few loans as you like.

Your loan is secured by a lien against the property. If the borrower defaults, Groundfloor forecloses to recover all investors’ money.

Property Type

Some real estate crowdfunding platforms specialize in residential real estate, while others focus on commercial.

Within each of those wide umbrellas, there’s plenty of variation as well. Residential properties could mean single-family rentals, or it could mean 200-unit apartment complexes. Commercial real estate could mean office buildings, or industrial parks, or retail space.

Before investing, make sure you understand exactly what you’re investing in — and more importantly, why.

Availability to Non-Accredited Investors

Some crowdfunding services like FarmTogether only allow accredited investors to participate. Others are open to everyone.

To qualify as an accredited investor, you must have either a net worth over $1 million (not including equity in your home) or have earned at least $200,000 for each of the last two years ($300,000 for married couples), with the expectation to earn similarly this year. So, most Americans can only invest with crowdfunding platforms that allow non-accredited investors.

Before doing any further due diligence, check to see whether prospective crowdfunding platforms even allow you to invest. Otherwise, no other details matter.


Advantages of Real Estate Crowdfunding

These relatively novel investments come with plenty of perks, especially for everyday people with few other paths to invest in large real estate projects. I myself invest in several real estate crowdfunding platforms.

As you compare crowdfunding investments to other types of real estate investments, keep the following pros in mind.

1. Low Cash Requirements

Through crowdfunded real estate investing, investors gain access to expensive investments like hotels, office parks, and apartment complexes that would otherwise remain unavailable to them. I don’t have $5 million to buy an apartment building. But I do have $500 that I’m happy to invest in a private fund that owns apartment buildings.

Although every crowdfunding platform imposes its own minimum investment, some of those minimums remain quite low. Groundfloor, for example, allows investments as low as $10.

Other platforms impose minimums of $500 or $1,000, keeping the minimums within reach of middle-class earners. It marks an enormous advantage to investing in real estate indirectly: you don’t need a full down payment plus closing costs in order to diversify your investments to include real estate.

2. Easy Diversification

With crowdfunding investments, you can easily include real estate in your asset allocation.

And not just through publicly traded REITs, which often move in greater sync with the stock market than with real estate markets because they trade on public stock exchanges. You can invest money toward any type of real estate, residential or commercial, in any grade of neighborhood, spread across many cities in the U.S. or even around the world.

For example, I have a little money invested in commercial office space through Streitwise, and a little invested in residential real estate (equity and debt) through Fundrise’s REITs. I also have money spread among a range of individual loans through Groundfloor. All in all, these investments expose me to real estate in 15 states.

Imagine how much harder that exposure would be if I had to go out and buy individual properties in 15 states?

3. Strong Income Yields

Crowdfunded real estate investments tend to pay reasonably high income yields. Which is always welcome, whether you’re pursuing financial independence at a young age, looking to build more retirement income, or simply enjoy earning more passive income each month. Because when you have enough passive income to cover your living expenses, work becomes optional.

I’ve consistently earned income yields in the 8% to 9% range on my investments with Streitwise and Groundfloor. With Fundrise, I earn around 5% in dividend yield, plus long-term appreciation.

Not many stocks or ETFs offer those kinds of yields.

4. No Labor and Little Skill Required to Invest

As a direct real estate investor, I can tell you firsthand how much skill and labor it takes to find good deals, analyze cash flow numbers, renovate properties, hire and manage contractors, and so forth.

With crowdfunded real estate investments, you outsource all of that to someone else. You just click a button to invest your funds, and sit back and collect the returns.

Don’t get me wrong, direct real estate investment comes with many of its own perks, such as the potential for higher returns, greater control, and real estate-related tax advantages. But you have to earn those advantages with sweat and knowledge, much of it required before you even buy your first property.

This ease of investing through crowdfunding platforms comes with a side benefit: you can automate your investments. Set up monthly or biweekly investments to avoid emotional investing and build wealth and passive income on autopilot.

5. No Property Management Required

It takes an effort not to laugh out loud when tenants call you complaining that a light bulb burned out, and ask you to come over to replace it. Unless the call comes at 3 a.m. — that’s less funny.

Few landlords enjoy managing rental properties, between chasing down nonpaying tenants, hassling with constant repairs and maintenance issues, and all-too-frequent complaints from tenants and neighbors — “this person plays their music too loud,” “that one smells like weed when they pass in the hallway,” ad nauseum. It’s why so many landlords end up hiring a property manager to take the headaches off their plate.

You don’t have to worry about any of that when you invest in crowdfunded real estate investments.

6. Protection Against Inflation

“Real” assets such as commodities, precious metals, and, of course, real estate all have inherent demand. Regardless of the currency you pay with or its value, you pay the going rate based on the underlying value of these physical assets.

That makes these assets an excellent hedge against inflation. If rents drive inflation higher, rental properties only become more valuable, with higher revenues. If the dollar loses value, people pay more for housing and commercial space.

In contrast, investors actually lose money — in terms of real value — on a bond paying 2% interest when inflation runs at 3%.


Disadvantages of Real Estate Crowdfunding

No investment is perfect, without risks or downsides. Thoroughly review these drawbacks and risks before parting with your hard-earned money.

1. Poor Liquidity

It takes a few clicks to sell a stock or ETF. Investors can liquidate their holdings instantaneously, leaving them with cold hard cash.

Real estate is inherently illiquid. It takes months to market and sell properties, and for large commercial properties it can involve hundreds of thousands of dollars in costs. So investors usually hold them for at least five years, and when these investments are funded through a crowd of financial investors, that means individuals can’t easily pull their money back out of the deal.

Most crowdfunded real estate investments advise prospective investors to plan on leaving their money in place for at least five years. Some do offer early redemption to sell their shares, but not instantaneously, and usually at some sort of discount or penalty.

Don’t invest anything you might need back within the next five years.

One notable exception includes short-term peer-to-peer loans secured by real estate, such as those offered by Groundfloor. These loans usually repay within nine to 12 months. Even so, you still can’t easily pull your money back out before the borrower repays the loan in full.

2. Complex Regulation and Performance Transparency

The regulation on crowdfunded investments can quickly make the average investor’s eyes cross. For a quick taste, investors have to navigate between Regulation D investments that fall under either 506(b) or 506(c), and Regulation A and Title III investments — also known as Regulation Crowdfunding or Reg CF.

Regardless, investors can’t use the familiar brokerage account tools that they’re already familiar with to research these investments. The SEC does require crowdfunding platforms to disclose a wide range of information, but it will look and feel unfamiliar for many retail investors.

There is one huge advantage that crowdfunded private REITs have over publicly traded REITs: the flexibility to reinvest profits to buy more properties. Publicly traded REITs must distribute at least 90% of all profits to investors in the form of dividends. That leaves them with high dividend yields but poor prospects for appreciation and asset growth. Private REITs like DiversyFund can employ far more flexibility to build their portfolios.

3. Limits on Participation

The SEC puts limits on how much money non-accredited investors can put into crowdfunded investments each year. Those limits are as follows:

“If either your annual income or your net worth is less than $107,000, then during any 12-month period, you can invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth.

“If both your annual income and your net worth are equal to or more than $107,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $107,000.”

They provide a table by way of example:

Annual Income Net Worth Calculation 12-month Limit
$30,000 $105,000 greater of $2,200 or 5% of $30,000 ($1,500) $2,200
$150,000 $80,000 greater of $2,200 or 5% of $80,000 ($4,000) $4,000
$150,000 $107,000 10% of $107,000 ($10,000) $10,700
$200,000 $900,000 10% of $200,000 ($20,000) $20,000
$1.2 million $2 million 10% of $1.2 million ($120,000), subject to cap $107,000

Still, these speedbumps serve as reasonable cautions and protections for the average investor. These investments do come with an element of risk, and shouldn’t make up 70% of your retirement portfolio.

4. Less Protection from Default Than Other Real Estate Investments

When you own a rental property and your tenants stop paying the rent, you can evict them. You own the property, you can insure it against damage, and it comes with a certain amount of inherent value.

Real estate crowdfunding investments don’t come with these protections. You typically own paper shares of a fund, not all or part of a physical asset. Your investments aren’t even secured against the underlying properties with a lien in most cases.

Exceptions do exist, however. For example, when you invest fractionally in loans on Groundfloor, those loans are secured by a lien against real property. If the borrower defaults, Groundfloor forecloses in order to recover most or all of your money.

5. Lack of Control

Although stock investors have little control over the performance of their share prices, direct real estate investors do enjoy control over their returns and management. They can make renovations to boost the rents and property values, can tighten their tenant screening criteria to avoid deadbeats, can even insure against rent defaults.

But when you invest in real estate indirectly through crowdfunding, you surrender control to the fund manager. If they do well, you (hopefully) earn a strong return. If they mess up, you get stuck with the costs of their bungles.


Where Does Real Estate Crowdfunding Fit Into Your Portfolio?

While stocks belong in just about every investor’s portfolio, not everyone feels comfortable with real estate crowdfunding. Still, these investments offer a fine counterweight to stocks when used responsibly.

Your ideal asset allocation is personal to you, and depends on factors ranging from your age, target retirement horizon, net worth, and risk tolerance. I recommend thinking of crowdfunded real estate investments as an alternative to higher-risk, higher-yield bonds and public REITs.

For example, say you aim for an asset allocation of 60% equities and 40% bonds. Those equities include 57% stocks and 3% REITs, and your bonds include 30% low-risk government bonds and 10% higher-risk corporate bonds. You could take part of the 13% of your portfolio earmarked for REITs and higher-risk bonds and test the waters of crowdfunded real estate investments. If you like what you see, you can then move a little more, up to your comfort level.

However, real estate crowdfunding should not take the place of extremely low-risk investments in your portfolio, such as Treasury bonds or TIPS.


Final Word

With real estate crowdfunding, you have the luxury of investing small amounts to gauge the performance of your investments and your comfort.

These investments can play a role in any investor’s portfolio, but that role should start small. Don’t invest any money that would financially cripple you to lose, and do your homework on any crowdfunded investment’s past performance and risk management measures.

Most of all, always keep these investments in the perspective of your broader portfolio and asset allocation. These investments don’t exist in a vacuum — they play a role in a larger performance.

Have you ever invested in crowdfunded real estate? If so, what were your experiences?

Source: moneycrashers.com

Blanket Mortgage Loans – Definition, Pros & Cons of Using for Real Estate

For real estate investors, juggling multiple property deals and loans can get complicated.

Blanket loans often help simplify matters. Borrowers take out a single loan to cover multiple properties.

Even so, blanket loans come with their own quirks and have their pros and cons. Before entering into a blanket loan as an investor, make sure you understand exactly what you’re getting yourself into.

What Is a Blanket Loan?

A blanket loan is simply one loan that attaches to several real estate investment properties.

For example, if you buy a portfolio of five properties, a blanket loan allows you to take out one mortgage that covers all five buildings. The lender attaches a lien against each property, so if you default on your loan, the lender can foreclose on all five properties to recover their money.

Lenders do typically include a release clause, allowing the borrower to sell individual properties held as collateral as part of a blanket loan. However, they require the borrower to either repay a portion of the loan at the time of sale or put the money toward another investment. The lender then attaches a lien to the new investment property as a replacement for the sold collateral property.

That keeps their collateral — your remaining properties secured by the blanket loan — sufficient to cover their loan risk.

Who Takes Out Blanket Loans?

Blanket mortgages are exclusively for real estate investors and developers, not homeowners.

Investors can use blanket loans in many ways to invest in real estate. Landlords can take out a blanket mortgage to buy a portfolio of turnkey rental properties, as outlined above. Flippers could do likewise, to buy several fixer-uppers to renovate and flip, all with one loan. As they sell off properties, they typically repay a proportion of their loan.

Real estate developers use blanket loans to buy large swaths of land that they plan to subdivide into many units. As they build and sell off those units, they can either repay portions of the loan or put the money toward adding more properties to the portfolio.

Businesses with multiple locations and commercial properties can also use blanket loans. That could mean refinancing multiple existing loans into one blanket loan, or using a blanket loan to buy several new locations in one sweep.

When You Should Use a Blanket Mortgage

As touched on above, you can either use a blanket loan at the time of purchase or you can refinance to consolidate multiple mortgages into one loan.

It makes sense to use a blanket loan at the time of purchase if you plan to buy multiple properties simultaneously. You may also be able to negotiate staggered funding if you buy multiple properties in rapid succession but not quite simultaneously.

Another possibility with blanket mortgages includes buying only one new property, but securing the loan against other properties you own for additional collateral. Real estate investors sometimes do this in lieu of making a down payment on the new property.

For example, say you own a property worth $100,000, but you only owe $50,000 on it. You want to buy another property for $100,000, and the lender demands a $20,000 down payment.

Rather than cough up the $20,000 in cash, you offer your existing property as additional collateral for the new mortgage loan. The lender agrees to fund the full $100,000 for you to buy your new property, but puts liens on both properties. They now hold the first (and only) lien against your new property, and they have a second lien against your old property.

Advantages of Blanket Loans

Blanket mortgages come with several upsides for real estate investors.

To begin with, they can save on lender fees and settlement costs by holding one combined closing rather than having to pay separately for several. Lenders charge flat fees in addition to points, and those flat fees add up quickly. Title companies also charge many flat fees for each closing. With blanket loans, borrowers can pay those flat fees once, rather than at each settlement.

Aside from saving money, combining financing for several properties into one loan can also keep your finances and cash flow simpler. Rather than keeping track of 20 mortgage payments and loans, you need only track one or two.

When buying new properties, blanket mortgages can potentially reduce or eliminate your down payment if you use equity from an existing property for a cross-collateralized loan. Consider it one more way to pull equity out of your properties — and one that doesn’t require a totally separate settlement with its attendant costs.

Larger loans often mean more negotiating room for you as the borrower as well. Lenders don’t need to charge as many points on a $1 million loan to make it worth their while, compared to five $200,000 loans. Similarly, borrowers can often negotiate lower interest rates as well.

Downsides of Blanket Loans

Blanket mortgages come with their share of risks and disadvantages.

To begin with, it can be hard to find lenders that offer these loans. Up to this point in your real estate investing career, you may have established relationships with two or three lenders — none of whom might offer blanket loans. That forces you to go out and build new relationships with lenders who do.

Expect more intensive scrutiny by the lender for these larger, more complex loans. Rather than using a garden variety underwriter, bank managers might underwrite these larger loans themselves. Lenders might ask more probing questions and require more extensive documentation and paperwork from you. They may require higher credit scores than their typical loan products.

Blanket loans often come with shorter loan terms than traditional mortgage loans. Rather than the 25- or 30-year loan terms you’re used to, lenders often limit blanket loans to 10 to 15 years. That could come in the form of a balloon payment, or the loan could be entirely amortized over those 10 to 15 years. In the case of short-term amortization, that means higher monthly payments.

Finally, blanket loans pool your risk for many properties into a single loan. If you default on that loan, you could lose all the properties secured by it to foreclosure, not just one. In contrast, if you hold separate loans for each property, in a crisis you could isolate your losses to one property as long as you can afford to make your other monthly payments.

Where You Can Borrow Blanket Loans

Conventional mortgage lenders don’t typically allow blanket loans. Commercial lenders, portfolio lenders — who keep loans on their own books rather than selling them — and hard money lenders often do allow them.

Make no mistake, these lenders usually charge more than your personal home mortgage lender. But they also allow far more flexibility, and as a real estate investor, that flexibility is often necessary.

Call up your local community banks to ask whether they offer blanket loans for real estate investors. You can also reach out to portfolio lenders such as Lending Home and Rental Home Financing to inquire about them. For commercial loans, make sure you choose a commercial lender, because even many portfolio lenders only handle residential (single-family and 2-4 unit multifamily) properties.

Word to the wise: start building these connections now, before you actually have a time-sensitive deal on the line. Real estate investors need to be able to move fast and close deals quickly, else they risk losing the deal entirely.

Final Word

The average mom-and-pop property owner with a couple units on the side of their full-time job will probably never need to take out large blanket loans. But for real estate developers and full-time real estate investors, blanket loans can help them scale their investment portfolios faster and cheaper.

Start expanding your network of lenders now, before you have a hot deal at risk of falling through. Think in terms of building a financing toolkit of many different options for buying your next investment property — or portfolio of properties.

Source: moneycrashers.com

Housing Inventory Lowest Since 2007, But Median Price Unchanged

Last updated on January 10th, 2018

A while back, I mentioned that it appeared as if we were running out of homes for sale, despite being just years (or days) out of the housing crisis.

I was being somewhat facetious, but it’s true that there are very few homes for sale these days, at least in areas where people want to buy.

A new report from Realtor released today revealed that there were just 1.76 million single-family homes, townhouses, condos, and co-ops listed for sale in October nationwide.

That number is down 2.58% from September and 17.0% from a year ago, displaying just how bad things have become for would-be homebuyers.

Total listings in October were also 40% below the 3.1 million units for sale back in September 2007, when Realtor.com began tracking associated housing markets.

On a year-over-year basis, for-sale inventory declined in 141 of the 146 markets covered by Realtor.com. Good luck finding a house!

Median Price Unchanged

median

Despite this drop in inventory, the median list price in October was $189,900, unchanged from a year ago (it dropped 0.83% month-over-month).

It has fallen for three straight months, and likely won’t see any improvement during the holiday season, so we could be in for a long winter.

So even though there are far fewer homes for sale, demand hasn’t won over supply, though it may prevent further home price declines. Phew.

Still, it doesn’t bode well for a recovery if home prices can’t even steady themselves with record low rates on hand and limited supply.

Recovery Uneven

List prices increased in 71 markets, remained unchanged in 31 markets, and dropped in 44 markets.

Median prices are up in many hard-hit regions, such as Phoenix, Atlanta, Seattle, Las Vegas, and much of California.

The median price in Vegas in October was 12.41% above year-ago levels, thanks to a 24.4% drop in housing inventory.

[Foreclosure resales hit five year low.]

But median prices are down in many areas of the country that didn’t experience a run-up in prices during the boom, namely the Midwestern “rust belt.”

In other words, continued economic uncertainty is killing demand and hurting home prices in areas that aren’t highly sought after.

And with the impending fiscal cliff, you have to wonder if this recovery really has any legs.

Still, investors seem to be scooping up properties and everyone I know wants a house; they just can’t seem to find one for sale.

So at minimum, that should buffer home prices, even if the economy takes another turn for the worse.

Two-Year Window to Buy

While that all sounds pretty grim, Blackstone, the world’s largest private equity firm, has purchased about 10,000 foreclosed properties in the United States this year, according to a Bloomberg report.

The price tag so far is a mere $1.5 billion, with about $100 million in weekly home purchases.

The company has been scooping up properties on the cheap, with an average purchase price of $150,000, many of which were valued at $300,000 during the boom.

Blackstone plans to renovate the homes and rent them out via property management companies.

But Blackstone Global Head of Real Estate Jonathan Gray believes there are only another two to three years of buying opportunities before the market becomes less attractive from an investment standpoint.

Clearly this presents a bit of a quandary, seeing that everyday buyers can’t even find a suitable property, thanks in part to these vulture investors coming in and paying with cash.

Read more: Should you buy a house now or wait?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Five Reasons Home Prices Are Rising Like Crazy

Last updated on February 2nd, 2018

If you’ve listened to the news lately, you’ve probably heard that home prices are on the mend, big time.

The latest piece of good news comes courtesy of S&P Dow Jones Indices, which released its S&P/Case-Shiller Home Price Indices report yesterday.

It revealed that average home prices increased 8.6% and 9.3% for the 10- and 20-City Composite during the past 12 months ending in February.

Both Composites recorded their highest annual gains since May 2006, back when home prices were reaching their peak during the previous boom.

Phoenix, San Francisco, Vegas and Atlanta saw the largest year-over-year price increases, while Atlanta and Dallas exhibited the highest annual growth rates in the history of the indices, which date back to 1992 (10-City Composite) and 2001 (20-City Composite).

There were a handful of metros that saw month-to-month declines in prices, but 10 metros continued to report double-digit year-over-year gains, including Phoenix (+23%), San Francisco (18.9%), and Las Vegas (17.6%).

And the Composites are now back to their late-2003 levels. So why are home prices surging?

S&P

Fewer Distressed Sales

Perhaps the biggest driver of higher home prices is the lack of distressed sales, or the shift from distressed to traditional sales.

It seemed 2012 was the year of the short sale, and before short sales were all the rage, it was all about foreclosures.

Now you’d be hard pressed to find either of those on the market. Because home prices have recovered tremendously over the past year or so, many would-be short sales are now conventional sales.

And foreclosure sales have plummeted as more homeowners have managed to hold onto their homes thanks to a loan mod or refinance, or simply because inventory hasn’t been unloaded by banks (waiting for higher prices).

Regardless, with traditional sales making up a greater share of overall home sales, prices are inevitably higher.

No Inventory

In this same vein, there is not enough inventory to satisfy the growing demand of fanatical would-be home buyers.

If we could go back in time, chances are 90% of the individuals looking to buy a home today likely had little interest to do so a year ago. They were probably still worried about home prices slipping lower.

But the floodgates have opened, and now everyone wants in, with serious fear of missing out on the greatest opportunity of all time…

Unfortunately, this is a bubble mentality, and often leads to negative outcomes.

At the same time, existing homeowners have caught on and realize that if they hold on a little bit longer, they too can take advantage of this rise in prices.  Some may even be able to snag enough home equity to get back above water.

Bidding Wars

That brings us to bidding wars, what with supply and demand so out of whack at the moment. You just can’t make a reasonable offer on a house anymore.

Nowadays, your offer will be rivaled by a dozen others, all within a week of the home being listed on the market.

[See: Why it’s a bad time to buy a house for more on that.]

This frenzied mentality has pushed home prices higher and higher, beyond rational levels.

Of course, there’s a reason home prices have been allowed to climb higher without shutting too many people out.

[Tips for a seller’s market.]

Record Low Rates

I’m talking about the ridiculously low mortgage rates on offer at the moment. From a mortgage payment standpoint, it makes a lot of sense to buy a home today.

After all, you’ll pay next to nothing to finance your home purchase if you lock in a fixed-rate mortgage at today’s rates.

You see, Americans are spending a lot less of their monthly income on mortgage payments, but many U.S. metros now have home price-to-income ratios above historic norms.

So if you remove the low mortgage rates from the equation, the affordability picture changes considerably.

[Mortgage vs. income]

Wall St. Investors

Still, that hasn’t stopped Wall Street investors from scooping up oodles and oodles of properties on the cheap.

These cash buyers, including private equity firm Blackstone, have been squeezing everyday buyers and first-time home buyers, making it extremely difficult for the latter to land an accepted offer.

Their determination to get their hands on these properties in a certain timeframe at seemingly any cost is naturally causing home prices to rise.

The goal is to own clusters of single-family homes in neighborhoods throughout the nation, which they plan to renovate and rent out, and eventually flip once home prices move even higher.

This type of speculation is worrisome, and reminiscent of the previous housing boom that quickly went bust.

It also explains why the rate of homeownership has dropped to the lowest level since the mid-1990s.

These hedge funds and investor groups are reducing the housing stock by converting former homes into rental properties.

So now entire neighborhoods are really just sprawling apartment complexes, at least in the eyes of the investors.

The bad news is they’ll eventually unload them to everyday Joes at a premium, seeing that they’ll be able to control prices with all that inventory at their fingertips.

Source: thetruthaboutmortgage.com

Pros & Cons to Buying a Home vs Renting

Buying a home or renting is a decision each of us has to make at some point in our lives. In your 20s, renting can be the obvious option. This is a time when you are probably still weighing options on where to stay or have not yet settled into your career. Your lifestyle is best suited to renting an apartment or having a roommate to split the cost with.

Once you clock 30, your priorities change. Your career is probably on course. This is when housing needs become more important. You might even be building a family or are considering starting one. You have to make a decision on whether to continue renting or decide to buy a home. To aid you in this, let’s look at the pros & cons to buying a home vs renting.

Pros of Buying a Home

Security and freedom

Unlike a rental property, owning a home eliminates the threat of being evicted by a landlord. You get the freedom to renovate, decorate or change any aspect of your home whenever you like.

Building equity

Your home equity increases with every mortgage payment. Couple this with property appreciation and buying a home becomes a worthy investment. You can earn a profit upon selling your house. Mortgage refinancing can be of great help when making major purchases.

Income generation

As a homeowner, you can rent part of your property for some much-needed income boost. Running a home-based business is also easier when you own a house.

Improving your Credit Score

Timely mortgage payments factor positively on your credit reports. This sets you up for better rates on other lines of credit that you may require in the future.

Cost Effective

Tax deductions on mortgage interests will save you money. Same goes for tax deductions on income generated within your property.

Cons of Buying a Home

Ownership Costs

Owning a home comes with added costs. These include homeowner’s association payments, property taxes and rates, and maintenance costs.

Less Mobility

Moving from one state or location to another becomes difficult when you are a homeowner; especially if the move is dependent on selling your property. Selling can also be time-consuming.

High Interest

Factors such as location and the state of the economy can drive up interest rates on mortgages. This will increase the overall cost of ownership. At the same time, if yours is an adjustable rate mortgage (ARM), expect upward fluctuations on the monthly payments.

Possible Loss on Resale

One of the driving ideas for buying a home is that it’s an investment. However, making a profit upon selling is not a guarantee. Property value can drop drastically due to factors like recession that are beyond your control. Resale also comes with additional costs such as government and agent fees that will cut down on expected profits.

Pros of Renting

Flexibility

Staying in one place can be restrictive. This may be due to frequent job relocations. As a tenant, all you need to vacate is mostly a month notice to the landlord or lease expiry. This makes renting more flexible compared to owning a home which may require a lengthy process to offload the property.

Low Housing Costs

Apart from rent, a tenant bears no other financial obligation to the property. Utility bills are usually covered by the rent as well as maintenance costs. While one may have to insure their belongings, the cost pales in comparison to a homeowner’s insurance.

Investment Diversity

Renting leaves most of your current earnings available for investments. This is in contrast to buying a home which means most of your income goes towards one investment.

Cons of Renting

Less Freedom

The tenancy comes with rules that can be restrictive. Your ability to renovate or even decorate can be subject to disapproval by the building management. Some landlords may not even allow pets in their property.

Slow Maintenance

Not having to carry out maintenance is a plus on renting but it comes with its challenges. Issues to do with your ‘house’ have to go through building managers or rental agents who are never in a hurry to solve them.  In some cases, a leaking faucet can take months to be fixed.

Lease Limitations     

Most lease agreements have an annual increase clause of 5-10% on monthly payments. You also have little or no say when it comes to lease renewal. These can leave you looking for an apartment at the end of every lease term or year.

Not Owning

There is prestige that comes with owning anything of value; renting denies you this. Your monthly payments go towards the landlord’s loans and savings as opposed to paying for your own home with a mortgage.

Conclusion

In the long run, buying a home is the cheaper option. It’s also a plus on your long-term investments. However, it comes with more obligations. On the other hand, renting is more flexible. It also frees up more of your income which can go to savings. With this info at your fingertips, you are bound to make the choice that best suits you.

Source: creditabsolute.com

How to Negotiate Repairs After a Home Inspection

Most would-be buyers and sellers believe the real estate “deal” is negotiated at the signing of the contract.

Most would-be buyers and sellers believe the real estate “deal” is done at the signing of the contract.

In many cases, the deal-making and negotiations only start at the contract signing. Even in more competitive real estate markets, negotiations still happen once in escrow.

Issues typically arise after the home inspection, and those issues tend to result in another round of negotiations for credits or fixes.

Here are three buyer tips for negotiating repairs after a home inspection.

1. Ask for a credit for the work to be done

The sellers are on their way out. If the property is moving toward closing, they’re likely packing and dreaming of their life post-sale. The last thing they want to do is repair work on their old home. They may not approach the work with the same conscientiousness that you, as the new owner, would. They may not even treat the work as a high priority.

If you take a cash-back credit at close of escrow, you can use that money to complete the project yourself. Chances are you may do a better job than the seller, too.

Finally, if you get the credit, there will be less back-and-forth to confirm that the seller correctly made the repairs.

2. Think ‘big picture’

If you know you want to renovate a bathroom within a few years, then you likely won’t care that a little bit of its floor is damaged, that there’s a leaky faucet, or that the tiles need caulking. These things will get fixed during your future renovation.

However, the repairs are still up for negotiation. Asking the seller for a credit to fix these issues will help offset some of your closing costs.

3. Keep your plans to yourself

A good listing agent will walk the property inspection with you, your agent and the inspector. Revealing your comfort level with the home or your intentions, in the presence of the listing agent, could come back to haunt you in further discussions or negotiations.

If they sense you are uneasy with the inspection, they’ll be more willing to relay that to the seller. Conversely, if you spend two hours measuring the spaces and picking paint colors, you lose negotiation power.

If you mention you’re planning a gut renovation of the kitchen, the sellers will certainly hear about it. And they’re going to be less likely to offer you a credit back to repair some of the kitchen cabinets.

Eyes wide open

A word of caution: You should never complete the original contract assuming that you can and will negotiate the price down more after the inspection. It will come back to bite you, particularly in a competitive market.

If the property inspection comes back flawless, there’s nothing to negotiate. If you attempt to negotiate anyway — to recoup what you lost in the initial contract negotiations — you risk alienating the sellers and possibly giving them an incentive to move on to the next buyer.

You need to go into escrow with your eyes wide open. A real estate transaction is never a done deal until the money changes hands and the deed is transferred. Stay on your toes. Otherwise, you may risk losing out on further viable negotiation opportunities, which could lead to buyer’s remorse.

Shopping for a home? Check out our Home Buyers Guide for tips and resources.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published December 18, 2013.

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Source: zillow.com

San Diego Padres Pitcher Blake Snell Close to Sale of $1.4M Florida Home

San Diego Padres pitcher Blake Snell has tossed his St. Petersburg, FL, home to a new owner.

The All-Star lefty was dealt to the Padres from the Tampa Bay Rays at the tail end of 2020. He’s since departed for the West Coast, and he’s moved on from his splashy, waterfront home as well. Listed for $1.4 million in late January, Snell’s abode quickly went into pending sale status.

He purchased the place in July 2019 for $875,000, while anchoring the Rays’ rotation. According to records and listing details, Snell proceeded to spend $200,000 to renovate much of the home, which was built in 1956.

The home’s highlight is clearly the outdoor space. The new owner will enjoy the brand-new pool deck and pool with custom sun shelf, in-pool lounge chairs, waterfall, multicolor pool lighting, never-used hot tub, and outdoor surround sound.

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Updated pool

(realtor.com)

The waterfront home with views of Tampa Bay also boasts an updated interior. You enter into a 12-foot foyer that opens up to the family area, showcasing walls of glass and water views.

The well-appointed kitchen offers a natural gas cooktop, plus ample cabinetry for storage. New carpet has been installed in the home’s four bedrooms.

The 2,952-square-foot floor plan has a master bedroom with bay views, a walk-in closet with custom built-ins, and a master bathroom with dual vanities and a large shower.

Other updates include custom built-in closets in every bedroom, fresh paint, new pull-down blackout blinds, and impact glass windows.

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Kitchen

(realtor.com)

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Walls of glass

(realtor.com)

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Master bedroom

(realtor.com)

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Walk-in closet

(realtor.com)

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Gaming room or office space

(realtor.com)

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Outdoor kitchen

(realtor.com)

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Private dock

(realtor.com)

The outdoor space is built for entertaining. A covered patio allows for lounging around the gas fire pit and outdoor TV. It’s easy to whip up a feast at the outdoor kitchen, with its bar and gas grill.

Out back, a private boat dock stores a boat or Jet Ski, and comes with a new boatlift. The three-car garage includes an extra room for a work area.

The new owner could potentially add a second story, according to the listing, and the location is convenient to downtown St. Pete and the Tampa International Airport.

Snell was selected in the first round of the 2011 MLB draft by the Tampa Bay Rays, and made his Major League debut in 2016. 2018 was his breakthrough season: He was selected to the MLB All-Star team, won the American League Cy Young Award, and led the league in wins and ERA.

Liane Jamason with Dwell Florida Real Estate has the listing.

Source: realtor.com

Curbio Review: Renovate Today, Pay When You Sell

Last updated on October 23rd, 2019

A startup named Curbio wants to help homeowners sell for more by improving their properties before they go to market.

The twist is that the homeowner doesn’t have to pay for the renovations until settlement, meaning cash on hand isn’t an issue.

The Problem Curbio Wants to Solve

Curbio benefits

Say you want to sell your home, which you’ve lived in for the past 30 years. You think it looks great, but after a real estate agent stops by and chimes in, you get a rude awakening.

Apparently, the abundant doilies, giant draped windows, pink garage door, and outdated bathrooms and kitchen aren’t as fashionable as you thought.

You’re told the home you expected to list for $650,000 is better off being listed for $549,000. Ouch.

So do you chance it and defy the real estate agent’s best intentions and list for more, only for the property to stagnate on the market?

Or do you do as they say, lower the price, and then hope it sells, despite the many improvements needed?

Both scenarios probably don’t sound very appealing to the seller, and even if a buyer comes along, there’s a good chance there will be repair requests to get across the finish line.

This situation is all too common, and perhaps one of the reasons why iBuyers like RedfinNow and Zillow Offers have surged in popularity over the past few years.

The sell “as-is” thing worked when the housing market was on the up and up, but now that price gains have moderated, home buyers are looking for a better product.

And it just so happens that many properties going to market are like the aforementioned, in need of some serious TLC after years of neglect.

While an iBuyer will purchase your home as-is, they won’t do so at a premium. On the contrary, they’ll likely give you a lowball offer AND charge fees for repairs and so on.

Ultimately, none of these options are great solutions for the savvy home seller looking to capture maximum value for their property.

That’s where Curbio comes in, a company that describes itself as a “pre-sale renovation” company.

In a nutshell, they make renovations easier and more accessible for home sellers looking to boost their property’s value before listing it.

Curbio is comprised of licensed and insured general contractors in each of the markets they do business in, who also have connections to a network of vetted subcontractors.

Additionally, their team is stacked with experienced real estate agents, house flippers, and designers who know how to get maximum ROI on renovations.

You often hear that most home renovation projects don’t actually pay for themselves.

Curbio uses its expertise and proprietary technology to take the guesswork out of the equation and make the right improvements buyers in your area seek.

They refer to it as helping home sellers “flip their own home,” instead of accepting a lowball offer, only to see their home flipped months later by a savvy investor.

How Curbio Works

Curbio example

Assuming your home is located in one of their service areas, which currently includes Atlanta, Baltimore, Chicago, Dallas-Ft. Worth, DC, Houston, Miami-Ft. Lauderdale, Orlando, Philadelphia, Phoenix, Tampa, you can request an estimate on their website.

They say they generally operate within a 40-mile radius of those cities, and expect to add Boston, Charlotte, Las Vegas, Los Angeles, Minneapolis, Portland, San Francisco, and Seattle over the next several months.

After submitting your property details, Curbio will provide you with a free estimate of proposed renovations to make your property more marketable, and importantly, more valuable.

The extent of the work will vary based on your home’s needs, but can range from kitchen and bathroom remodels to roof repairs, flooring and HVAC replacement, mold remediation, and more.

However, it should be noted that Curbio does have a $15,000 minimum project size.

With regard to pricing, Curbio says its uses a proprietary database of pricing data, which consists of national pricing from similar projects, adjusted for local markets. They believe this results in fair pricing.

Once the work begins, you’ll have a full-time general contractor who manages the project, along with an on-the-ground project manager to oversee the renovation work.

They will share real-time photo, text, and video updates to homeowners and their real estate agents via the Curbio app to see how the work is progressing.

Speaking of progress, Curbio aims to complete renovations a lot quicker, with projects about 60% faster than the average contractor thanks to their vast network and technology.

That reduces downtime and keeps agents happy, who may not want to work with a home seller who needs months to get their property to market.

What If My Home Doesn’t Sell After Curbio Makes Improvements?

  • Home must be kept on the market until it sells
  • With a 2% price reduction every 30 days if not sold during that time
  • You can also pay Curbio directly for their work if you want to end the deal
  • May make sense to shop around for other bids to see how Curbio pricing stacks up versus the competition

Now some of the what-ifs one needs to consider if using Curbio to make renovations.

Since they’re doing the work upfront for no charge, on the basis that they’ll get paid at closing, your home eventually needs to sell.

And they state their decision to take on a project is based on the homeowner’s equity in the property.

My assumption is they want you to have a healthy amount of it to allow for a flexible sales price.

Curbio does have an arrangement in place to ensure the properties do sell in a timely manner.

They say they’ll wait as long as it takes to get paid, and won’t charge additional fees or interest charges during that time.

And while there is no time limit, they do require that the list price be reduced by 2% after 30 days on the market, and an additional 2% every 30 days thereafter.

You must also agree to leave the home on the market until it sells, unless you choose to pay Curbio directly for their work.

The obvious downside here is that there’s no guarantee your home will sell for enough to cover the cost of renovations performed by Curbio.

But they seem confident that homes can sell for enough post-renovation to result in a healthy ROI.

I’m also curious if you can reside in the home while the work is being completed, or if you need to vacate the property.

You can always get an estimate from Curbio and then collect multiple bids from other contractors in your area to see how they all stack up pricing wise.

The downside is you’ll need to pay the other contractors upfront, though I’ve created a comprehensive list of the pros and cons of paying for home renovations via many different methods.

One could also argue that you should enjoy your home renovations before selling, so doing them early on may be more beneficial from a happiness standpoint.

The ideal situation is making renovations that benefit the homeowner while they’re in the property, and pay off once it comes time to sell.

(photo: Marco Verch)

Source: thetruthaboutmortgage.com