Ten Tips For Choosing The Best Rental Income Properties

IF YOU WANT TO MAKE MONEY BY RENTING—as many people seeking income real estate do—your best bet may be to buy multifamily units such as duplexes. You can live in one part while your tenants pay your mortgage. Or you can rent out both parts of the property and make more money.

BUYING A SINGLE-FAMILY HOUSE may not always be the safest choice. If your rental property sits vacant for a few months, you could lose a lot of money.

HERE ARE 10 THINGS YOU CAN DO to buy income property wisely:

1. Think like a business owner or business buyer instead of a home owner or home buyer.
2. Find out about the rental market for housing in the area where you're thinking of buying. Inspect the property and inquire with local government offices about laws regarding rental properties in the area.
3. Prepare to make improvements on the property. Think ahead. Build the costs and time into your plan. If you don't, getting a unit ready to rent could take much longer and be more costly than you expect.
4. Expect to pay more in points and interest for an income property than for a home you live in. Lenders consider a loan on income property to be riskier, so they charge higher interest and/or points.
5. Pre-screen tenants carefully. Don't rent to just anyone who'll give you a deposit. You might have potential renters fill out an application. You can check their credit, employment and rental history if you want to.
6. Stick by the rules you give your tenants. For example, if you say “No pets,” don't make exceptions. Don't invite trouble by letting tenants ignore rules.
7. Choose rental properties that are close to home. Don't spend your profits traveling to manage your property or paying for long-distance repairs.
8. Don't be afraid to make a low-ball offer to the seller. Remember, you must think like a business owner.
9. Look at “competitors” near the property you're investigating. Do they have lower rents, vacancies or amenities like washers and dryers in the units?
10. Insure yourself and your property, not only against fires and hurricanes. You also need to protect yourself against potential law suits from tenants, guests, repair people and other visitors.
    FOLLOW THE GUIDELINES ABOVE to make smart real estate buying decisions for  better rental income.
    
    For more real estate tips and methods, visit the International Wealth Success Official Website.

Everything You Wanted to Know About Collateral

COLLATERAL CAN BE A KEY FACTOR in determining a borrower's ability to get a loan. Although it's not the only factor that a lender will consider, collateral is a concept that every borrower, broker, Finder and consultant must understand in order to obtain loans successfully.

WHAT IS COLLATERAL? Collateral is a form of security for a loan. When a borrower pledges collateral as security for a loan, it reduces or eliminates problems the lender might face if the borrower cannot, or does not, repay the loan as they originally agreed to do. A borrower who doesn't repay a loan as promised is in default.

IF THE BORROWER DEFAULTS, the lender can take the collateral and sell it to get back some or all of the money the borrower owes. Because securing the loan with collateral lowers the lender's risk, the lender may be more likely to make the loan.

COLLATERAL CAN HELP A BORROWER get a loan even if the borrower has a less-than-perfect credit score or a limited credit history. Additionally, a loan secured by collateral may come with:

• lower interest rates
• fewer transaction fees
• better terms
• more favorable repayment periods

COLLATERAL MAY BE COMBINED with other forms of security, such as cash in a savings account or money owed to a business, to show the lender that the borrower has additional ways to repay the loan.

COMMON FORMS OF COLLATERAL INCLUDE:

• land
• homes
• buildings
• vehicles

ADDITIONAL ASSETS THAT CAN SERVE AS COLLATERAL ARE:

• equipment
• jewelry
• stocks and bonds
• business inventory (materials and products)
• accounts receivable

ASSETS MAY BE OWNED BY an individual (personal collateral) or by a business (business collateral).

FOR COLLATERAL TO BE ACCEPTED BY A LENDER, the borrower must have some form of proof (typically called a title) which shows the lender that the borrower owns all or part of the collateral. Thus, collateral may be based on paper assets, often referred to as notes.

PROOF OF OWNERSHIP CAN INCLUDE items such as:

• a Certificate of Title to a building
• a Deed to a piece of land
• stocks in the owner's name
• a receipt showing the borrower “has title” to the asset being pledged as collateral

COLLATERAL CAN ALSO BE BASED ON EXPECTED ASSETS, as in the case of an investment or accounts receivable (money that is owed to a business).

ASSETS FINANCED WITH BORROWED FUNDS can sometimes be used as collateral. For example:

• a property that a borrower wants to buy may itself serve as collateral,
• because the lender can repossess and sell the property if the borrower defaults
• similarly, a building or piece of land may generate income for the borrower
• a loan based on this kind of real estate is often called a hard money loan

IF A BORROWER ALREADY HAS A MORTGAGE on an existing property or a loan on a vehicle, the lender might accept these assets as collateral, but the total value of the collateral may depend on how much of the original loan has been paid (called equity). It's also possible that a borrower might own only a portion of the collateral together with another person or business. This introduces added complexities.

BORROWERS, BROKERS, FINDERS AND CONSULTANTS SHOULD BE AWARE that the borrower risks losing the collateral if they fail to repay the loan, so it's important to carefully review the risks of using certain assets as collateral before pledging them to the lender.

IF THE BORROWER CAN'T AFFORD TO LOSE THE COLLATERAL, such as his home, he should think twice before pledging the asset as collateral. Why? Because if the borrower defaults, he could wind up losing not only the existing property being used as collateral, but also any new property he hopes to buy with the loan that the collateral is meant to secure.

LENDERS TYPICALLY APPRAISE THE COLLATERAL to decide how much they think it's worth. Borrowers should realize that lenders may appraise an asset at a value lower than the borrower expects or believes the asset is worth. It's also possible that the lender's appraisal will be lower than the value set by the city or county for the purpose of collecting taxes on the property.

IF THE BORROWER DISAGREES with the lender's appraisal, she has two options:

1. seek a loan from a different lender or
2. appeal the lender's appraisal and ask for an appraisal review (reappraisal)

IN SOME CASES A LENDER WILL REAPPRAISE THE PROPERTY at a higher value. If the appraisal is too low, the borrower might be able to talk the lender into offering a lower interest rate or adjusting some other aspect of the loan to make it more attractive to the borrower.

COLLATERAL CAN DECREASE IN VALUE due to any number of factors, such as:

• deterioration of the property over time or
• fewer people wanting to move to the area where the property is located

IN OTHER CASES, THE VALUE OF COLLATERAL CAN GO UP, as with investments that earn money over time.

IF THE COLLATERAL DECREASES IN VALUE and the borrower defaults on the loan, the borrower may still have to repay the amount at which the collateral was appraised. For example, a home might initially be appraised at $100,000 and then decrease in value to $75,000 a few years later.

IF THE HOUSE WAS USED AS COLLATERAL to get a $100,000 loan, the borrower must still pay back the $100,000, even if the house is now worth $75,000. If the lender sells the house for $75,000, the borrower owes the lender $25,000. This can put the borrower in hot water if he or she doesn't have the $25,000.

IT'S USUALLY WISE TO BORROW LESS than the full value of the collateral to avoid the problem just described. If the amount of the loan is less than the value of the collateral, the borrower and lender are better protected and the risk of losing money is lower for them both. This makes it easier for the lender to make the loan.

IF A BORROWER HAS MADE PAYMENTS ON A PROPERTY reliably over a period of time—usually for at least a year—the collateral is said to be seasoned. Lenders prefer seasoned collateral because it further helps to assure them that they'll get back the money they loaned out.

A LENDER WON'T NECESSARILY REFUSE TO MAKE A LOAN just because a borrower lacks collateral. If the borrower has money in the bank, a history of paying bills on time or is willing to accept a higher interest rate on the loan, the borrower might still have a chance of getting the loan they want.

BEFORE GOING TO A LENDER FOR A LOAN, make a list of all the borrower's assets that might be offered as collateral. Carefully assess the value of each item. Look up the value given in sources such as the city's tax assessment and on real estate websites, the “Blue Book” value (for vehicles), and the ticker tape price and earnings (for stocks and bonds).

THESE ARE JUST A FEW OF THE MANY POSSIBLE KINDS of collateral and the ways of judging their value. With a good knowledge of all the assets that the borrower might be able to pledge as collateral, the borrower and his agent can approach lenders with confidence while increasing the chances of getting the loan that the borrower seeks.

The article was previously published in Money Watch Bulletin.

For more real estate tips and methods, visit the International Wealth Success Official Website.

Testimonial: Real Estate Income Despite the Economy

Unlike all the talk of a troubled economy, we still see great success stories from our readers, telling us how well they're doing with income real estate properties. Here's one testimonial we received by letter from Illinois.

Dear Mr. Hicks,

“I read [your book] ‘How to Make Millions in Real Estate in Three
Years’ two years ago, and I started using your methods immediately. My
first two deals weren’t so hot (I was too eager to close and didn’t do
enough up-front due-diligence), but I’ll make money on them all the same.
These were two small commercial strips in Chicago. Bought them with
basically no money down (for one the seller held paper; the other was
financed through SBA).

It was on my third try that I really hit a home run. This was an industrial
center we acquired through a construction loan. I renovated it, and leased
it up within 8 months (a year ahead of schedule). For this deal I raised most
of the equity from friends and family, after negotiating the bank down to a
10% equity requirement.

So here’s where I am at, barely two years after reading your book: Total cost
of 3 properties = $4,670,000; current value, based on
rent roll = $6,730,000.

That’s about $7-million bought with only $150,000 of my own
money—all borrowed with 2nd and 3rd mortgages on my house. After paying
all monthly mortgages and expenses, I’m clearing about $20,000 a month.
Thank you warmly for your encouragement and advice in your books,
newsletter and phone calls.” By letter, IL.

QUICK INTRODUCTION TO PRIVATE MONEY LOANS

BELOW YOU’LL FIND INFORMATION THAT CAN INCREASE YOUR CHANCES of getting private money funding. Understanding the ins and outs of private money could make the difference between getting money and not getting money. However you don’t need to memorize anything and there will be no test on this material).

WHAT MAKES A LOAN A PRIVATE MONEY LOAN?

1. Traditional institutional lenders like banks, trusts, pension funds, or credit unions are not private lenders, although some have units that deal with private money.

2. Private lenders may be individuals, corporations, venture capital firms, limited partnerships or certain other types of business entities.

3. Private money loans are typically non-conventional commercial real estate loans secured by real estate. They are often called hard money loans.

4. Hard money lenders make private money loans. Many private money lenders make hard money loans.

TWO MAIN TYPES OF PRIVATE MONEY FUNDING ARE:

5. Loans for business or real estate , which must be paid back over time

6. Investments in a business or real estate project, which do not have to be paid back.

Investments come from wealthy private individuals (“angels”) or groups such as venture capital (VC) firms. Investors may take part ownership of a business to earn a return on their investment as the business grows.

POTENTIAL ADVANTAGES OF PRIVATE MONEY include:

7. Private lenders are less bogged down by bank paperwork, government regulations and institutional protocol

8. Time from initial loan request to funding is faster

9. Private money loans are more flexible. For example, private lenders and investors are more likely to offer funding to “high risk” business or real estate deals.

BORROWERS CAN USE PRIVATE MONEY LOANS for many business and real estate purposes, although lenders can restrict loans to specific uses. Common purposes of private money loans include:

10. Rehabbing a property

11. Acquiring bridge money

12. Providing short-term operating capital

13. Equipping an office or research facility

14. Making a down payment on real estate

15. Buying real property

16. and more

PRIVATE INVESTORS

Business Angels are wealthy individuals who invest a portion of their money into real estate or a business in the hope of making a good return on their investments. These investors may come to the rescue of a new and promising business that finds it hard to obtain financing. They generally seek companies or projects that:

 Show great profit potential

 Will grow fast

 Are more than small “mom and pop” types of businesses

CREDIT UNIONS—THE UNKNOWN AND UNTAPPED LOAN SOURCE

IF YOU’RE LOOKING FOR A REAL ESTATE OR BUSINESS LOAN, be sure to include local Credit Unions in your search. Why do we suggest this? Because, Credit Unions:

• Have not suffered from bad real estate loans in the current crisis.
• Have loads of cash they want to put into good loans.
• Have understanding boards of directors who want to “put money out.”
• Have a history of lower interest rates on loans than many other lenders.

CREDIT UNIONS MAKE MANY DIFFERENT TYPES OF LOANS. But the types that would
interest you most as a business person are:

• Commercial and residential real estate loans.
• Business loans for startup, expansion, renovation, etc.

TO GET EITHER TYPE OF LOAN, the borrower must meet certain minimum, low- or no-cost needs, namely:

• Be a member of the Credit Union from which you want to borrow. There’s NO charge to you to join a Credit Union.
• Fill out the Loan Application for the type of loan you seek.
• Agree to the repayment schedule the Credit Union sets.
• Sign all needed documents—which usually are fewer than with a bank.
• Receive your loan check and start making P & I (Principal and Interest)
payments one month after you get your money.

THE “WAY TO GO” TODAY IS “WHERE THE MONEY IS” and that’s what you’re doing when you seek your real estate or business loan at a local Credit Union. You’ll get a friendly reception and utmost cooperation when you submit your Loan Application in a businesslike way and treat the CU staff courteously.