By Terica Kindred
CEO and founder
OutEstate Investments
4 Risks of Residential Investments
Advise clients on pitfalls to watch out for in purchasing domestic properties
Although domestic residential real estate investing may seem simple, executing on a successful strategy is anything but. There are
obvious challenges like navigating due
process and purchase protocols, but
there also are numerous controllable
risks that cannot be ignored.
With so much for today’s real estate
investor to consider — from tighter loan
requirements and a mountain of paperwork to volatile market and macroeconomic conditions — savvy mortgage
professionals should help clients navigate through property purchasing risks
and complications. Educating clients
about key real estate investing risks
can foster a true service-driven partnership built on trust.
Mortgage professionals should discuss the following risks with their clients:
1. price perspective: a low price does
not automatically mean a good deal.
Investors should focus on other fac-
ets that determine value, namely
location. When a client is consider-
ing a purchase, focus on where it is
located, including what subdivision
and school district it is in and the
overall demographics of residents.
Find out if the property is in a rental
or multi-owner neighborhood, which
is a good indicator of how neighbors
will treat the property and theirs rel-
ative to curb appeal. also consider
how much rent the residence would
get should that route be needed.
3. deal structure: How a deal is structured impacts the required cash
flow. Many make the mistake of calculating equity and translating that
into a monthly cash flow, which can
make the deal seem better than reality. Deal-structure decisions also
should involve estimating property
taxes and due dates. Information
for this type of calculation should
come from county-driven figures.
Clients should call the county and
check, as their taxes may differ from
the previous owner. For example,
if the property is a foreclosure and
the people living in it were senior
citizens, they may have had a homestead exemption tax reduction. as
an investor, however, your client will
pay higher property taxes. Other key
deal-structure considerations are
insurance rates, management fees,
vacancy rates and repair costs.
4. exit strategy — or lack thereof: One
of the most critical, though often
overlooked, aspects of a real es-
tate investment is the exit strategy.
This should be set up in advance
with specific plans on how, why and
when to offload a property. This
should include all options for dis-
posal across a number of potential
scenarios. although some inves-
tors rehab and flip properties them-
selves, others turn around and sell
them “as is” to another investor, or
put the entire process in the hands
of a partner who does the work for
them. Each scenario has a differ-
ent set of requirements, financial
exposure and liquidity attached to
it, so all must be carefully consid-
ered in the scope of an exit strategy.
Planning also makes it viable to con-
sider other potential real estate in-
vestments that can be made simul-
taneously or after a property sale to
maximize portfolio gains.
Terica Kindred is the founder and CEO of
OutEstate Investments, which specializes in
helping people invest in the U. S. real estate
market to help stimulate the american economy. Kindred has started businesses on five
different continents, and she is an author,
speaker, business consultant and investment strategist. Kindred will soon release
her newest book, The Next Global Millionaire, which offers nine secrets to becoming
a successful global investor or entrepreneur.
reach her at tericakindred.com.
By vince Parlove
President
Michigan Mutual Inc.
Prepare for Brighter Days Ahead
Despite lingering problems, the origination industry is poised for recovery
In today’s economy, mortgage bro- kers and originators must confront he difficult issues facing the industry, including ongoing volatility in
financial markets, a huge inventory of
unsold homes and weak job growth
nationwide.
But as the new year begins, there are
glimmers of brighter days ahead. Interest
rates are favorable, and there has been
an uptick in new home construction.
Privately owned housing starts this past
October were 16. 5 percent more than the
October 2010 rate of 539,000, according
to the U.S. Census Bureau.
Savvy mortgage brokers must develop strategies to capitalize on this
opportunity in the current stressful
times. The real issue is: How can brokers take advantage of attractive rates
to restore the nation’s homebuying
and home-lending environment?
already, there is some refinance
fatigue. The general sentiment is that
only a small pool of borrowers is eligible to take advantage of low rates.
Therefore, it is the responsibility of the
industry to suggest what programs
— and the substantial resources they
represent — can be better used in
support of the free-market lending
system. In this way, the industry can
help more people stay in their homes,
which helps stabilize neighborhoods
and strengthen local economies.
To make this growth happen, there
are several strategies to consider.
First, refinances should continue to
those who are eligible for a new loan
and would benefit from one. Brokers
also may help borrowers investigate
official loan modification programs,
like the Home affordable Modification
Program and the Home affordable
refinance Program. Caution must be
used, however. jumping in headfirst
when underwriting fundamentals
don’t make sense partially explains
the present situation.
vince Parlove is president of Michigan Mutual
Inc., based in Southfield, Mich. The company
purchases mortgages from independent
mortgage brokers, banks and credit unions.
For more information, call (248) 203-1340 or
visit michiganmutual.com.
