When you first think of the consequences of rising interest rates, you could naturally conclude that would drive real estate prices down.  Over the long haul, you would be right.  However, when you look at what is going on now as rates are rising, you might be shocked to see that both rates and prices are rising together.

Mortgage rates have been increasing steadily since the begging of the year 2022.  At the beginning of the year, mortgage rates were right around 3.2%.  As of the end of April 2022, mortgage rates have risen to around 5.2%. Some resources are show as high as 6.1% as of this writing.

The interesting thing is that the median sales price for real estate is also increasing. The median home values of Minnesota, my home state is currently $326k, the twin cities metro area is a little higher at $340k. 

So why are prices still increasing at the same time interest rates are also increasing.  To explain that you need to have a little understanding of economics.  In the simplest form, when supply is high and demand is low, rates tend to drop lower to encourage borrowing.  This is one of the tools that the federal reserve uses to spur growth in the economy.  On the flip side, when inflation is out of control, like it is now, rates tend to rise to keep up with inflation which usually slows borrowing which in turn lowers demand on products which in theory increases supply over time which will bring inflation down.&n ... Read More…

            One of the most boring topics – to most real estate investors, anyway -- is insurance.  That’s why so many get themselves in trouble when it’s too late to do anything about it. 

             As a real estate investor, you NEED to understand the basics of insurance that directly impacts your business.  Property insurance and liability insurance are the backbone of your business’s asset protection plan. Having a major insurance issue – and not having the proper insurance coverage in place – could easily cause your real estate business to go OUT of business, and take all the wealth you’ve built up over time down the drain with it.

            Our goal, thru these articles, is to provide a better basis to your real estate insurance knowledge so that you can ask the right questions and make the right decisions when it comes to your insurance.

            The first topic, as a basis of understanding, is to discuss “reconstruction value” versus “street value”.  Too often people use street value—what the property would sell for today—to try to determine what value they need to use to insure a property.

            Unfortunately, street value is not really a valid insurance valuation, because the cost of act ... Read More…

That is the question every rehabber asks himself/herself.  Many cities and states don’t legally require that all contractors be licensed (though most require that plumbers, electricians, HVAC contractors, and the like are). But even in places where a license IS required, there are plenty of unlicensed folks who are happy to do jobs ‘under the table’.

The natural thinking among real estate investors is that we can save money by not using licensed folks: that if I use a licensed contractor the job is going to cost me more money.  

Yes, I have asked that question myself.  And I have tried to cut corners by hiring the “handyman” who is not licensed.  Here are a few of the results I have seen.

1. On an early project I discovered the contractor who was doing excellent work, had a cooler on the job.  I didn’t think much about that until I noticed beer cans on the job site.  So, I dropped in one day unexpectedly and discovered my contractor was drinking beer on the job.  When questioned, he replied, “I’m doing fine.  I am perfectly OK to do the job while drinking.  To prove it, I can trim my thumb nail with this power miter saw and will not cut myself.  Here, let me show you.”  He didn’t get the chance to “show me” because I immediately fired him.  Just think what my liability would have been if he had actually tried that!
2. Another time I bought a hous ... Read More…

              Beginning investors have a tendency to get stressed out by the very thought of “negotiation”.

              They put off calling sellers (or calling them BACK) for days and days. They worry about what the seller might say and what they should say back to the seller.

              It’s as if they believe that something they could say to the seller—or fail to say—would make that seller motivated or not motivated.

      The truth is, sellers come to you already motivated or not motivated, and what YOU say doesn’t change that one way or another. And since that very important fact is completely out of your control, that means that the only thing you actually need to worry about in a “negotiation” is

1. Building rapport
2. Getting the information you need
3. Protecting your time

              To that end, there ARE some things that experienced real estate entrepreneurs do, and do consistently, to maximize that chances that any given seller negotiation will be a successful one.

•               Balance your need to get the information quickly with some emotional intelligence. If you really want to make deals, your need to separate the prospects from the suspects quickly and effectively must be balan ... Read More…

I remember the first phone call I got back in March, 2020 from a REIA leader (Real Estate Investors Association) on a Saturday asking me what we were going to do now that they shut down the world and we couldn’t have live events anymore.  At that time I had no idea how to answer that question for 2 reasons.  First reason I wasn’t aware of that because I don’t watch the news and I spend as little time as possible on facebook and other social media platforms because everyone has become so negative.   And the second reason is that we were hosting a live event at that very moment so I told them that we would talk on Monday.

I just assumed that they were talking about their state and that it was not going to affect most of the country.  But by the time I turned a TV on Sunday night, almost the whole country was on lockdown.  That week Vena Jones-Cox from Cincinnati REIA was doing their first Online Main Meeting and there was over 600 people in attendance at that event including myself.  Everyone heard about the Cincinnati REIA and their topic was how to deal with tenant and real estate with all the new rules and restrictions that had been trust upon us in less than a week or 2 weeks for a lot of the country. 

At first it was fun for me and everyone working with new technologies and working through the challenges to adjust to the (don’t yell at me…) new normal.  People were working from home and we had to take all our training session that we have been doing for years and deca ... Read More…

Seller financing is a term that covers a lot of different things. But it basically is a process to purchase or control a property without needing all cash of getting a loan to pay the seller off. Seller financing can be a useful tool in a tight credit market. It allows sellers to move a home faster and get a sizable return on the investment. And buyers may benefit from less stringent qualifying and down payment requirements, more flexible rates, and better loan terms on a home that otherwise might be out of reach.

In a seller financing transaction, the seller takes on the role of the lender. Instead of giving cash to the seller, the seller extends enough credit to the buyer for the purchase price of the home, minus any down payment.

Seller financing can be done in many different ways and with multiple options in the same transaction. The most common form of seller financing is with a Contract for Deed (AKA Agreement for Deed or Land Contract), but there are many alternative options available, including lease options, Subject-To and wrap around mortgages.

A Contract for Deed is simple to understand, you make monthly mortgage payments to the seller directly rather than getting a loan from bank or private lender. Let’s say you agree to pay the seller $100,000 and they agree to a Contract for Deed at a 6% interest rate with a 5 year balloon payment. You would pay the seller $599.55 PI (Principle & Interest) per month for 59 payments an on the 60th month (5 years) you make a lu ... Read More…

Imagine this scenario… 

You find a good piece of real estate that you decide to buy. 

You have little money to buy it, but you decide to use whatever money you have as part of your down payment. 

You get qualified for a 90% LTV loan. 

You call around and you are able to raise the remaining money you need for the down payment from your close friends and family. 

You promise to pay them a generous interest rate of 8% for lending you their hard-earned money. 

The following month, you find another good real estate property that you want to buy.

You have no money to buy it, but you know you can raise the money. 

You have great income and credit and once again you get qualified for a loan with 90% LTV.

You call around and you are able to raise some of the money from your close friends and family. Again, you promise to pay them a generous interest rate of 8% for lending you their hard-earned money. 

This time, you remember about a line of credit you have, and so you decide to use all of it to close the deal.

You’ve now raised all the money to buy this property and you couldn’t be more excited. You start feeling like a successful investor. 

Unfortunately, a few years later, you lose BOTH properties and all of the hard-earned money that you AND your friends and family invested. 

What went wrong?

It wasn’t the properties, they were great. 

It was in the way you structured the deals, specifically the financing (aka capital). 

In this article, my goal is to sim ... Read More…

 Just yesterday - almost literally, the news was that House Flipping is Down.  Now, the news is that House Flipping is strong! What gives? 

After reading an article published by Housing Wire, and written by Jessica Guerin, I want to share with you the statistics show that house flipping is strong again.  The number of homes flipped in America is approaching its high of 2006, just before the crash.

The latest data from CoreLogic reveals that 10.9% of all home sales in the fourth quarter of 2018 were flips, or homes that have been occupied for two years or less. This is the highest rate since the housing bubble days of 2006, when flips comprised 11.4% of home sales. (See chart below)

House Flipping accounts for close to 15% of the current home sales in America

The overzealous speculation of house flippers in the months leading up to the crisis is often cited as a contributing factor to the housing bubble. So should we be worried now that houses built on spec appear to be making a comeback?

No, says CoreLogic, citing evidence suggesting that the business practices of flipping is far better than what it used to be. Flippers are much more educated today, then they were 13 years ago. Instead of flipping homes based solely on price speculation, investors are flipping with a focus on adding real value to properties. 

At Oregon Real Estate Investors our motto last year was “Making Neighborhoods Great Again!” as the majority of the members were focused on Flipping.   Many of o ... Read More…

If you are a house flipper, you may be feeling the pull of a shift in the business. Then again, you may be rising above the challenges in the house flipping market.  Nation-wide, it appears, the house flipping market is getting tougher, not just in Eugene/Springfield Oregon.

According to ATTOM Data Solutions (a leading provider of property data - providing access to nationwide real estate and property data for more than 155 million U.S. properties), a total of 45,901 single family homes and condos were flipped in the 3rd quarter of 2018. Those numbers indicate that flipping was down 12% from a year ago and a 3.5 year low. According to the chart below, the downward trend started about 12 months ago.

 

Why is property flipping down 12%?

Possibly because of rising interest rates, which is putting pressure on mortgage rate to increases.
Possibly because of the decline in new home construction, which causes a tight housing supply,
and possibly because we in real estate wonder if  this trend will likely continue into the near future.

More reasons property flipping is down 12%

The article from ATTOM went on to show the “gross” profit margins were declining as well but overall very healthy.

As glamorous as it is to flip properties on television, those of us in the trenches doing it know that there are lots of struggles today that hit the bottom line. The cost of materials are up. The cost of labor is up ... Read More…

Something peeked your interest in real estate. Maybe it was the Flip this house, or Flipping Vegas or any other the other 100 reality TV shows that have nothing to do with reality but makes for entertaining TV.  Maybe it was a radio ad from some national guru looking to build their business in your market and they want you to join their team.  Maybe it was an ad on Facebook telling you that it is so simple to make $30k a month without even getting out of bed.  Maybe it was a friend that really did flip properties or a relative that owned several rental properties.

Whatever the reason is that you decided to give real estate investing a try, you soon realized that there is a lot to know and the real estate business can seem overwhelming when you are first starting out.  I know because I felt that way in the beginning and now I mentor students through the minutia all the time.

In one of my early mentoring sessions with my mentor, he said something to me that I just laughed at, at the time but later realized how profound that statement was that he repeated to me over and over until I finally got it.

He said; if you want to get to where I am, you need to KISS your way to Riches.  Keep It Simple Stupid. ... Read More…