Homeowners who are delinquent on their mortgage provide an opportunity for investors

Homeowners are delinquent on their mortgage provide an opportunity for investors!

There are still 1.5 million borrowers who are seriously delinquent or have late-stage delinquencies at 90 days or more past due on their home loans, according to the June Mortgage Monitor report from Black Knight.

While the national delinquency rate is at its lowest level since the beginning of the pandemic, about 1 million homeowners are expected to be in serious delinquency as September’s wave of mortgage forbearance program expirations begin, the report showed.

The economic recovery is expected to slow down even more as more Americans fall behind on their mortgage payments, and fewer can afford to purchase homes. The housing recovery will be delayed as banks tighten their lending standards. 

What is the difference between default and delinquency?

Delinquency means that you are behind on payments. Once you are delinquent for a certain period of time (usually nine months for federal loans), your lender will declare the loan to be in default. The entire loan balance will become due at that time.

How did we get here?

One of the most difficult things about owning a home is taking care of your financial obligations. If you’re not making your monthly mortgage payments, you’re considered delinquent. In the past decade, this has been a problem for a lot of homeowners. In total, about 1.5 million homeowners are delinquent on their mortgage payments. This is a problem for the investors, as the value of these homes goes down because the homeowners can’t afford to pay their mortgage. It’s a frustrating situation for everyone involved.

The 90–day delinquency rate is a measure of serious delinquencies. It captures borrowers that have missed three or more payments. This rate measures more severe economic distress. View this link to learn more and view interactive charts:  https://www.consumerfinance.gov/data-research/mortgage-performance-trends/mortgages-90-or-more-days-delinquent/

What you need to know as an investor

Per MarketWatch (https://www.marketwatch.com/story/one-subset-of-homeowners-could-be-in-trouble-here-are-the-real-estate-markets-most-at-risk-11625591292):

Any homeowner who isn’t able to sell their home or modify their loan is likely to face foreclosure or other financially challenging options, such as a short sale, the researchers warned. Whether a homeowner leaves their home by choice or through foreclosure at the end of all this, it will have the effect of adding supply to the market they live in.

“As a result, a buyer’s market could develop in ZIP Codes with heavy exposure to such borrowers,” the researchers wrote, noting that these would be areas with a high concentration of FHA loans in delinquency. So which markets are most at risk?

Atlanta tops the list, with 17.4% of the city’s mortgages in delinquency as of May. The city also has a large share of FHA loans overall, with those loans representing over a fifth of all mortgages in the city.

Many of the metro areas most threatened by such a scenario were located in Texas, including Houston (No. 2), Dallas (No. 4), San Antonio (No. 8) and Ft. Worth (No. 9).

Should you buy a distressed property now?

If you’re planning to buy a distressed property, now may be a good time to buy. Just make sure you’re aware of the risks and understand what you’re getting into.  Distressed homes offer a unique buying opportunity for real investors, but the average home buyer should probably look elsewhere. 

If you need funding, apply now. I am working online with the rest of you.  

Patrick St. Cin

W – 512-213-2271

Patrick@REICapitalResources.com

http://www.reicapital.cash/

Photo by Public Domain Pictures on Pexels.com

Diamonds are not forever but Real Estate Is … Make Wise Investing Choices!

Would you ever think to compare diamonds and real estate? At first glance, they seem like two completely different things.  However, they are both hard assets that are cost-prohibitive to acquire for the average US worker.  However, you can sell both “assets” quickly and not realize their full value in the marketplace.    Let’s first compare the similarities and then differences from an investment perspective.

Real Estate is a better long term investment than diamonds

Similarities

Hard Assets:

  • Both Diamonds and Real Estate are Hard Assets similar to other commodities
  • Negatively correlated with bonds and stocks, so when stocks crash both appreciate in value

Long Term Investments

  • Suitable for investors who are not looking for fast returns on their investment
  • Risk losing money if you try to “flip” your investment too early or didn’t acquire at the right price below market value

Additional Utility

  • Provide the investor with enjoyment and value
    • Diamonds are pretty to look at and make the person or people associated with the diamond have better social value 
    • Real Estate provides rental income and in the case of short-term rentals – owners can enjoy the property and generate revenue when not in use.

Differences

As investors, we all know that not all hard assets, such as real estate or diamonds, have the same return on investment.  In fact, ROI performance varies greatly even among real estate classes:  residential property, commercial real estate, agricultural property, etc.  Financial crises prove time and again that real estate is a highly volatile asset.   Diamonds are a closed market that is stable and less risky.  However, there are still differences among the rate of returns on diamonds such as the colored diamonds are less risky.

  • Maintenance Fees
    • Diamonds don’t have a maintenance fee … you’re ROI is based on the price you paid upfront for the diamond
    • Real Estate requires maintenance and repairs and possibly property management fees.  All these factors need to be carefully considered before acquiring property and affect your return on investment.
  • Portability
    • Several millions of dollars can fit in your fist and transport in a pocket … the irony for not being the rarest stone they have the highest size to value ratio of the natural resource category.   This is how historically (since the silk road trail) wealth was transported long distances and across borders.
    • Real estate can’t be moved. Real estate is not physically portable and the value does not transfer easily either.  However, 1031 exchanges are a great way to transfer appreciation as you sell your property.

At REI Capital Resources, we prefer real estate investing to diamonds.  In fact, diamond prices are extremely volatile – shooting up 249% from 1978 to 1980 before falling 77% by early 1986 – but the value of diamonds has also long been propped up by a number of artificial sources.   Real estate can be utilized and provide rental income.  As the number of cloud and work from home startups rise, commercial real estate is increasingly valuable to investors to provide “server farms” to meet bandwidth demands.

We are not saying diamonds aren’t valuable or important – especially as emergency currency and making your future or current spouse a little happier this valentine’s day.  We’re saying don’t buy a diamond as an investment with the idea of retained value.  If you look at diamond prices since the 1970s, there has been “Too Much Price Volatility & Demand Uncertainty To Be Considered Investable” by numerous sources.  Also, the use of diamonds as a symbol of a woman to be married is only about a 100-year-old custom.  There are numerous other stones considered rarer.  Thank you, Madison Avenue for making weddings a thing to save money for and cause the intelligent investor to consider generating a new stream of revenue.

We love this quote by Milton Friedman, “The speculator is looking for hidden weak spots in the market,” and acts as “the advance agent of the investor, seeking always to bring market prices into line with investment values.”   Diamonds don’t provide an adequate hedge against inflation, and most people would be better off with more practical financial planning, than investing for catastrophe purposes.  The diamond while a modern symbol of one’s love and commitment to another is expensive and ranks low when compared to value stability.

Diamonds vs. Gold vs. S&P 500

YearGold ROI  %Diamond ROI  %S&P500 ROI  %
2004000
200536-110
200657323
200797291
200811911-22
200917619-7
2010254507
20112763915
20122182437
20131852061
2014172873

*Data courtesy of the Rappaport Diamond Index, Kitco, the World Gold Council and Yahoo Finance. Diamond prices reflect monthly averages based on a 1-carat diamond. Gold prices are based on average annual London PM fixed prices. S&P 500 prices reflect average monthly adjusted closing prices. ROIs are cumulative.

The chart shows when the stock market suffered historic losses, diamonds at best served as a short-term hedge and very quickly fell behind the returns of alternative investments.

Therefore, I would recommend a 3 bedroom house that generates a positive return on investment that you can set aside the money after a year to buy your sweetie her diamond.  If she loves you, she’ll wait a year knowing a diamond is coming.

3 Ways Real Estate Investors Can Owner Occupy Their Rentals

by Patrick St.Cin

Property investments potentially have excellent returns and can diversify your portfolio to insulate you from recessions and other adverse economic conditions. There’s no single right answer on the best way to invest in real estate. Are you getting started in Real Estate Investing and wonder how to live in your investment property? 

Tip 1:  House Hacking

This can mean a few different things. House hacking is essentially a hybrid of buying a home to use as a primary residence and buying a rental property. In general, the term refers to buying a residential property with two to four units or with a Granny Flat/Additional Dwelling Unit in the backyard and living in one of the units while renting the others out. In theory, if you have the money you could purchase an entire duplex or four-plex and rent out any apartment to tenants. Keep your expenses low so you can keep rent affordable to entice prospective tenants.  You also could purchase property that you live in while renting out other rooms in the property. 

Either way, you’re the landlord. Be a good one, and you’ll be in a much better position to succeed in this investment. Keep the property in great condition, be readily available to your tenants when needed, and if necessary hire someone who can help with repairs.

Let’s say you find a quadruplex (four units) for $200,000. Including taxes and insurance, we’ll say your mortgage payment is $1,500 per month. After you buy the property, you rent out three of the units for $600 each and live in the fourth. Not only do you live for free (the rent covers your entire mortgage payment), but you’re generating a positive cash flow of $300 per month and are building equity in a more valuable property than if you had bought one unit to live in.

House hacking can be an excellent low-cost way to start building a portfolio of rental properties. Because you live in the property, even a multi-unit residential property can qualify for primary residence financing, which comes with lower interest rates and lower down payment requirements than investment property loans. You’re typically required to live in the property for a certain amount of time after you buy it, but once that period expires (usually a year or two), you’re free to repeat the process with another multi-unit property.

The obvious downside is privacy. There’s value in having your own yard, and it can create some awkward situations when you live in the same building as your tenants. Even so, if you’re a new real estate investor and don’t really need your own house, you may want to consider house hacking. This isn’t as much of an investment strategy as it is a side hustle, but it’s still worth mentioning here. With the emergence of platforms like Airbnb, it’s easier than ever to rent out your home when you aren’t around or to rent out a spare room in your home for a few days here and there.  

Tip 2: Tax-Free 2 Weeks Income 

One interesting aspect of this strategy is that if you rent out your home for fewer than 14 days in a year, you don’t pay tax on the money you collect. If you go out of town for the holidays or take a summer vacation, using your home as an occasional short-term rental can offset your travel expenses with tax-free income.

Landlord Tax benefits: 

  1. The mortgage interest deduction for the mortgage interest you pay to buy and/or fix up your properties. 
  2. Deductions: insurance premiums, repairs, utilities (that are not paid for by the tenants)
  3. Depreciation: You are allowed an annual deduction for the wear and tear your property experiences over time, spread out over 27.5 years for residential properties. Land cannot be depreciated.

Living with Tenants is Too Much – What is a Traditional Landlord? 

Owning rental properties is an excellent way to invest in real estate while building wealth and generating income. The return potential is strong thanks to a combination of income, equity appreciation, and the easy use of leverage when buying real estate.

However, owning rental properties isn’t right for everyone, so consider these drawbacks before you start looking:

  • Cost barriers: It can be very expensive to buy your first rental property. Most lenders want at least 25% down for an investment property loan and it’s smart to keep several months’ worth of expenses in reserves.
  • Uncertainty: When it comes to rental properties, vacancies happen and things break. While the overall return potential can be great, rental properties have considerable short-term risk.
  • Time commitment: Even if you hire a property management company, owning a rental can be a time-consuming form of real estate investing.

Tip 3: Vacation or Short-Term Rentals

A vacation rental tends to bring in more income per rented day than a comparable long-term rental property. However, there are some potential drawbacks to owning a vacation rental. Marketing and managing a vacation rental is more involved than a long-term rental. As such, property management is far more expensive — expect to pay a property manager about 25% of the rent on a vacation rental. That’s more than double the 10% industry standard for properties with long-term tenants.  Furthermore, you may need a special license in your preferred locations, which can be very expensive.

On the positive side, you may be able to use the home when it isn’t occupied. It can also be significantly easier to finance a vacation rental, especially if it meets your lender’s definition of a second home and you don’t use the rental income to qualify. There are loans options available for short-term rental funding.

Always buy property for the best possible price. You want to buy those properties that offer specific challenges that match your personal talents so you can use your skills to upgrade and enhance the value of the property and increase the Net Operating Income over time.  Obviously, the higher the rents and the lower your total monthly expenses, the greater your net income from the property will be. Costs that affect cash flow include principal & interest payments; property taxes; insurance; maintenance/repair costs.

Although we’re always quick to advise against borrowing too much and overleveraging your real estate investments, you also don’t want to be too conservative and underestimate your cash needs. The cost of refinancing is such that you may be able to refinance the property no more than once every several years, and if you suddenly need cash to overcome some unanticipated problems, the costs of short-term funds can be high. Borrow extra money or have an untapped line of credit available (which some lenders offer at no carrying cost to their best customers) to allow for reserves.

Joint ventures, wholesaling, fix-and-flip, and property management are just a few of the other ways investors can profit from real estate.   

If you need funding, apply now. I am working online with the rest of you.  

Patrick St. Cin

W – 512-213-2271

Patrick@REICapitalResources.com

http://www.reicapital.cash/

Fluctuating LTV

The loan-to-value (LTV) ratio is the amount a borrower can borrow from a lender compared to the appraised value of the property that he or she wants to buy. The LTV determines the amount of a down payment a borrower has to supply from his own pocket to invest in the property.

Loan-to-Value ratio = Mortgage amount ∕Appraised value of the property.

For example, if the lender offers a loan at a 90% loan-to-value ratio, the borrower must supply 10% of the total cost of the purchase. In a fix-n-flip loan the same is true, the lender that supplies up to 90% (for example) of the home purchase price, requires the borrower to provide the other 10% of the price.

The Coronavirus pandemic has changed things rapidly including the market value of homes, thus affecting the LTV ratios lenders depend on. Please call for the most up-to-date loan-to-value ratios on our loans for your upcoming projects. 512-213-2271

Photo by Pixabay on Pexels.com

Default

If a borrower defaults on a home loan, which is more likely to happen if they do not have much of their own money in the home, the lender takes back the home and sells it to get back the money they lent. Market fluctuations can cause lenders to lose money if the value of a house goes down and the borrower defaults on the loan. The value of the home may be less the amount of the loan. The coronavirus pandemic may make home prices goes down, but that is not certain and may not be true in all locations.

Equity

If the borrower had equity in the home and defaults, then the borrower loses the equity they have in the home because the lender takes the property and sells it to recoup their investment and expenses as quickly as possible.

Equity is the amount of money that would be returned to homeowner if the asset is liquidated (sold) and all debts are paid off. It is in a home owner’s best interest to sell a home before they default on a loan and pay the loan off if possible both so they can get their equity out of the home and so that they can keep their credit history in good shape.

FICO Score Requirements

The FICO score required on loans relates to the buyer’s credit history. It reflects how often they have been late or defaulted on loans in the past. Before the coronavirus pandemic set our lives, marketplace, and economy into a spin, REI Capital Resources required a FICO score of 650 on a hard money loan with a term of up to 24 months. Many people have lost their jobs and their credit scores have suffered. Watching the unemployment rate go up, lenders across the country have tightened up their FICO requirements and these requirements are changing daily. Please call me for our latest FICO requirements. 512-213-2271.

Selling to Avoid Foreclosure

Owners in default or facing default will sometimes take less than the market value for a house to avoid foreclosure. They may settle for only getting part of their equity back, reasoning that some is better than none. None is what they will get if they go into foreclosure and the lender takes back the property and sells it for the balance owed on the loan. The borrower may even give up all their equity to sell the house before defaulting to keep their credit history intact and their FICO scores high.

Buying Opportunity

The distressed homeowner’s situation becomes the buyer’s opportunity. The homeowner needs help to retain their high FICO score and some equity, and the fix-n-flip buyer needs to purchase a property for the lowest price. It can be a win-win deal.

As a direct lender, it is my job to help you get a purchase and rehab loan as quickly and as easily as possible. The perfect fit is still out there. Call me though for the most up-to-date information.

I am working online with the rest of you. If you need funding, fill out the BLN application at   http://reicapital.blnsoftware.com/ or send me an e-mail or give me a call.

Patrick St.Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

Fix-n-Flip Time & Money

Although many states are exempting building, utility, road, and bridge construction from “stay-at-home” work shutdowns carried out to prevent the spread of the coronavirus, some states are calling for a cessation of all residential construction because it is not defined as “life sustaining” work or “construction of essential infrastructure.” If you read the recent Dallas County Shelter in Place order, you will see that Dallas County has not shut down residential construction. However, some states and counties across the country have. A fix-n-flipper needs to pay attention to the exemptions and inclusions in the work-stoppages orders that are being issued by state or county governments because it may affect your schedule and costs in ways you cannot predict.

Dallas county residents are being ordered to stay in their homes except for crucial work and errands, beginning 11:59P.M. Monday. All businesses that aren’t deemed essential also must stop operating.

Dallas Morning News, Updated 3/22/2020

Your construction loan has or will have terms and limits, usually 24 months for a fix-n-flip loan that will pay 100% of your estimated rehab costs. In an epidemic, you may find that you cannot finish construction in 24 months or within the costs you estimated months ago. If you are faced with a situation like the coronavirus pandemic, something you could neither foresee or prevent, you need to review your contracts for “Force Majeure” and price escalation clauses to understand who bears the risk in the case of work stoppages or rising material costs and shortages that are due to situations that cannot be predicted or avoided.

Be proactive. Start working this out with the organization or lender that lent you the money.  Be sure to understand that if the project needs to be stopped and the contract rewritten who calls the stoppage and who and how everyone involved must be informed.

Photo by Andrea Piacquadio on Pexels.com

Delays often ripple through a project and can cause you to miss the deadline for your loan to be paid back, increasing your interest and penalties. Perhaps you can’t get a plumbing fixture delivered or a critical subcontractor is quarantined, and the next trades scheduled to work cannot proceed. Jump in and be aggressive about finding local alternative materials and even workers.

Louisiana becomes the ninth state to announce a statewide shelter-in-place order since California did so on Thursday night. Residents in Connecticut, Illinois, New Jersey, New York, Ohio, Oregon and Pennsylvania have begun or are about to begin staying at home for at least two weeks.

The Advocate, March 22, 2020

Below is a list of ways the coronavirus pandemic might affect your fix-n-flip project:

  • Sick workers who must quarantine for 14 days
  • Exposed workers who must quarantine for 14 days
  • Workers required to take off work to care for children when schools close
  • You have to take off work to care for your children when schools close
  • Subcontractors or specialty contractors who do not show up
  • Government permitting offices shutdown
  • Material shortages caused by epidemic in China or elsewhere
  • Shipping delays due to port-of-entry quarantines
  • Construction work stoppages in your area ordered by government to slow the spread of disease.
  • Material shortages cause prices to rise
  • Shipping costs rise owing to transportation shutdowns
  • Order cancellations

If you are in the process of negotiating your loan and calculating your expenses, you need to be very careful in estimating your materials. Right now, in the middle of this epidemic, it is for me, or might be for you, impossible to tell how long impacts to business will last.  Review your contracts to include appropriate “Force Majeure” and price acceleration provision clauses in your contracts. Look for local alternative suppliers.

We wish health and safety to you and yours.

Fill out the BLN application at   http://reicapital.blnsoftware.com/ or send my an e-mail or give me a call.

Patrick@InvestorsLendingSource.com

512-213-2271

Austin, Texas

Beauty of a Hard Money Loan

Like an old tin roof and gingerbread trim, hard money loans have a beauty all there own in the right hands. Hard money loans are short-term loans secured by real estate and used by fix-n-flippers to purchase and renovate property. They have high interest rates but only for a short time. These loans usually finance the purchase of the property and the renovations.

Secured by Real Estate

REI Capital Resources hard money loans finance up to 90 percent of the purchase price of the home, up to 100% of the renovation costs, and a maximum of 70% of the after-repair value (ARV). An appraisal is required.

High Interest Rates but for a Short Term

Hard money loans are intended to be paid back quickly (in 24 months) so the high interest rate does not hurt for long and is included in your budget calculations. Hard money loans usually do not have a prepayment penalty. REI Capital Resources interest rates start at 9.5%.

Lender fees, permit costs, property assessment fees, loan originating fees, loan processing fees, inspection fees, points, interest, closing costs are taken out of the loan. REI Capital Resources points are as low as 2.5%.

Payments

Monthly interest-only payments are made during the loan and the principal repayment is made at the end of the loan term when the renovated house sells.

Borrower Qualifications

REI Capital Resources hard money loans carry minimum qualifications of a credit score of a minimum of 600, debt to income ratio of 35% – 45%, and experience that includes two to three past renovation projects or a licensed contractor budgeted to help.

Photo by rawpixel.com on Pexels.com

More is Better

More experience and higher credit scores may qualify for lower rates and fees and higher borrowing limits.

REI Capital Resources

REI Capital Resources is a hard money lender and is able to help you fund your project based on your experience, the value of the property, and its after renovation value. We have money to lend, and you need money quickly. A perfect fit is out there.

We are focused on funding Your Success.

Patrick StCin

Call me at 512-213-2271

e-mail: patrick@REICapital.cash

Single-Family Rentals: Build to Rent

The single-family rental is the fastest growing segment of the housing market according to research done by the Urban Institute. This is a very interesting area of opportunity for private lenders and it pays to keep up-to-date on the market so that no opportunity is missed.

Single-family rentals have outpaced single-family ownership and multi-family housing in recent years. This is partly due to millennials that are forming households and entering the single-family housing market, moving up from multi-family living to single-family rentals to gain additional space for a growing family. Renting still works for them because they need the ability to be transient and move if their jobs require them to, and many cannot afford single-family ownership because they are carrying massive student loan debt, have not been able to save for a down payment, and are faced with stricter lending terms. Downsizing baby boomers are also attracted to single-family rentals for some of the same reasons, including no down payment, maintenance services, and the ability to move if they choose.

Photo by Thgusstavo Santana on Pexels.com

Wholesale Sales

According to an article on Builderonline.com by Lauren Shanesy, the demand for single-family rentals has allowed builders to increase sales by selling to rental operators on a wholesale basis and has prompted a number of developers to tap into the market with a new product, the cohesive single-family rental community filled by niche renters with lifestyle needs that are unlike those of apartment renters.

Planned Rental Home Communities

AHV Communities is one community builder that is building in Texas, offering resort-style amenities, energy efficient homes, maintenance-free living, and professional management with the freedom and flexibility of a lease. One of these communities is Pradera, luxury rental homes in San Antonio. Another is Creekside Ranch in New Braunfels. Both offer club house, pool, green space, maintenance services, and sophisticated floor plans.

Management Efficiencies and Flexibility

Shanesy continues, “Many individual investors who bought distressed or foreclosed single-family rental homes have been priced out of the market by competition from institutional investors in recent years.”  However, these individual rental homes are spread out and not located in communities, so the institutional lenders have a more difficult time managing them efficiently. Some investment companies have begun looking to builders to purchase whole communities of new homes that they can manage. They sell some of the homes and rent others, allowing the investors the flexibility to sell if homeownership goes up or rent if homeownership goes down.  

A Mature Market

Samantha Goldberg, in the article “Top Trends to Watch in the Single-Family Market,” at Arbor.com/blog/ reports that panelists at the State of the SFR Industry panel at the IMN’s 7th Annual Single-Family Rental Investment Forum, held in Hollywood FL say that incoming capital, new private lenders and institutional lenders, and technological innovations helpful for management are the top trends to watch in the single-family rental market over the next few years.

According to the same article, the single-family rental market sector achieved 3% year-over-year rent growth in 2018 and 2% year-over-year rent growth so far in 2019. The West Coast and the South East had the biggest rent gains in the last year.

There is still a shortage of housing for the U.S. workforce and this means that the nonluxury single-family rental market has room to grow, providing opportunities for private lenders, developers, and investors to add inventory in the workforce living space.

REI Capital Resources Long-Term Rental Funding Program

REI Capital Resources is a funding source for SFR Fix-n-Flip, Fix-to-Rent, build-to-rent, and Refinance projects as well as larger commercial projects such as office buildings, 5-40 door multi-family buildings, and many others.  These programs vary wide and far throughout the gamut of lending. Call or e-mail for more information. I’d like your business.

We offer asset-based and experienced-based long-term rental program loans on the following terms: at a min FICO of 650, a BPO is required, up to 85% of purchase price, Max of 80% ARV, Interest rates starting at 6.5%, and points as low as 2.25%.

REI Capital Resources Residential Construction Loan Program

We offer asset-based and experience based loans for residential construction on the following terms: Min FOCI 650, appraisal required, up to 90% of cost of lot + build, Up to 100% of construction costs if lot is free and clear, Max of 70% ARV, interest rates starting at 8.25%,and points as low as 3.5%.

Give me a call or send me an e-mail.

Patrick St.Cin

W – 512-213-2271
Patrick@REICapital.cash

References

Lauren Shanesy on Builderonline.com, “The Rise of the Single-Family Rental.”

Samantha Goldberg, “Top Trends to Watch in the Single-Family Market,” Arbor.com/blog/

http://www.urban.org/research

Have You Hired an Uber Driver Today?

House flipping has made it to the Wall Street Journal. In a recent article (May 28, 2019), Uber Drivers Seek Extra Cash Working for House Flippers,” I read about a new way house flippers are finding houses to buy in today’s competitive market. They are maximizing their chances of locating houses to fix-n-flip by paying Uber drivers to identify homes on their routes that are ripe for flipping. This cuts down on the amount of driving and scouting the real estate investor has to do to find potential homes to buy, and the Uber driver makes some extra cash.

Uber drivers take a picture of a property using an app developed by DealMachine, LLC. The app uses GPS and county online property records to identify property owners. The DealMachine website in the Google app store says that the app “is the fastest growing solution for investors and agents who want to build their own marketing list and find local deals.” It advertises that you can “See a run-down house, find the owner, and flip it for a profit.” Their app gets in touch with the property owner via direct mail or e-mail. The app user instantly sees the owner’s name, phone number, and e-mail address to contact them on the spot.

Driving for Dollars

Homes that have owners that might be eager to sell include houses that appear vacant and those that have newspapers piled up and a “for sale” or “for rent by owner” sign in their un-mowed front yards. Uber drivers take pictures of the houses and submit the referrals when they are not driving a client.

Some real estate investment companies pay the Uber driver a hefty commission if a lead pans out and others pay some for each good lead and more if a referral leads to a deal closing. One Uber driver interviewed by the WSJ writer has sent in 400 photos and has not had any of her leads close yet, but she says, “I understand real estate is a numbers game. What do I have to lose? I’m driving around anyway.”

REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options for real estate.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

Parker, Will and McWhirter, Cameron, Uber Drivers Seek Extra Cash Working for House Flippers,

WSJ May 28, 2019

https://www.wsj.com/articles/uber-drivers-seek-extra-cash-working-for-house-flippers-11559035802?mod=trending_now_2

https://play.google.com/store/apps/details?id=com.dealmachine&hl=en_US 0feffffff0

Vacation Rental Investment Property: Expenses

Summer is here and vacations are in the air.  Perhaps, it is also time to think about how we can pay for our vacation with income from an investment property purchased to rent. As we discussed yesterday, if you receive income from renting property for use as a dwelling, such as a house or apartment, you may need to report the income, and you may be able to deduct certain expenses. 

To make your tax life easier and less confusing for you, your tax preparer, and the tax authorities, be clear about your goals for the rental property.  Are you using the property partly for your own use and renting it out when you aren’t using it or are you operating it solely for a profit?  If you are using the property yourself and renting it, divide the portions of expenses between your investment and your personal tax forms based on days used or percentage used, and you will not run into tax trouble.

Types of Rental Expenses

In most cases expenses related to renting your property are deductible. These deductions can be applied against the income you receive from rent to lower the amount of the rental income that is subject to tax. These would general be reported on a form 1040.  According to the IRS, if you use the investment property to rent for a profit and do not use the dwelling as a residence, or for personal use, then your deductible rental expense may add up to more than your gross rental income. When you use the property for both personal and rental use, you will not be able to deduct rental expenses in excess of the gross rental income minus the rental portion of the mortgage interest, real estate taxes, casualty losses from federally declared disasters for the rented part, realtor’s fees, and advertising costs.

Deductible expenses include:

  • Advertising
  • Auto and travel expenses (if the primary purpose of the trip is to collect rent or to manage, conserve, and maintain your rental property)
  • Cleaning and maintenance
  • Realtor and Online Commissions
  • Depreciation: This expense begins when the property is rented or placed in service. It is taken over the lifetime of the property to cover the cost of the original purchase.
  • Insurance
  • Interest on loans other than the mortgage
  • Legal and other professional fees
  • Local transportation expenses (those incurred collecting rents, managing, conserving, or maintaining your property)
  • Management fees
  • Mortgage interest paid to banks, etc.
  • Mortgage expenses, including mortgage commissions, abstract fees, recording fees, are not deducted as expenses, but are considered part of the basis of your property as capital expenses and are depreciated.
  • Points. Points are prepaid interest and are deducted over the life of the loan and not all in the year the loan was made.
  • Pre-rental expenses: Expenses incurred maintaining your property from the time you make it available to rent
  • Rental payments for equipment
  • Rental payments for the property you lease
  • Repairs
  • Taxes
  • Utilities

Vacant Property

You can deduct expenses incurred maintaining and preserving your property when it is vacant, or vacant while listed for sale.

Uncollected Rent – Not Deductible

Don’t deduct uncollected rents. It is not included in your income, so it cannot be deducted.

Renting to Your Employer

If you rent part of your home to your employer and provide services for your employer in that rented space, report the rental income.  Claim the income and deduct the expense for that portion of the house. You can deduct mortgage interest, real estate taxes, casualty losses from federally declared disasters for the rented part of your home.

I would like to help you with funding for an investment rental property or vacation rental.  I have a long-term rental loan program that can help you get into an income-producing vacation rental investment property.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

IRS Publication 527 (2018) Residential Rental Property

IRS Tax topic 415 Renting Residential and Vacation Property

Image Credit, vacation rental, Seattle. Fred Ueckert, FJU Photography [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)%5D

Vacation Rental Investment Property: Income

Summer is here and our heads are full of vacation plans. Some of us rent summer vacation homes to stay in and some of us rent vacation homes out to others for income.

As a real estate investor, you may be considering buying a property to rent out for income or to remodel and resell. There are four points about income taxes that apply to rental properties that you should know about.

1.  If you rent the dwelling for fewer than 15 days a year, you do not have to report any of the rental income and cannot deduct any expenses as rental expenses.

2. If you receive income from renting property for use as a dwelling, such as a house or apartment, you will most likely need to report the income, and you may be able to deduct certain expenses.

3. The accounting method you choose to follow determines when you count income and deduct expenses.

4. Whether you use the property personally for vacations with your family and friends makes a big difference.

Accounting Method:

The accounting method you use determines when you claim income and deductible expenses.

Types of Rental Income:

Monthly rent is only one kind of income you may receive.  You may also receive rent in advance. You report monthly rent when you receive it. A tenant may pay you to cancel a lease. This income you report when you receive it. A tenant may pay some the expenses attributed to the rental dwelling (for example utilities). You declare the expenses paid as income. You can then deduct the expense if they are deductible rental expenses. A tenant may pay you with services (for example painting) or property (for example they construct a built-in grill). In this case you report the fair market value of the service or property as rental income.

Security deposits are not included in your income if you intend to return them to your tenant at the end of the lease. But, if you keep part or all of the deposit, include it as rental income in the year you receive it.  If a security deposit is used as the final month’s rent, include it as advanced rental income when you receive it.

Personal Use

According to the IRS, If you use the property for personal use 10% of the time or 14 days a year (whichever is greater) and rent it out at the fair market value for income, limitations apply on the rental expenses you can deduct. You will need to divide the expenses between the personal use and the rental income use based on the number of days of each. Of course for personal use, you will not receive income so there is nothing to report on the personal taxes. When you use the property for both personal and rental use, you will not be able to deduct rental expenses in excess of the gross rental income minus the rental portion of the mortgage interest, reals estate taxes, casualty losses from federally declared disasters for the rented part, realtor’s fees, and advertising costs.

One thing to note about personal use is that if you rent to a relative or friend for a token amount, less than the fair market value of a dwelling just like yours, you have to count this use as personal use, not as investment rental income use.

I have a long-term rental loan program that can provide funds for your real estate investment for the purpose of renting for income.

REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

IRS Publication 527 (2018) Residential Rental Property

IRS Tax topic 415 Renting Residential and Vacation Property

Vacation rental Image in Florida. Jan Lieberman [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D