7 Tips for real estate investing

7 Real Estate Investment Tips Beginners Should Know

We believe beginner real estate investors need all the help they can get.  We came across these tips courtesy of ImmoAfrica.net, a South African company.  They apply in the USA, too.

No matter how savvy you are when it comes to investing, the real estate business is like no other. Since your real estate investments likely measure in the hundreds of thousands, it is wise to educate yourself about investing in real estate before you transfer that next amount.

 In fact, there are at least 8 tips beginners should know before making their first investment in real estate. And, if you play your cards right, there might be a huge profit margin waiting for you.

 Let’s have a closer look at the real estate investment tips for beginners:

 #1 – Taking care of our own debt

Before you are ready to look into investment opportunities, your finances need a clean bill of health.

Namely, you should make sure there are no debts that are weighing down your purchasing power.

Everything from student loans (of which there is a crisis in the United States) to unpaid medical bills should be taken care of before your first investment.

After all, it wouldn’t be wise to purchase a property if you have a mortgage on your own home, for example.

#2 – Do the repairs on your own

If you are buying a piece of property for you and your family to live in, then it’s perfectly natural that you’re the one who’ll spruce it up.

However, when it comes to property investment, beginners get carried away and hire other people to refurbish the houses and apartments they have invested in.

Although this move seems logical, it is actually quite expensive in the long run. For this reason, try to find properties that don’t require a lot of subsequent investing and make sure you can do these repairs on your own.

Furthermore, if you have renting in mind, then be sure are up the role of the landlord that borders the job of a handyman.

#3 – The snare of high-interest rates

If you browse through the credit line of any financial institution, you might get the impression that borrowing money is cheap nowadays. However, as we have stated above, interest rates can be higher on an investment property than mortgages on residential housing.

For this reason, wise property investment includes researching the financial market in the search of low interest rates. After all, it is your profit margin that’s at stake since high-interest rates can eat it up entirely!

#4 – Calculating profit margins

Speaking of margins, if you wish to make a profit, you first need to list all your expenses.

For instance, the cost of maintenance should be around 1% (of the value of the property) or even less if you do the work yourself.

 Then there is home insurance, homeowners’ association fees, national, regional, and local property taxes. The list of expenses will never be truly populated, so always plan up to 20% extra funds. If you do everything correctly, the profit margin should linger around 10%

#5 – Start with a low-cost home

Since you are a novice in the real estate business, we recommend that you start off lightly and purchase a low-cost property.

Not only will you pay less to start with but all of the accompanying costs will be lower as well, providing you with more room to manoeuvre.

#6 – Location sells

The price of the property shouldn’t influence the location that needs to be ideal.

In fact, location takes precedence over the value the property is being sold for.

A location is much more than the physical location of a house or an apartment block. It includes the distance to the nearest school, access to medical care, the neighborhood crime rate, access to labor, etc.

You should try to get as many of these factors as possible to go in your favor.

#7 – Be fully aware of all the risks

You’re entering the real estate market to make money but be aware that this is a risky undertaking. If you invest in rental property, there is a risk of running into dodgy tenants that might be late with monthly rent. Furthermore, be prepared for the rental income to undershoot the total mortgage payment.

Also, keep in mind that property is nothing like stocks, which you might have traded with earlier. You cannot simply sell real estate when you feel like it so, don’t hope for quick returns; rather pray for them. It will take a large sum to enter the real estate market and an equally hefty sum to exit the trade.

All-in-all, there are many more pieces of advice for beginners than the ones we have listed above. Hopefully, they will be enough to keep you afloat in the first couple of months after purchasing your first property.

Once you learn the ropes of property investment, you can expect your profit margin to gradually increase. 

 From the editor - So, there you have it!  Wishing you real estate investing success!! 

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

@vestedland

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Subordination agreements and your mortgage refinance

My lender has asked for a subordination agreement on my home equity loan.  What is it?

What is a subordination agreement, and why does it matter?

 Let’s say you are looking to refinance your existing first mortgage but you have a home equity loan, too.  The new lender will not make a “second lien mortgage,” that’s where the subordination or, as it’s sometimes called in New Jersey a postponement of mortgage, comes into play.

 Refinancing your home comes with a fair share of paperwork. If you have a home equity loan or line of credit, one document required by the new lender may feel particularly troubling: the subordination agreement. Don’t be scared by the name because obtaining a subordination agreement has become a normal part of the mortgage refinancing process.

 Here are the basics of subordination, using an existing home equity line of credit (HELOC) as an  example.  

What is subordination?

 Subordination is the process of arranging the priority of home loans (mortgage, HELOC or home equity loan) by order of importance. When you have a home equity line of credit, for example, you actually have two loans – your mortgage and HELOC. Both are secured by a lien on your home at the same time. Through subordination, lenders assign a “lien position” to these loans. Generally, your mortgage is assigned the first lien position while your HELOC becomes the second lien.

 Why does subordination matter to the new lender?

 In a foreclosure, your mortgage and HELOC must be paid off with the equity in your home. Unfortunately, a home’s equity cannot always cover the full cost of both loans. Subordination addresses this problem with pre-established lien positions.

 The first lien is always paid off first. (In this case, that’s your mortgage.) Equity can only be allocated to pay off the second lien once your mortgage is paid in full. If there were a third lien, it would be paid off after the second lien. And so on.

 When there’s not enough equity to cover what’s owed on your second lien, the HELOC lender loses money. Subordination cannot magically pay off loans, but it does help lenders estimate risk and set appropriate interest rates.

 How does subordination affect refinancing?

 Refinancing is the process of paying off your old mortgage and replacing it with one with better rates and terms. When your mortgage is paid in full, the second lien (HELOC) automatically bumps up in priority. Your HELOC becomes the first lien, and your new mortgage becomes the second lien.

 Unsurprisingly, mortgage lenders don’t like the risk associated with a second lien. Indeed, some lenders can only make first mortgage liens. A subordination agreement allows them to reassign your mortgage to first lien and your HELOC to second lien position.

 What can you expect?

 Most subordination agreements are seamless. In fact, you may not realize what’s happening until you’re asked for a signature. Other times, delays or fees may take you by surprise. Here are a few important notes about the subordination process.

 Subordination agreements are prepared by your lender. The process occurs internally if you only have one lender. When your mortgage and home equity line or loan have different lenders, both financial institutions work together to draft the necessary paperwork.

 Some financial institutions charge a subordination fee and/or other fees, such as appraisal fees.

Delays can occur, especially if you have two lenders. We encourage you to manage this situation to ensure that your subordination agreement is completed before the loan closing date. Your home equity loan or HELOC may be frozen or closed temporarily until the subordination agreement is processed.

 Despite its technical-sounding name, the subordination agreement has one simple purpose. It assigns your new mortgage to first lien position, making it possible to refinance with a home equity loan or line of credit. Signing your agreement is a positive step forward in your refinancing journey.

Vested Land Services LLC works hard to get you to the closing table as fast as possible.  Our staff will do its best to get you the subordination you need for the closing of your mortgage.

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

@vestedland

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Ah, those "equitable liens"

Equitable liens in New Jersey

An equitable lien is a court-established lien given to protect a third party from being deprived of its rights in real estate.  There have been many cases litigated in New Jersey over the years establishing or denying the imposition of an equitable lien.

The latest case is Recon Realty v. Marjac, et al.  In this case a real estate broker sought to impose a lien on the funds received by a mortgagee in a short sale transaction.  

The appellate court outlined the grounds for a finding of an equitable lien this way:

"An equitable lien is a right of special nature in a fund and constitutes a charge or encumbrance upon the fund" to prevent unjust enrichment. VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 546 (1994). "For an equitable lien to arise there must be debt owing from one person to another, specific property to which the debt attaches, and an intent, expressed or implied, that the property will serve as security for the payment of the debt." Highland Lakes Country Club & Community Ass'n v. Franzino, 186 N.J. 99, 112-13 (2006) (quotations omitted). "Where one promises to pay for services rendered out of a fund created in whole or in part by the efforts of the promisee, a lien in favor of the promisee will attach to the fund when it comes into existence." In re Hoffman, 63 N.J. 69, 77 (1973). Additionally, an equitable lien can be imposed, if based on the "the dictates of equity and conscience . . . a contract of reimbursement could be implied at law." VRG Corp., 135 N.J. at 546.  

At the end of the day, the broker lost its claim for an equitable lien..

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

@vestedland

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Real estate title after the parents die; don't believe everything you read on the Internet

The road to hell is paved with good intentions, but sometimes it's just bad advice

So, a recent consumer help column discusses the ownership of real estate after a parent dies. Here's the lede:

What happens if I don’t change a deed after a parent dies?

---

Q. In the situation of parents who transfer property to a child and the child’s spouse, and after a while, both parents pass away, what is the obligation or responsibility of the child and spouse in notifying the authorities — the county register of deeds and the city or township tax assessor — about the death, in order for the property tax records to properly show ownership of the property? And when this has not been done for more than three years after the death of the last surviving parent, are there consequences?
— Beneficiary

[Our comments are in brackets]

A. We’re sorry to hear about the loss of your parents.

The New Jersey Recording Act requires that deeds must be recorded, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park. [Yes, they do, but only when a deed exists.  This statement implies that in this situation a deed MUST be recorded.]

She said the failure to record a deed will make it impossible to sell the property or obtain a mortgage or a line of credit. [Not true.  Title to real estate devolves upon the death of an owner in accordance with a state's inheritance laws and how ownership is held.  For instance, upon the death of a joint tenant, title automatically vests in the co-owner without need for estate administration. If property is devised to a third party, title to the property becomes vested in the beneficiary upon probate of the Will.] Plus, judgments or liens against the prior owners could attach to the property. [These judgment or liens are already attached to the property.]

“The transfer should be exempt from New Jersey Realty Transfer fees because the conveyance was from a parent to a child,” Whitenack said. [A deed from the estate to a beneficiary is exempt from RTF on that basis.] “However, if the parents were wrongfully or fraudulently receiving a tax credit or deduction on the residence on property they no longer owned, there could be serious consequences affecting the estate of the parents.” {They lost us on this one.]

It’s time to get the paperwork done.

[Getting the title into the name of the beneficiary is a good idea but I wouldn't lose sleep over it. A letter to the tax assessor with a copy of owner's death certificate asking that the assessment be changed and bills sent to a new address should be sufficient to avoid errant tax bills.]

[We're glad to answer any questions you might have.  Call us.]

This story was originally published on July 26, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

@vestedland

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New Home Purchase? Do not forget the home inspection

Home inspection for your new home purchase- Waive at your risk?

Buying a home at this time can be frustrating as potential buyers compete with each other to make the deal.  Presenting an offer that is "all cash," that is not contingent on obtaining a mortgage is one tool in the homebuyer's tool kit.  Another is waiving the home inspection.

There have been a series of articles on the wisdom of waiving the home inspection.

Thinking of Skipping a Home Inspection? Think Again and points out the pitfalls

“I would never waive it,” says Samantha Eisenberg, a Compass real estate broker who works in the Boston suburbs. “A home purchase is probably the biggest purchase of your entire life and we spend more time picking out a sweater…If I buy clothes online, I try it on and see how it looks. A house we go through in 30 minutes and you’re waiving inspections (over) something that costs over a million dollars.”

A full home inspection can unearth everything from structural issues, roof problems, or faulty electricity and plumbing. If the thought of dealing with any of these gives you a major headache, you’re better off following the recommendation of your realtor.

How to waive a home inspection contingency without getting burned

The home inspection contingency, meanwhile, is a bit of legalese that gives a buyer a way out of a deal.

In today’s super-competitive market, buyers are making their offers stand out by agreeing to ignore minor issues. Rather than skipping inspection contingencies entirely, savvy bidders are modifying the language in their offers, says Katie Severance, an agent at Brown Harris Stevens in Upper Montclair, New Jersey.

For instance, you might still conduct an inspection but promise the seller that you’ll overlook any single repair valued at less than $500, or that you’re scouting for only major issues such as mold, radon or a faulty foundation.

“The buyer hopes to send the message to the seller that they’re not going to nickel and dime them,” says Severance, author of “The Brilliant Home Buyer: 101 Tips for Buying a Home in the New Economy.”

Homebuyers should, in our humble opinion, keep something in mind when they read the home inspection report.  If you are buying a house that is 50 years old and the inspector says "the hot water heater is nearing the end of its useful life" or "the electric system should be upgraded" or "the roof is original," those items are not defects in the house.  

Happy househunting.

  

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

@vestedland

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