Prospera Blog

Continued From Part 1

Access to Information: Having your license and being a member of the MLS provides easier access to information that will help you make more educated and profitable investments. Much of the information needed is public information, but this can often be timely to track down and be less organized and easy to use. The MLS provides the ability to run comps, see area statistics (median/average prices, average time on market, number of homes sold in an area, etc), and get an overall feel for a particular area of interest. Title companies also provide access to additional property and neighborhood information to licensed agents. Ultimately, being licensed allows access to more information in a timely manner.

Marketing Aids: For starters, the aforementioned information at your disposal can help in the verbiage of your marketing material. In addition, some title companies will provide labels to be used for your mailers at no charge (labels are the names and addresses printed on labels that you simply stick onto your envelope). As a licensed investor, you will be able to contact the customer service department and ask for a spreadsheet and labels for a particular search criteria. For instance, you can narrow down by area, mortgage amount, owner occupied, etc. This is great for sourcing potential investments, but can also be used when searching for a renter or lease option tenant. When I have a rental or lease option that needs to be filled, I send out postcards to the 100-300 closest non-owner occupied homes. Often times neighbors are looking to move or get into a lease option, and more often have friends who want to move to the area.

Negotiation: As a licensed agent you are now an “expert” to sellers on home values. As I mentioned earlier, state law mandates you disclose your status as a licensed agent, and for some this may be detrimental to their negotiating power. However, those that are hindered by their licensed status are quite possibly the “vultures” that give many investors a bad reputation and cause new laws to be enacted to protect distressed home sellers (my apologies if you by chance are hindered by being licensed and are NOT a vulture). For the rest of you, your status as a licensee gives you a professional edge in discussing price, process, etc. Though being licensed does not necessarily mean you are more knowledgeable, it typically appears that way to uneducated sellers.

These are just some of the most basic examples of how being licensed can help your investing business.

What are the disadvantages of being licensed?

Cost: Obtaining a real estate license does cost money, but the rewards can quickly outweigh the costs. When making your decision on whether or not to get licensed, figure on a cost of up to $395 for the required education, $146.25 for the state licensing fee, and $138.25 for the state exam fee. In addition, membership with the Northwest Multiple Listing Service costs $360 annually, and a subscription with GE to gain access to lockboxes costs $12.54 monthly (when used through your cellular phone). Outside of this, the other costs to consider are renewal fees and cost of required education for license renewal which is infrequent. On the topic, Prospera Real Estate is a Rockwell Institute Satellite School which means Prospera can pass along great savings on the education. Rockwell is known for their students having an exceptional 90% pass rate on the state exam at a very cost effective price… need I say more?

Time: It takes time to get your license. 60 hours to be exact. Although this can be done on your own time through internet courses (which Rockwell provides). There isn’t much of a concern on a time limit for completing the education once signed up (Rockwell is friendly to work with and they can generally be accommodating if you are having trouble finding the time after months have gone by). Other than the education and physically taking the time to pass the test, whatever other time you spend is in utilizing your license to be a more well rounded, educated, and profitable investor.

Continuing Ed: ***This should really fall into the Pro category as education is an important aspect of being a profitable investor. But for the sake of the time and cost, I’ll put it here.*** Once you obtain your license, you will be required to renew it by your second birthday after the day you become licensed, and then once a year thereafter. 60 hours of continuing education is required for your first renewal, then 30 hours for each renewal thereafter. As with your initial education, this can be completed online through Rockwell for those of you who prefer that method. There are also many free classes and seminars that offer clock hours for attending.

So, what’s an investor to do?

The bottom line in the debate on getting licensed is that it is case dependent. If you are investing in real estate, then you must consider getting licensed and examine all of the additional streams of income this can open for you. If you determine that the pros outweigh the cons then go for it. If you determine that the profit it provides in regards to referral fees, additional deals you may not have found, commissions earned (and saved), negotiating power, resources, etc does not scream “get license,” then getting licensed isn’t for you.

You have probably already asked yourself "should I get my real estate license?"

    First and foremost, it is important to know that there is no clear cut answer to this question. Whether or not you should obtain your real estate license is largely dependent on how you plan to utilize this new tool in your tool belt. Some of you will also need to consider the laws real estate licensees must abide by. As an example, when working with a potential buyer or seller, an investor must disclose that they are licensed. For many this can add credibility in the buyer or seller’s eyes and aid in completing an attractive investment, but there are some individuals out there that disclosing their status as a licensee may detract from their negotiating skills (more on this later). This is one example of the many angles that should be considered in determining if obtaining a real estate license is right for you. Ultimately, to appropriately determine whether or not you should get licensed, you will need to consider the amount of upside it provides. To get your mind moving in the right direction, let’s look at some of the pro’s and con’s…

What are the advantages of being licensed?

Referral Fees: This is huge! Having a real estate license means you can legally receive a referral fee, which in real estate is traditionally 25% of the commission earned by the referred agent. As an investor, you are routinely meeting people who could be a referral. For those of you seeking out subject to homes or pre-foreclosures, let’s say the homeowner decides they do not need your service and are gong to decide to traditionally sell the house… well that’s a referral fee waiting to happen! As a real estate agent you have a great recommendation on someone who can help sell their home for top dollar in a timely manner (an agent in your brokerage for example). Or, if you have the time and are willing to learn, you can list the house for them for the entire commission (Prospera will ensure you have a co-listing agent hold your hand through the process).

MLS and Lockbox Access: As a licensed agent you can become a subscriber of the Northwest Multiple Listing Service and GE Supra Key. NWMLS is a great service for investors to help source potential investments, run CMAs (comparative market analysis – comp out a home), and altogether provide useful information that can be used when negotiating with sellers. For those of you entirely new to investing in Washington, the Northwest Multiple Listing Service (NWMLS) is the state’s largest database of listings; it’s where real estate agents have their listings and privileged info available only to agents for all agents to see (and the general public in reproduction of the basic information). GE provides a service that allows licensed agents to gain access to the lockboxes agents use on their listings. Many modern phones with infrared technology are able to access these lockboxes with the appropriate installed software.

Many investor agents have luck finding deals by calling on canceled listings, searching for the word “short sale” (as one example) in the marketing or agent remarks, or just simply searching for listings that have been listed for a long duration that may be willing to accept a substantially reduced offer. If you’re about to make a presentation to a seller then you can present comps you have pulled from the MLS to help prove your case in regards to the value of the home. These are just a couple of examples of what access to the MLS can do for your investing.

Commissions: Depending on the scenario and financing, licensed investors can gain a commission on the purchase of MLS listed homes. However, lenders never want to see a buyer receiving a commission on their own purchase so this does not always hold true.  On the selling side of investing, one of the absolute best ways to get coverage on your properties you need to sell is to make them available to real estate agents working with buyers. Many investors rely upon selling their investments for sale by owner (FSBO) to avoid paying a realtor a commission to list the home on the MLS, but being licensed allows you to list your own home with the service that has the best coverage (the MLS), WITHOUT paying another agent a listing commission.  When listing on the MLS, you should still count on paying a commission to a buyer's agent, but if you cannot move the property FSBO then the backup plan of a traditional listing just got a lot more attractive by cutting the commissions in half.

That will do it for Part 1.  Stay tuned for how being licensed assists in your access to information, marketing, and negotiations....

Being Selective

Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This does not mean that profitable investments are not available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and the final topic is “Selectivity with Investments."

Part 3: Selectivity with Investments

As I mentioned earlier and as you’re likely well aware of, investors cannot simply buy any property, put a renter in it, and plan on it appreciating 10% to even 25% as in the past years. Is that going to stop a savvy investor? No! While the buy and hold mentality still works as a long term investment (especially with current rental rates), savvy investors are finding other opportunities in our changing marketplace.

Before I get going too fast here, this seems like a good time to talk about diversity. I do not recommend putting all of your eggs in one basket.  It's okay to have a favorite type of investment and one that feels safer than others, but just like with stocks, investors should at least consider multiple strategies in an effort to alleviate risk. For example, our condo market has recently been outperforming the residential market. Meaning that having both condos and single family residential homes in your portfolio has helped keep things more even and essentially eliminated some risk. In addition, diversifying your portfolio with commercial investments or even private financing helps as the commercial side of real estate often picks up during times when residential investments slip.

Back to picking a solid investment. We are currently experiencing a surplus in inventory which is forcing sellers to try harder to sell their homes, especially in pressure situations. My beloved Title Rep, Molly Cartwright with Pacific Northwest Title, just sent me some stats showing that King County has a current inventory of almost nine months for condos and houses (Total active listings divided by number of closings = months of inventory).  What does that mean? It means now is a great time to buy low! In years past, investors were buying high as they competed with multiple offers. This was fine since the appreciation was so stellar, but now investors have the opportunity to seek out investments that can be purchased at a premium with instant equity at the time of purchase. For instance, I regularly come across homes with $50,000+ equity and these are homes in the $300,000 price range that are either pre-foreclosures or simply distressed sellers that cannot compete with the inventory. You might ask "how do I consider this equity if it’s what I paid for it?" The answer lies in the fact that the reduced price you purchased it for does not reflect the appraisal value of a home. By having equity you are afforded with alternative options such as a cash out refinance which can allow you to put your down payment back in your pocket and pull out some additional equity, all while meeting your loan’s Loan To Value requirements. *I recommend always running potential figures and game plans for an investment by your mortgage professional before putting in an offer... make sure those numbers and strategies work!*

One other selectivity issue to consider is your mid to long range game plan for investing. If you know there is an investment or strategy you want to be a part of in six months, take that into consideration as you invest today. Meaning, do not let something you do today (loan, overuse of your investing funds, etc) get in the way of what you want to do in the near future. Make sure that the steps you are taking now fall in line with your overall strategy. Your mortgage professional can help you determine if what you want to do today will hinder what you want to do in six months. For example, our commercial consulting and financing company takes a pro-active approach in assisting our clients with creating an overall game plan. One of the major factors we always consider is whether or not the steps and finances needed for Investment “A” do no hinder your ability to complete Investment “B” in the near future. Lakemont Commercial Consulting and Prospera Real Estate are always willing to sit down and talk strategy and game plan, and feel free to email me at robertw@prosperarealestate.com to set a meeting.

That’s it for this three part series… now go out there and put it to good use. Happy Investing!

Being Selective

Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This does not mean that profitable investments aren’t still available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and today’s topic is “Selectivity with Professionals.”  Stay tuned for part three...

Part 2: Selectivity with Professionals

Though a lot of real estate investors find success without routinely depending on real estate industry professionals, it is always important to have some in your back pocket whether you are a seasoned or first time investor. There are many facets of being an investor that require consistent attention to ensure continued prosperity and legal compliance. Accordingly, an investor needs to have professionals he can trust with the likes of Inspectors, Certified Public Accountants, Mortgage Professionals, Financial Planners, Real Estate Agents, Real Estate Attorneys, and Escrow Officers to name a handful. These professionals can make or break an investor’s success. In all honesty, there are good professionals out there and there are ones to avoid, which is why it is important to select each professional with care as someone you trust to keep your best interests at the forefront of their actions.

Let’s take real estate agents as an example. I will be the first to admit that there are agents out there just looking to complete a deal and get paid a commission. This was especially true during the last few years when many people got their license trying to make a quick buck in our frenzied market. One good result of our changing market is that the change is weeding out those agents, so a greater majority of the ones still standing are the agents who take their profession and their clients very seriously. With a careful eye focused on perceptions and actions, it is easy to differentiate between these two types of agents. As an asset to the investor, a trusted agent should be one of the first people you talk to in considering an investment. A trusted agent can help you determine, or be an alternate opinion on such basics as current market value, appreciation trends in the given area, after repair value as well as many more insights about a home and area based on the vision their day to day activities as a real estate professional affords.

With my clients, I am always sure to examine all angles to help that client make up their mind on an investment. Your trusted real estate professionals should be individuals that don’t just tell you what you want to hear, but lend you the advice and perceptions they have as an expert in the industry, whether it is a positive or negative aspect of a potential investment. As the investor, it is your job to sort through the pluses and minuses that your real estate professionals help you determine to ultimately decide if a potential investment meets your criteria while staying within your accepted risk range.

Stay tuned for insight into choosing the right investments when I post Part 3: Selectivity with Investments.

    Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This doesn’t mean that profitable investments aren’t still available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and today’s topic is “Selectivity with Business Partners.” Stay tuned for the other two topics…

Part 1: Selectivity with Business Partners

    Creating a business relationship with another investor can often make the difference in one’s ability to move forward on an investment. Sometimes this is done out of necessity, for example, someone who has assets or is willing to perform work on a home but has poor credit may partner with an investor with exceptional credit. Do not get me wrong as this is always a method that should be examined if an investor is having problems getting into an investment. However, these business partner relationships can eventually lead to the undoing of a profitable investment so it is important to carefully examine a potential business partner.

    As an example, I recently spoke with an investor who had gotten into their first investment with a friend, well, maybe we should consider it more of an acquaintance. The differences in opinion between the two investors led to additional months of holding costs while the promises the acquaintance made were never backed up in regards to construction costs, etc. Unfortunately, the relationship soured and now the investor is left with a home that will result in a loss if sold at market value. To be perfectly fair, there was more to it than just disagreements amongst the two investors, but it did indeed add extra lighter fluid to the fire.

    This is just one example and I have seen plenty of instances where partnerships succeed, yet I have even seen partnerships amongst friends sour. The point here is that investing in real estate is a big deal. There is a lot of money to be made in real estate so people always need to be careful with their investing, which includes selecting a business partner if applicable.

    I recently came across an article from www.inc.com that provides a solid guideline for choosing an investment partner. Although the article was geared toward finding an investment partner for an entrepreneurial business, the five basic suggestions for evaluating a business partner it provided hold true for real estate investing. I’ve listed them below with some of my personal thoughts to consider when making your evaluation.

#1 Understand Your Needs:

    Know your goals, level of risk you are willing to face, and know your comfort level with the risk and exit plans for a given investment. Does this match your potential business partner? Be sure to take a bird’s eye view and determine any possible outcomes any differences may result in. If the differences are too great then it isn’t likely a strong fit.

#2 Evaluate the Potential Business Partner’s Track Record:

    Get some history on this potential partner. Have they burned anyone in the past? Have they had any legal problems arise from past investments? These are important questions as the right or wrong answer will help determine your initial level of trust with this individual.

#3 Make Sure the Culture Fits:

    There’s no rule stating you need to be spitting images of one another, but do your morals, ethics, and values align? You may end up being polar opposites in regards to skills, etc, but a like minded set of values can be what keeps you on a successful track as a pair.

#4 Stability:

    Is the potential business partner level-headed and steady? I’m not saying that it is a must to be level headed and steady to have a successful partnership, but it is a must to determine whether or not you want to deal with some who may be flaky or wishy-washy. Again, consider the potential pitfalls that may arise due to an unaccountable partner.

#5 Trust:

    I mentioned this before, but it deserves its own category. Although it can take some people years to fully trust someone, it is still be possible to find the needed level of trust to move forward with a business partner. This refers back to each of the preceding tips and deserves much thought when considering a potential business partner. Do you trust what you know so far about this person and is that enough for you?

As most of you are likely aware, homes are not selling at the speed they have in years past.  This means a few things: 

First, we know have more of a "buyer's market" due to a shift in negotiating power back to the buyer after years of a "seller's market."  Because of this, I am dumbfounded as to why buyers are so timid about investing.  Obviously, the tightening of the mortgage industry has made investing more difficult and instilled a sense of fear in buyers, but I liken the situation to what makes people money in the stock market... "buy low, sell high."  Well, now is the chance to buy low, so ultimately I expect buyers to overcome the understandable fear of investing and come around.

Second, investors looking to purchase investment property as well as investors considering options with currently owned investment property need to carefully consider the ease of selling the property as an exit strategy.  As an example, compare a potential investment that has $40,000 of equity built in to a potential investment with $50,000 of equity built in.  Let's say the home with less equity has a much higher level of appeal in general and would likely sell faster... it becomes necessary to consider purchasing the home with slightly less equity to avoid a situation where monthly payments eat into your profits due to inability to sell the home.  *** This is where it is important to have a TRUSTED real estate professional who can help you not only determine market value of the home, but also give an honest and accurate opinion as to how long and at what price it would feasibly sell for. ***

And finally third, stage your investment/personal residence when you are ready to sell your home.  Also, plan this into your potential cost of selling when analyzing if you are considering a shorter term investment.  Statistics show that homes sell FASTER and for a HIGHER PRICE when properly staged... so this is a no brainer (there are cases where staging may not be necessary, but again this is always something to consider when pursuing an investment or if considering to sell property in the near future).

That's all for now... ENJOY THE HOLIDAY SEASON!

P.S. It is a great time to buy low with the intent of keeping the property for a couple years.  Due to an increased level of distressed sellers, we routinely have opportunities to purchase homes with $30,000 - $80,000 built in equity.  Many of these homes are not listed on our Current Investment Opportunity page, so if interested, the best thing to do is contact us and let us know your investing aspirations... we'll keep our eyes peeled for the right investment for you.

It's no secret that our Puget Sound real estate market has drastically changed over the past months.  But, unlike the rest of the country, we are lucky enough to have home values still on the rise, though at a more moderate rate.  There are a couple factors at play as to why this happened...

First, much of the major boom our area saw was a result of very lax lending standards, which inevitably led to poorly qualified homeowners defaulting on their mortgage payments.  Enter a flow of listings from homeowners in default and... THE SUB-PRIME MELTDOWN.  Those are scary words aren't they?  Apparently so since what has really slowed our market down is a lack in buyer confidence (not to mention fewer loan programs meaning less buyers). 

Professionals deeply entrenched in the business (as opposed to those looking to make a quick dollar) are taking the slowing in stride as we know the change in lending standards is a cleanup our industry needed.  In other words, things got a little out of hand.  This did work well for experienced investors as they were able to capitalize on easier lending standards and put a lot of money in their accounts.

So what does this change mean for investors needing non-owner occupied loans?  It means more opportunities for the savvy investor due to less opportunities getting snatched up by the person looking to make a quick buck.  However, the days of non-owner occupied 100% financing are over (at least for now), so plan on having to put 10% down.

Now, for the good stuff!  With demand down and many sellers in default needing to pay off their mortgage, we are MOVING TOWARDS A BUYER'S MARKET!!!  Though it depends on individual listings and sellers, it is not uncommon to have sellers buying down mortgage rates or paying homeowner's dues on behalf of the buyer for a year.  Investors got used to waiving contingencies and including price escalation addenda to compete with multiple offers,  but now days it has become less burdensome on the buyer to purchase.  Also, due to the decrease in loan programs, we have had a surge in the rental market and landlords across the nation are taking advantage.  Check out these articles from the Seattle Times and Komo 4 News about an increase in buyer and landlord power... Buyer Power and Landlord Power.

So, this makes me wonder, why aren't more investors buying?  We have the best market in the nation and it's going to have an inevitable upswing in the near future.  The professionals I work with are looking around asking, "shouldn't now be the frenzy of buying?"  So why is this... is it the general lack of confidence in the market?  Are investors unwilling to put 10% down? Thoughts and feedback appreciated!