Archive for February 2nd, 2010

Lease Or Own Commercial Property

Tuesday, February 2nd, 2010

Business owners often contemplate whether they should own the building their business occupies or lease it. Commonsense would dictate that the entrepreneur should buy their facility and “pay themselves” rent and thus build long term equity. Large decision like this, however are rarely that simple and have both objective and subjective factors that further cloud the question. For example, objective factors include financial limitations (do I really have enough cash?), tax benefits (Does my business really make enough money to benefit from the tax shelters?), potential long term equity build up (Is my local real estate market growing or shrinking) or space growth needs (will I need to move to a larger building in the short term?). Subjective factors include business image, control or pride of ownership, etc. Forces outside of the business owner’s control, such as the general economy, interest rates and future potential appreciation (or depreciation) complicated the question. For many business owners the main question really comes down to A. do I have the required 10-20% to put down and B. can my business really afford to tie this cash into the property? Commercial real estate is not liquid. And once cash is put into it, there are only 2 ways to get it out. 1. Get a new loan 2. Sell the property. If buying a property means your business will be cash poor you may want to either put your purchase plans on hold, find a lower priced property or scrap them altogether. As far as down payments borrowers can still get fixed rate financing at 90%. In fact it’s still common to get 90% loan to cost financing. Meaning, if you were considering buying a property at $1,000,000 and it needed $300,000 in improvements/build outs. You could finance 90% of the $1,300,000 and would only have to come out of pocket $130,000. Also, many business owners are curious if there would be a cash flow savings on their monthly payment by owner. The down payment and current interest rates normally answer this. Although obvious, the more the borrower puts down, the longer the amortization period and the lower the rate – the lower the monthly payment. But it’s common right now with rates in the 6%’s to see a small cashflow savings if the loan is at 90% with a 25 year or more amortization schedule.

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Commercial Real Estate Inspections

Tuesday, February 2nd, 2010

Buying commercial real estate is much different than buying a single home. Because it is commercial real estate and you are apartment building investing, you can use a due diligence period to get the best deal possible. During the due diligence period, the buyer, at the buyers expense, has the right to enter the property together with anyone they choose in order to inspect the property. Tests such as those for environmental problems, the soil, the air quality, hydrocarbon, toxic chemicals, carbon, asbestos, lead based paint and any other tests the buyer may deem necessary for the commercial real estate property are then conducted. Apartment investing is something that needs to be thoroughly checked out before the sale so there are no surprises that will end with the loss of tenants and money because the structure isn’t habitable. Due diligence is a way for the commercial real estate investor to be certain there are no hidden problems. The process should be taken full advantage of every time a commercial real estate building is being considered. If you are a wise apartment building investor, you will be prepared for this and have experts to check for problems in the building. When one is found, the selling price may be lowered or you can request that the seller make the corrections prior to the sale. This is similar to purchasing a used automobile. If you haven’t taken the time to have a mechanic look it over prior to purchase, you may find out too late that there are major problems with it. The same thing can be said for apartment building investing. This due diligence is a time given for just this purpose, and it’s crucial that it be used as such. There can be many unseen problems when buying commercial real estate. A seemingly small problem such as lead paint can mean that until this paint is removed by professionals who are licensed to handle such a job, no tenants will be allowed to live in the building. This means that investing in a building such as this, unless it’s at a price that reflects the problem, should be considered carefully. The apartment investing situation should be one in which the buyer is aware of all of the problems and can get a price that reflects the need to do the remodeling work on the units. When that is completed, the units can then be rented at a higher rate than previously. A good real estate investor will have had this planned out from the beginning.

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Important Costs When Buying a Home

Tuesday, February 2nd, 2010

Planning to buy a home this year? There’s a great selection of homes on the market all over the US, but you have to act now. There are 5 critical reasons why the beginning of the year is a great time to buy, but these reasons will go away later in the year. Therefore, it’s urgent that you not wait if you’re serious about buying a condo or home in 2010. Here’s why: Last year, the federal government created tax credits of up to $8,000 for first time home buyers. Because of its popularity, there was a mad rush of buying in October and November. It was so popular, that the president has now extended the tax credit for the first half of 2010. He also expanded it to include not only first time buyers, but people who have owned a home for 5 years, but wanted something better. In order to qualify for this free money, you must be in contract by April 30, 2010. The tax credit you are rewarded will be refunded to you, even if you don’t owe any taxes. But act now, because this program will set off a buying frenzy in March and April. Prices will rise then because of demand. So act now! Get huge discounts on HUD homes. HUD homes are foreclosed homes owned by the federal government. They are typically in very good condition. HUD likes to sell these homes to owner occupants with FHA loans. A good number of HUD homes are available in most states. They used to sell quickly and mostly above asking price. However, we noticed that demand has been slowing down in December. I believe that it will be low during the winter months, and you have a good chance to get lower offers accepted (we saw discounts of up to 30% of asking price on nice, suburban homes.) When everyone starts buying again in spring, HUD homes will (once again) sell above asking price. Now is a short window of opportunity to get the best deals accepted! Interest rates will go up. At the start of the new year 2010 interest rates are still very low (around 5%). Most economic forecasters agree that they will go up as the economy improves in 2010 and the federal deficit rises. Now is the time to lock in your interest rate at historically low levels.

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Commercial Real Estate Mortgages

Tuesday, February 2nd, 2010

There is quite a difference in the process of obtaining a commercial real estate mortgage versus obtaining a loan to buy or refinance residential property. In this article we will examine some of those differences and basic qualifying criteria. Lending guidelines have tightened recently because of the sharp upswing in defaults and foreclosures. Residential mortgages, though, are still easier to qualify for, because it is felt by most lenders that a homeowner will struggle hardest to retain their residence. That is why “owner-occupied” homes get a lower interest rate than second or investment homes. If times get tough, an owner might walk away from a vacation cabin or investment property, but would probably persevere to the last degree to keep the home they live in. Similarly, someone is more likely to let go a commercial property than their own home. Additionally, most businesses are incorporated. A corporation is a legal “person” separate and distinct from its owners/shareholders. It has its own credit rating and shareholders, except in the case of brand-new corporations, are not usually on the hook for the liabilities of the corporation. If the corporation defaults on a loan, the lenders can only attach assets of the corporation itself, not the assets of the owners. For this reason, increased risk, commercial real estate mortgages are made at higher interest rates than residential loans. They also require more paperwork

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Buying a House

Tuesday, February 2nd, 2010

Ok, you have already decided on buying a house. What comes next? A house is the most costly investment a person or family will decide on, so it is extremely important to have all your facts together before making an offer. Consider these five steps to make sure your saving money while buying a new house.
-Shop and Research Your House Before Making a Decision
Before deciding on anything, researching and shopping around is the best way to purchase a house within your budget, while getting the best deal. Looking at different houses, know what you need and comparing the price range will give you a general idea on how much money you will need in order to move-in to your new home.
-Understand What Really Goes into Your Monthly Payment
When you own your own home, there is the monthly payment. The principle, interest, taxes and insurance equals the total monthly payment when you own your own home. Understanding the different loan amounts will enable you to better prepare for home ownership.
-Get the Best Possible Financing
While your monthly payment is important, it is more important to look at the interest rate and the actual amount of the house is going to cost you. If you only focus on the monthly payment, you might end up losing money instead of saving, if not all, when buying a house. Depending on your income level, and the amount of the down payment will greatly affect how much you are going to be paying in interest.

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