Common Mistakes in Real Estate

Just like everything in life, there is a right way to do things and a wrong way. Real estate is no different and there are some common mistakes that people frequently make. Let’s discuss some of these possible mistakes so that you are aware and avoid these moves.

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A common misunderstanding that people have about real estate is that they will get rich quick. While there is a substantial amount of promise that real estate can financially offer you, it is a process and it is not something that happens over night. Real estate is just like an investment and investments need time to grow. You must be willing to work hard and to put in time, just like with any career, before you can see the fruits of your labor.

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Another mistake that new buyers make sometimes is planning as they go. Real estate is not a type of project that you can just “figure out” as you go along. You need to plan before purchase! Make sure that you’ve set a budget, go around the neighborhood and do some research. Buying property is not something that one can learn on the whim! While anyone can do it, it definitely requires a plan. Relating to the mistake of planning as you go, another common mistake is not having a back up plan. It would be wise that with every project and every property to have a Plan A and a Plan B. Heck, in some cases you might want to have a Plan C if both A and B fall through.

Some people make the mistake of not setting aside cash reserves. Cash reserves are crucial to any project because you don’t know what unexpected expenses might come up. You need to be prepared with a way to handle negative cash flow, repairs and other expenses that you can’t plan for.

It would also be crucial to educate yourself, and to jump in blind would be a mistake. There is so much information out there at our fingertips, it would behoove us to use it! Read up on markets and trends. Figure out the basics and be sure to have a firm grasp on your property and all that has to go with it. Read blogs (like this one) and follow influencers on social media platforms that you can learn tips and tricks from. One can never learn enough!

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Different Types of Possessory Interests

In this post we will be breaking down two different types of estates that come along with owning real property. Real property (aka real estate) is immovable property that most commonly is land and buildings. These types of estates will all be possessory interests. Possessory interest is the intent and right of a party to own and control a particular plot of land.

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The first type of estate, Fee Simple Absolute (aka fee simple estate, fee ownership, is the most common type of ownership on a real property. Not only is it the most common but it is also the highest type of ownership in that in entitles the owner to all right in the land. With this type of ownership, you may do whatever you please with the land. You have the right to sell the house, you have the right to pass along to heirs, and you are even allowed to make changes to the property even if you still owe money on your mortgage. Zoning laws and similar restrictions are the only limitations of this type of estate.

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Another type of estate is Life Estate. With this type of estate you are only allowed to use the property during your life time. As the owner of this type of estate, you can not sell, give or leave the property to anyone. These owners of life estates are called “life tenants.” The life estate ends when the life tenant dies. Ownership of the property then either goes back to the previous owner or to the person that was designated to hold the future interest of the property. An example of this type of estate would be you giving your great aunt. She would then have almost of the rights as if it were a fee simple absolute but the difference is that once she would pass away, the property would be returned to you or to your heirs, not your great aunts.

Homeowners Association: Pros and Cons

Let’s say you are someone who is interested in joining roughly 20% of Americans that live in a condo, timeshare, or planned development. You might have different reasons why you are looking into owning a condominium or timeshare. These types of properties are called common interest developments (CID) and they are the fastest growing form of housing in the world today. Different personalities might be a better fit for these shared communities so it’s important to know what you’re getting into, including the homeowners association. Let’s take a closer look at what this association is and weigh some of the advantages and disadvantages they have.

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A homeowners association is a private association that markets, manages and sells property in the shared community space. Associates are required to pay either a monthly or annual fee. They are also expected to follow a set of rules known as the covenants, conditions, and restrictions (CC&Rs). Some rules can be pretty easy to follow, for example to not have any lawn furniture on front yards while others might be a bit more intrusive, for example not allowing a garage to serve as storage but only can be used to park your car there. Some rule breaking can involve just a warning while other violations could mean a fee. It would be crucial to look into the CC&Rs before buying a home in the area. If you are unable to find the rules for a certain community online, a real estate agent or someone on the homeowners board might be able to assist you.

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Benefits:

There are various reasons as to why some homeowner’s would be interested in buying properties in these shared communities. One of the perks is that some of the fees that you have to pay to the association take care of maintenance and management services of the grounds. Meaning that you might not have to mow your lawn every week. Another benefit is that many of these groups of housing includes amenities such as pools, gyms or small parks. Though there can be a laundry list of rules and regulations that the homeowners need to follow, a perk of those rules is that often community appearance is enforced which could lead to higher property values. Some people also argue that a perk of being a part of a homeowners association is low maintenance. The association takes care of a lot that other homeowners would have to take care of on their own in another setting.

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Disadvantages:

The list of CC&Rs can be a potential disadvantage. Many homeowners want to incorporate their own style into their property and you might be limited to what you can add to enhance the property if it goes against the rules. For example, some associations have a set of colors that you can color the outside of your home, and no exceptions will be made. Another disadvantage are association fees. These fees can range from $200-400 and are used to maintain common areas and the amenities.

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Quick Tips Before Buying a Home and MLS and Clue Report

It could be overwhelming to decide on a new home to buy. Here are some tips and some tools that can be used before you take the plunge.

Some crucial steps to do before purchasing a home or new property are:

–       Establish a budget and decide on what you can and can not afford

–       Ensure that your credit is built up and solid

–       Make sure to save for the down payment as well as the closing costs

–       Plan on living in the property for at least 5 years (most financial experts argue that you make up any of the expenses back until you live in the property for a minimum of five years)

–       Weigh the pros and cons of buying to renting (even though Trulia has found that buying a home is roughly 35% cheaper in the long run)

–       Know the home buying process

–       Learn as much as you can about the prospective home that you want to buy

–       And most importantly, make sure you like the home!

 

Some crucial tools that we will be exploring tin this post are:

–       MLS.com and MLS, and

–       CLUE report

 

MLS.com and MLS:

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MLS.com is a free multiple listing search for you to find real estate listings by realtors and other realty professionals. MLS.com can help you find foreclosures, find new homes, find condos, look into international real estate, moving quotes, and even some real estate training. Though MLS is one tool to use when looking into buying a home, there are hundreds of private MLS that are maintained and paid for by real estate professionals. MLS stands for multiple listing services or multiple listing system. Plain and simple, it is a database of home listing but at the same time, it is much more than that. An MLS database provides brokers access to information about properties and different assets that they might be interested in. Not just anyone can post onto an MLS and access to posting to the database is limited to brokers and licensed agents that pay for their membership. A way that buyers, aka you, can benefit from MLS-listed properties is from obtaining information about all of these properties while only having to work with one broker, if you chose to explore the private MLS listings.

CLUE Report: 

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When looking into buying a new home it would essential to have a CLUE report about the property. A CLUE report provides information on insurance claims and policy numbers relating to the home. The report will also list the dates of the claims made, the amounts paid for losses, and if a claim was denied. Some of the types of claims that can be listed could be fire, weather related losses, vandalism, theft, and water damage to name a few. However, you will need to ask the homeowner where the property was damaged as this information is not provided in the report. If you ask for a CLUE report and it comes back blank, there could be two reasons for this. One, it could be that there have not been any claims made for that property in the past seven years, or secondly, it could be that the home was covered by an insurance company that does not participate in CLUE. It is important to note that only the owner of the property has access to the CLUE report so you must request it from the owner of the home that you are considering to buy.

The home buying process will be extensive and should require lots of research but hopefully these two tools can assist in your home buying process!

Mortgage

A mortgage is a loan that a bank or that a mortgage lender gives you to help you finance the purchase of your home. The loan is secured by the collateral of the property you are purchasing. Mortgages are usually paid back over years and are most commonly done in monthly set payments. If payments are made towards a mortgage, the bank can foreclose on the property and sell the property to make up for their mortgage debt.

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A mortgage payment is made up of four different components. These components are:

  1. Principal,
  2. Interest,
  3. Taxes, and
  4. Insurance

Principal is the total amount of money that you borrowed to buy the home or property. The principal can also be the remaining amount due. For example, if you took out a $500,000 loan, the initial principal is $500,000. However, after you pay off the first $100,000 the remaining $400,000 is now the principal. Interest is the amount of money that the lender or the bank will receive for making the loan. Lower interest rates, means lower mortgage payments and vice versa. Taxes are, well, taxes. They are the property tax that you will be paying as the home/property owner. They are usually calculated based on the value of your property. And finally, insurance. There are two types of insurance that could be included in the mortgage payments. The first is property insurance which protects the home from fire, theft, and other potential disasters and the second is private mortgage insurance (PMI). If your down payment on a home is less than 20%, then you will need to get private mortgage insurance, to protect the lender if you default on your mortgage.

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The traditional mortgage is a fixed mortgage, which is, you guessed it, fixed. Which means that the person paying back the mortgage pays a fixed rate from the beginning of the mortgage all the way until the end. A fixed mortgage is made up of:

  • the amount of the loan,
  • the interest rate,
  • compounding frequency, and
  • the duration of the mortgage.

The amount of the loan and the duration will obviously vary from mortgage to mortgage and will depend on what you’re looking for. The interest rate is the amount of interest due each period as a proportion of the amount of the mortgage. And compounding frequency is the addition of the interest to the principal sum of the mortgage loan you decide to take out. There are other types of mortgages, such as interest only or adjustable rate mortgage but fixed mortgages are the most common.

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Mortgages can be a daunting, long term commitment so it would be advised to fully understand the structure and components of a mortgage before jumping in. Take into consideration the size, the time frame, and your finances to select the best mortgage for you. Though they can be overwhelming, mortgages have been an essential tool in helping individuals become homeowners.

 

 

 

Real Estate Basics of the Week: Real Estate Investments

This week, we will be focusing on breaking down some of the most common types of real estate investments that can provide income. The ones that we are going to cover today are:

  • Commercial,
  • Industrial,
  • Multi-Family Residential and
  • Mixed-Use

So let us begin with commercial. Commercial real estate investments usually consist of sky scrappers or office buildings. They lease out the buildings to companies and small business owners. It makes sense that commercial real estate investments are, on average, the highest profile property type considering the fact that they are usually found in bustling city centers or in suburban office parks. The JLL, a services and investment management company that specializes in real estate, reported that US commercial real estate sales were $435 billion in the year 2015. A few reasons to invest in commercial real estate are attractive returns and steady cash flow. Let’s take a quick look at some of the upsides and downsides to commercial real estate. A positive aspect is that is it not uncommon for commercial real estate to have multi-year leases, which in itself has its pros and cons. A pro with a multi-year lease is the secured time frame but on the other hand, if rental rates increase during the lease, you can not adjust the rent. Another downside is that office buildings have high operating costs. Overtime, commercial real estate investments have proven to appreciate in value and tend to exceed other investment types.

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Moving right along to industrial real estate. Under the umbrella of industrial real estate, we find warehouses, manufacturing, research and development group, or companies working with distribution. Some of these industrial industries might require access to work along the outdoor of the space. These industrial warehouses are leased out to firms as distribution centers and are usually done over long-term agreements. There are some industrial leases that generate sales from customers, however, the costumers use the facilitates temporarily, such as a car wash or a storage unit. It is not uncommon to see an industrial site using fee and service revenue streams. For example, a car wash might offer vacuum cleaners that are coin operated to increase their transactional based revenue stream. (A quick tangent on revenue streams here. There are four models of revenue which are: recurring revenue, transaction based revenue, project revenue and service revenue. Recurring, transaction, and project are the models that have to do with selling goods, while service revenue sells “time” or the service time of the worker.) Ok where were we? Right industrial real estate. When comparing industrial to office or retail, industrial real estate investments are usually less management intensive and have lowering operating costs. And there ain’t nothing wrong with that.

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Multi-family residential is pretty self explanatory based off of its name. The most common example would be an apartment building. Though it is one building, there are various tenants and multiple units inside. This type of real estate investment can deliver stable returns because people will always be in need of a place to live.

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The final type that we will be look at today is mixed-use real estate. This is an investment that combines any of the types of real estate investments we just discussed and those we didn’t.

680c871c4fa63d47360979f145d0cf18This post just goes to show the variety of real estate investments that one could be making. It would be important to further explore the differences and similarities in these investments as we have merely scratched the surface.

Valentine’s Oh, Valentine’s

Valentines Day

Oh, Valentines Day. For some it is the most beloved holiday and for others they dread being alone. No matter what your views are on the holiday, let’s take a step back from it simply being a romantic holiday and think about how much love we can spread on this day, not only to our partner (if we have one) but to everyone around us.

A fault of this holiday is to put emphasis on only on the romantic aspect but I firmly believe that this holiday should be one about love to all. Think of friends and family on this day and be sure to reach out to those that might be alone. Call a friend, shoot someone a quick text, message a co-worker to let them know you’re thinking about them on this 14th.

And if you are in a relationship, awesome! Squeeze them tight and kiss them hard! It is so amazing to find someone and to share your life with them. Whether your relationship is just blossoming or if you have been together for years, be sure to express your genuine love and emotions for them on this day.

Here are some of our favorite spots in LA that are perfect for a night out with a group of your single friends or with your significant other. We’ve also added some places that you can hit up after your meal.

Far Bar (347 E. 1st St. Los Angeles, CA 90012):

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This cute bar was voted the Number 1 Bar in Downtown by LA Weekly in 2013 and right when you walk in, you understand why. The bar itself is almost tucked away in a little alley covered with lights up ahead. Making any night there picturesque. This spot is perfect is perfect to gather up a group a friends or to go to as a date spot. They have a great selection of Japanese beers (I would recommend a flight so that you can try a bit of each) and their wasabi fries are to die for! Their happy hour runs from 3 – 7 PM so if you’re trying to beat the happy hour crowds, that’s an option. After dinner there are a couple of options of where to take the night in this hip Little Tokyo spot. You could either take a short Uber ride to Urth Café (451 S Hewitt St, Los Angeles, CA 90013) where you can end the night with a coffee and sweet desert or if you’re too full from all the food and beer, try walking off you buzz at Grand Park (200 N Grand Ave, Los Angeles, CA 90012). It’s only a short walk from Far Bar and the park, that’s located in front of City Hall, has a few benches to sit and enjoy the cityscape. With all of the lights and the bustling city around, makes for a modern and romantic date.

Coles (118 E. 6th St. Los Angeles, CA 90014):

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Don’t be turned off by the dim lighting and the mellow ambiance, this place can also get lively. The best part about this bar is the hidden speakeasy in the back. Cole’s is known for a variety of drinks but their Old Fashion is a must! Another favorite at Coles is their French Dip. Maybe have a French Dip for dinner and a French kiss for dessert! Since Cole’s is right in the heart of downtown Los Angeles, there are various things to do after but two of our favorite spots are near Cole’s. First, Las Perlas (107 E 6th St, Los Angeles, CA 90014), a hip mescal bar, is right across the street if you want to end the night with one of their signature tequila drinks or if you want to take the night in a more mellow direction, Bottega Louie (700 S Grand Ave, Los Angeles, CA 90017) is only five blocks away to finish off the night with a yummy pastry and warm cup of coffee.

Rascal (801 S La Brea Ave. Los Angeles, CA 90036):

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This little spot on the corner of 8th and La Brea is also perfect for either an individual date or a group outing with single friends tonight. Tonight, like every night, they will be having happy hour until 7 which includes entrees and drinks, all for six bucks! If you don’t make it in time for happy hour, no worries, the drinks and plates are all reasonably priced and the ambiance is a young and lively one. The vibe is definitely one of a neighborhood hang out, with a cute ambiance, and friendly staff. There are some nights that it fills up quick, so I recommend making a reservation just to be safe. Just across the street there is a rock and roll dive bar named Little Bar (757 S La Brea Ave, Los Angeles, CA 90036) or also across the way an elegant restaurant called Commerson (788 S La Brea Ave, Los Angeles, CA 90036), where you can drop in for a quick cocktail and dessert that is open until one in the morning. Another option after leaving Rascal, is to take a short drive to the Urban Lights at the LACMA. This iconic spot is perfect for a couple of romantic pictures underneath the lights, and the best part, it’s free!

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Hope these cute date spots are helpful and let us remember to not only spread love on February 14 but to live in love all year long. All we need is love!