Quality Home R & R

Quality Home Renovations & Realty, LLC is a real estate investment company that buys and sells homes in the Quad Cities. We specialize in helping distressed homeowners by purchasing and renovating their homes.

[jerscott74]

How were you taught to "build wealth"?

Recently I was ready an issue of Money magazine.  In it was the centerpiece article of the magazine "101 ways to build wealth".  Since I started learning about building passive income streams over the last year, I was interested to know what the premier magazine on money (so aptly named) said about building wealth.

Much to my surprise the wealth building ideas presented in the article were far from encouraging.  One section in particular caught my mind on "the power of an early start".  The article makes the assumption that there is a 7% average annual return (note: if you read the article, 7% is higher than many of the wealth building strategies they are promoting).  Anyway, they predicted that someone between the age of 25-35 who saves $5,000 per year would retire at 65 with $602,100.

You may be thinking that sounds like a decent amount of money, but keep in mind that value is not adjusted to inflation.  Let me put that into prospective for you.  According to the census bureau, the per capita income in 1975 was $10,316 per year.  In today's dollars (i.e. adjusted for inflation) that was equal to $44,851 per year.  So inflation reduced the amount you could purchase with your money by 435% (44,851/10,316)

Using that same historical value for the inflation from when you start to save for retirement, to when you reach 65 and actually retire your money ($602,100) would be able to purchase the same as $138,486.  What does that mean?  Well you work, scrimp, and save for 30-40 years of your life to walk away with the purchasing power of $138,486 in today's money.  How long do you think you could stay in retirement on that amount?

If you have not read this Money magazine article, I would highly recommend you read it and then ignore everything it says (with only a few minor exceptions).  Instead of focusing on saving enough money and hoping you die before it runs out, think about building a passive income stream that does not run out, never goes down, offers massive tax benefits, and beats the pants off of 99% of other benefit packages out there.

What is this passive income source?  Email me to find out...  [email protected] or go to www.quadcitiesqualityhomes.com and fill out the information request form.

[jerscott74]

You think your 401K is a safe investment? Think again! The government wants control over that too...

We have seen companies' retirement pensions go belly up, we know the sustainability of Social Security is likely an impossibility after 2030, the stock market roller coaster rides in the past decade have left many sick from all the losses, and now the retirement source for many of us is the 401K's. 

Do you think this is a safe place to put your money?  If you answered yes you better think again...  Recently the Obama administration has released a proposed budget where they are recommending a cap on how much you can put in your 401K.

 Why would the government want to restrict how much you can save in your 401K?  Simple, the contributions to 401K's are tax free, which means that the government does not collect money on what you put into these funds.  Basically they are saying that they are not collecting enough tax revenues to pay for all the spending that they want to do because people are putting it into 401K's tax free.

Let's say for the time being that after reviewing the cap limit that you are okay with the proposed cap.  Perhaps you feel that it will be more than you would ever be able to spend in your retirement years with your current lifestyle.  What I caution you to do is think about how often the government "modifies" the legislation to fit their current needs.  Once the door is open to capping the 401K's it is only a matter of time before they reduce that cap further to generate more tax revenues.

So what can you do to protect your financial independence in your retirement years?  Invest in a passive income source, like real estate, that will provide a shelter for your retirement income.

If you would like to read more about the proposed cap on 401K's check out The Wall Street Journal article at the following link: http://online.wsj.com/article/SB10001424127887324050304578412932073225110.html

Please leave a comment and tell me what you think of this proposal. 

If you have any questions on how to build a safe passive income through real estate, please feel free to contact me at [email protected]

[jerscott74]

Rethinking what it takes to be a MILLIONAIRE (or at least live like one)!

I am sure that we have all dreamed of what it would be like to be a millionaire.  Of course as inflation continues to devalue our money, we realize that a "millionaire" may not be someone who lives in a mansion and has a different sports car for each day of the week.  That kind of lifestyle requires a bit more money than a million dollars in today's world.

Regardless of the actual dollar amount, most of us still dream of financially affording the freedom to do the things we are passionate about without having a boss looking over our shoulder.  Really what it boils down to is having a steady source of passive income to provide the financial freedom to make the choices we want versus trading our time for dollars. 

So what is a passive income?  In a nutshell it is income that is earned without any actions on your part.  Think of it this way, if you work the typical 9 to 5 job, when you are not at work then you are not making money (not counting the limited number of vacation days you earn by trading your time for dollars).  With a passive income you are earning money whether you are working, sick, on vacation, etc. 

How do you create a passive income?  The key here is the investment source you use to create the income.  For example, some people would say that their retirement savings, IRAs, stocks, bonds, CDs, etc. provide them with an investment source that provides them a passive income.  However, these investment sources are such that you need to first have the money to invest and second hope you have enough saved to last until your death (sorry about the morbidity of that statement, but it's true). 

What investment source will provide passive income that will last for your entire life (and beyond)?  I'll give you a hint, it has made more millionaires than any other single investment in history.  Even if that hint didn't help, when I say that it is real estate you probably nodded in agreement.

How do you get started?  Of course do some investigating properties in your area, there is no substitution for educating yourself before jumping in with both feet.  However, once you know the housing market in your area BUY A HOUSE!  But don't just buy a house and let it sit there or move into it yourself.  Instead get it rented out. 

What you should be looking for is the most popular features and price range homes for your home market.  Steve Davis, real estate investor and radio talk show host, says to think of it like a car dealership.  The dealers know that they will sell 5 Camry's to every 1 Avalon, so they keep their inventories on the Camry's stocked and it is their bread and butter money makers.  Homes are the same way.  The current "hot" trend in houses is a 3 bedroom, 2 bathroom home, between 1500-2500 square feet.  These homes are what is in demand.  When you research your home market area you should be looking for homes that meet that criteria to ensure they rent quicker.

Your market may vary slightly, but by and large the housing market in most areas will have homes that sell for $80,000-$130,000 and rent for $900-$1400 per month.  If financed properly, whether through conventional lenders or private lenders, you should be able to have a net cash flow per month of about $300-600 per month after paying property taxes and insurance (average will be about $400).

So now you have 1 rental property, this property will continue to get the mortgage paid off by the renters AND will appreciate in value at the same time.  That means that the actual future benefit continues to grow above and beyond the cash flow mentioned in the previous paragraph.  The next step is to find your financing for your next deal and start looking for the next property.  (There are going to be plenty of questions on how to find financing, please submit those questions to the email below as that topic is too lengthy to cover in this blog).

Now that you are in the purchase, rent, and repeat cycle you are on your way to building a passive income that will support you for the rest of your life.  The beauty of this real estate investing is that it can be passed on to anyone you want, and generally tax free. 

By the time you have repeated the cycle 10 times, you should have over $1,000,000 in property; and this can be easily done in 5 years if you stick to it and keep yourself educated on your options.  Remember that the value continues to build each month in equity, appreciation, and cash flow.  Because your investment typically grows in value while your liabilities diminish, you approach millionaire status with each passing month.

What does the income look like at 10 properties?  Remember that the average cash flow per property (on a single family residence) is $400.  Take that times 10 properties and you are netting $4,000 per month doing nothing (this is not counting equity and appreciation).  That is $48,000 per year, which is only slightly lower than the median household income ($50,502) in the US in 2011.  And that income is PASSIVE!

Don't short change yourself and start investing in your future by getting educated now.  Email [email protected] for more information on how to get started or go to http://quadcitiesqualityhomes.com/Contact_Us.html to request more information.

[jerscott74]

How to search for liens, judgements, special assessments, etc. in Scott County Iowa

When buying real estate it is important to perform your due diligence beforehand to reduce your risk of inheriting liabilities from the previous owner.  Those liabilities could include mechanics liens, judgments, special assessments, or tax liens put on the property.  Although some of these may not be problems that are insurmountable, they need to be considered before making the purchase.

NOTE: The following is not intended to replace a title search, or be as inclusive as a title search would be, with a title company.  However, when purchasing, or putting offers in on, multiple real estate deals in a short amount of time, it is advisable to collect as much information as possible for as little money as possible.  Title companies generally charge $125 or more to do a title report, so the information below can save you lots of money if you are purchasing real estate on a regular basis.

In Scott County Iowa, like many counties throughout the US, there are county or state websites that will enable you to do your due diligence with enough confidence to protect yourself from most surprises that could arise.  The following is the process used to conduct a limited title search to look for liens, judgments, special assessments, etc.

Unpaid taxes, utilities, and other special assessments can be found by going to http://www.scottcountyiowa.com and scroll down the lefthand side of the page and selecting "Treasurer's Office".  One the Treasurer's home page, in the middle of the page, you will see a section titled "Search Property Records".  Right below that heading click on the "Parcel Query".  From here you can search the records by address, parcel number, or deed holder's name.  (NOTE: while on this page, write down the deed holder's name, as you will need it for looking up bank and mechanic's liens)

To search for bank liens, you can go to the same "Search Property Records" section on the Treasurer's page, but this time click on the "Land Records" link.  Once on this page, click on the "Continue to the land records system" on the middle of the page.  This is where you enter the deed holder's name and execute the search.  You can also search by other criteria, like property escription.  It is a good idea to first search by the deed holder's name so that you can get the exact property description.  By searching using the property description you can see all lien activity associated with the property of interest to you.

For the last title search, mechanic's liens, go to http://sos.iowa.gov/.  Under "Search Databases" select "Mechanic's Notice and Lien Registry".  On this page select "SEARCH".  There are numerous criteria that you can use to search for mechanic's liens.  (NOTE: Be careful not to restrict your search criteria too much, or you may overlook some liens because of spelling discrepencies.)

If you would like more information on searching for liens, judgments, special assessments, etc. on a property, please click on the link below and send me your questions or email me at [email protected]

http://quadcitiesqualityhomes.com/Contact_Us.html

[jerscott74]

How much house can you afford?

The focus of this article is less about what you can afford and more about what the bank is willing to lend you. Really most of us could say that we could afford a payment of $________ per month (fill in the blank as you see fit). However, most people find that what they can afford and what the bank is willing to lend them are two different things entirely.

Each bank is different in what they view as a reasonable debt to income (back end) ratio, or house payment to income (front end) ratio for some banks. Generally speaking the banks will consider a house payment to income ratio of 28% (conservative) up to 33% (aggressive). And they will allow a total debt to income ratio of around 36%.

Let’s say that your household income is $100,000. That means that your maximum house payment will be: $100,000 X 0.28/12 = $2,333.33/month With that income, your total debt service (including any revolving debt, loans, etc.) cannot exceed: $100,000 X 0.36/12 = $3,000/month

“So what does all this mean?” Well most households today have two vehicles with loans on them and some form of credit card or student loan debt. Add up the cost of a couple car payments, credit cards, and student loan payments and you really start to see that allowable house payment drop. For example, if each car had a $400 per month payment, a credit card payment of $100, and a student loan payment payment of $250 per month then your maximum house payment can only be: $3,000 - (400 + 400 + 100 + 250) = $1850/month

In this example we saw the maximum house payment drop from $2,333 to $1850 per month (over $480).

“What is the moral of the story here?” The main point to make here is that there are only three factors that impact the payment you can get on a house 1) income, 2) debt and 3) interest rates. Since we cannot control interest rates (other than by maintaining a good credit score, which will qualify you for lower interest rates), we have to look at the other two factors. Income is not easily controllable without taking on side jobs. The main way you can impact the house payment the bank is willing to approve is to reduce your debt.

“How can I reduce my debt?” Re-evaluate the things you currently have on credit and loans. Do you need to have two car payments? Can you sell one and purchase another older car with a lower payment or pay for one in cash? What about the credit cards? Try locking them up so you don’t continue to add to the balance and start working to pay them down. (Don’t be tempted to close them out because closing them out actually hurts your credit) What about the student loans? Those are obviously not going to go away on their own, but you can consider a debt consolidation loan. A debt consolidation loan can be used to pay off many items under one loan, thus reducing the debt. (Again, don’t be tempted to close any accounts or use this lower monthly obligation to go out and spend more money).

Now that you know how much money the bank is likely to approve you for, you can go online to any one of many websites that will calculate the monthly payments and use them to find out how much the house will cost that you need to be looking at. It is a good idea to also find out from the lenders in your area how much they will require as a down payment to make sure you have enough to put down. There are various loans that offer people smaller down payments (VA, FHA, First time home buyers, Fannie Mae, Freddy Mac, etc.), but all these have stipulations that make it more difficult to get approved than a conventional bank loan that requires 10-20% down.

If you would like more information, please click on the link below and send me your questions or email me at [email protected]

http://quadcitiesqualityhomes.com/Contact_Us.html

[jerscott74]

How to build equity in your home by having someone else pay the mortgage...

Regardless of whether you are graduating high school, college, or just deciding to stop paying rent that goes into someone else’s pocket, buying real estate is a good choice.  Real estate is generally the most expensive investment any of us will ever make.  Why not make your first (or any home purchase) investment one that pays for itself?

“How do I do that?” you ask.  First, consider buying a duplex or other multi-family home.  When bought right, the rental income from the unit(s) you do not live in will pay for the entire mortgage.  In some markets, where there is a real lack of rental properties, the rental income may even cover the cost of insurance and property taxes, as well as the mortgage. 

If you are buying your first home, then you qualify for a first time home buyers loan.  These loans are offered at little to nothing required for the down payment.  This means that you get to leverage other people’s money.  “What does that mean?”  Essentially, you get to purchase a home with nothing out of pocket, while reaping the benefits of getting a rental income.

Here is an example to illustrate the this zero cost option:

• You find a duplex for sale for $125,000.  After some negotiations you agree to a purchase price of $110,000. • The $110,000 loan is acquired with $0 down payment, and a payment of $541/month at 4.25% interest. • $2400/year property taxes = $200/month • Insurance cost expected to be $1200/year = $100/month • Rent for 1/2 of the duplex is expected to be $850/month. • Cost breakdown: (541 + 200 + 100) - 850 = -$9/mo.

The above example shows how a person can purchase a home with no money of their own, and actually come out with $9 per month in positive cashflow.  (NOTE: As a homeowner, you will be responsible for any maintenance or repairs that are needed, so I am not saying you will not have any costs, but it pales in comparison to the money you would be giving to someone else if you rented.)

Although there is nothing new or earth shattering here, many people overlook this simple way of building equity and keeping more money in their pockets.  If you or someone you know can benefit from this, please share it with them.

If you would like more information on this subject, please click on the link below and send me your questions or email me at [email protected]

http://quadcitiesqualityhomes.com/Contact_Us.html

[jerscott74]

Is poor credit or lack of money preventing you from buying your dream home?

Given the crisis that impacted the housing market and the subsequent lending restrictions, buying a home is more difficult today than it was just a few short years ago.  So what can someone with a blemished credit report or lack of down payment money do?  Try finding a seller who will give you a lease option.

“What is a lease option?”  A lease option is generally set up like a rental agreement, but with a couple twists thrown in that allows you to buy at the end of the lease term.  Here is a brief explanation of how it works.

First the lease term is generally set up to cover 2-3 years, although that can be negotiated with the seller.  You pay the seller a monthly amount that is usually about 25% more than what rent would be on a similar sized home.  This additional 25% is set aside to be applied as your down payment at the end of the lease term.  When the lease option is set up, the seller and you will agree on a sale price for the home, and at the end of the lease you can either exercise your option to buy, negotiate to add time to the lease agreement with the seller, continue to make payments at the rental rate set up by the seller or move out with both of these latter options forfeiting all your payments.

“What are the benefits of the lease option?”  The duration of the lease is generally long enough for you as the buyer to repair your credit and accumulate some money for a down payment that the bank will likely require.  Most banks want a certain percentage to be paid as down payment for real estate.  Unless you are a first time home buyer, FHA or VA loan candidate, you will most likely be asked to put 10-20% down on the property for the bank to approve the loan.  By using the lease option strategy you are able through regular monthly payments to get some down payment money set aside for you.  During this time it is also important for you to work to build or repair your credit.  Additionally because there is no realtor commission being paid out, you may be able to purchase at the lease end for less money.  Also, during the lease any property appreciation is in your favor.

Let’s look at an example of a lease option.  Let’s say you find a 3 bedroom, 2 bath home you like that is listed for $139,000.  You contact the owner and find that they are willing to do a lease option with the following terms:

Monthly lease rate of $1500.  This represents the local rental rate of $1200 + 25%

At lease signing there is a $1500 deposit, which will be applied to the down payment at closing or forfeited if sale is not exercised

Lease term of 36 months

Negotiated purchase price at lease end = $130,000

At the end of the lease, there will be accumulated down payment funds of $12,300 (1,500 + 36x300), which is almost 10% of the purchase price.  If the buyer has an additional $700 plus closing costs, then the bank may approve.  Assuming that appreciation stays fairly consistent, at the average 6% per year (not counting the years from 2008-2011), then you will be accumulating roughly $23,000-25,000 in equity because you locked in a lower sale price.

“What does all of this mean?” Don’t let your circumstances keep you from becoming a homeowner.  Seek out a seller who can provide you a lease option and start down the road of homeownership now.

If you would like more information on lease options, please click on the link below and send me your questions or email me at [email protected]

http://quadcitiesqualityhomes.com/Contact_Us.html

[jerscott74]

How to make money as a lender to real estate investors

Over the last few years many of us have seen our 401K, IRA, Mutual funds, etc. go for a roller coaster ride.  Many people at or near retirement  age lost 30-40% of their retirement funds only to have to go back to work (sometimes at a much lower pay than they had been used to) because of the market instability.  If your investments have experienced this type of volatility and you are looking for a more secure, and better, return on your investments then perhaps becoming a lender to real estate investors is the answer you seek. “What is a real estate lender?”  Well think of it this way, most, if not all, of you reading this have borrowed money from a bank from time to time.  The bank is in business of lending to make money through the interest they charge.  Now imagine yourself as the bank, making guaranteed returns on your money.  Also imagine that return on your money is 1) consistant and 2) more than you are currently making by keeping in in your savings or investment portfolios.  When put that way, who wouldn’t like more money with less volitility and risk? “But I don’t have a bunch of money in savings to lend out.”  First and foremost, you don’t need a lot of money to get started.  Many real estate investors (REI) will use multiple sources of financing to pool money to fund the aquisitions and rehabilitations of properties, so every little bit counts.  Second, if you have a 401K, IRA, Mutual fund, etc. you can borrow or self-direct your funds into other areas.  For example, if you have a 401K you can take a “loan” from yourself for up to 50% of the total value of your 401K.  So if you have $100,000 in your 401K, you can borrow $50,000 to use as your see fit.  The “loan” you give yourself will generally be set up to be repaid in 4.5 to 5 years, but you are paying interest to yourself and not a bank.  “Okay, I have money available in my 401K, but what kind of interest will I earn?”  That depends on your REI, but typically the interest paid ranges from 7-15% annually.  If you are like some of the investors who saw your 401K value drop a couple years ago by 20% or more, you probably would have been happy to just break even.  However, by lending to REI you can beat most returns offered by other investments out there AND (here’s the best part) your money is secured by physical real estate!  That means that your risk is EXTREMELY LOW.  “How does the 8% a real estate investor offered to me compare to other investments?”  From 1998-2007 the average rate of return on 401K’s in the US was 5.4%.  Some sources say that over the last 2 decades the average rate of return from American investors was a measly 3.5%.  Heck, most of the fund advisors will tell their clients to expect a 4% return on the life of their investments.  When you consider that since 1913 the average inflation rate per year is 3.24%, then regardless of which rate of return I listed above you use, it barely outpaces inflation. How does that 8% sound now?  “How do I find real estate investors in my area?”  You can find REI people seeking lenders in many places on the internet, like Craigslist or doing a Google search, but you can also look in your local newspaper for ads that are for “We buy houses” or something to that effect.  I would remind you though, that they do not have to be in your area to lend money.  Just make sure you use your due diligence to make sure they are a reputable business or can provide references. If you would like more information on becoming a REI lender, please click on the link below and send me your questions or email me at [email protected] http://quadcitiesqualityhomes.com/Contact_Us.html