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Why Never To Buy Real Estate In Associations

by blogger1
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on Thursday, 01 June 2023
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Why is buying a property in a condominium or homeowners association such a bad idea?


Condos, townhomes, and single family homes in associations can seem cheaper than their comparable counterparts that are not subject to associations. There is a good reason for that. They are at least riskier investments at best. They can also be financial traps that really wreck your plans, portfolio, flow, and cash flow.


This is just one of the nuances of investing in real estate which many don’t understand is an issue until they’ve made the expensive mistake, and have gone through the immense pain associated with it.


If you are tempted to invest in these properties anyway, here are five things you need to be prepared for.


Financing Challenges

Many loan programs require condos and HOA projects to be specifically approved in order to qualify for financing. Which includes evaluating the association’s make up of owners and investor ratios, how much the association has in financial reserves, and any legal issues they are involved in.


This means your pool of end buyers can be far smaller than on a similar single family residence in the same area. So, it can take longer to sell as well.


Deed Restrictions

Condo associations have especially become more of a nuisance with a wide variety of creative deed restrictions on units in their communities.


They can make up just about any rule they want, and apply it to governing your unit.


That includes restricting how many years you must own it before you can rent it out, minimum and maximum lease periods, and even how soon you can resell your property.


If you can’t rent it out or resell it for a year, that is a problem for most buyers. At a minimum it puts a serious hole in your returns, and means you are bleeding negative cash flow through that period.


Approval Of Buyers & Tenants

You don’t just get to decide who you can sell or rent your property to either. Even if they are paying all cash, and have perfect credit.


Virtually all associations retain the right to approve tenants and buyers. Sometimes this is a multiple step process, with various master and sub-associations involved.


Those handling these approvals are rarely motivated to move quickly. Their criteria can be very murky and often seems ambiguous.


This again slows you down, and shrinks your end buyer pool.


Constant Headaches

From rogue members, to greedy lawyers, and corrupt board members manipulating budgets and rules for their own personal interests, associations can be non-stop headaches.


If you don’t show up to meetings and vote, then who knows what they will do in your absence. If you do, you can still be drowned out in the vote.


Special Assessments

This is one of the biggest risks of associations. They may apply special assessments to units at any time. This can be to fix urgent damage, such as after a storm. Or it could just be for improvements a few board members want everyone to pay for, for their own personal benefit.


These can be thousands and tens of thousands of dollars. Which becomes a debt on your unit. If you don’t pay it, your new buyer must agree to take on this additional debt at closing. Meaning it is a lot more expensive for them, or you’ll have to discount your asking price.


If You Do…

Of course, you can make money buying and selling these properties. If you do, make sure you read through all of the rules and know them. Read through the financials of the association, have a good lawyer on retainer, and price in this extra risk to your purchase offers, and financial projections.

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4 Ways To Set Your New Year Goals

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on Thursday, 23 December 2021
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What are your big goals for the next year?


If you are tired of cliche new year’s resolutions, that is understandable. Yet, this is still one of the best times of the year to invest in goal setting and planning for your finances, investments and real estate business.


You’ve got to have goals. If you are going to have goals you might as well set big ones. At a minimum we should all be shooting to beat our current personal best, and last year’s results.


However, there is more than one way to set your goals. Here are four of them to consider…


By Deal Volume

One way to set your goal for this year, and to build on your success so far, is to set it by deal volume, or transaction count. So, if you recently started in real estate investing, and did 10 wholesale houses last year, and want to 10x it, and go full time this year, you would set a goal of 100 over the next 12 months. That’s about 8.5 per month, or a little over 2 per week.


By Gross Revenue

When people say “I want to make $X this year.” they are often or typically talking about the topline, or gross revenue.


Depending on what stage you are at, that may be $1M, $10M, $1B or $1T over the next year.


Some count the dollar volume of real estate value they trade. So, 10 $100,000 would be $1M in volume. Though of course, you don’t get to touch all of that money. So, the gross income to your business or investment account would be a better metric. If you made an average of 10% per deal, then that would only be $100k in this scenario.


By Net Profit

It is probably far more meaningful to count the net profit you actually make in real estate. That’s the money you can actually use, spend, and reinvest in your real estate business.


This is important, because it is entirely possible to break your record for deal volume, and still actually lose money at the end of the year. Just ask Zillow. The same goes for gross revenue. Zillow was bringing in billions of dollars each year when it went bust.


Watching your net profit, including taxes, will make sure you are not caught by surprise in a similar situation. It will also help you focus your time, dollars and energy on the deals which are most profitable, versus just being busy and putting up vanity metrics to impress others.


By Desired Giving Or Impact

Giving and impact are often after-thoughts for many individuals and organizations. Even those that say they will give 10% to charity. Often there may be nothing left to give when they calculate their net.


If helping others or a certain cause is what you are really most passionate about, consider talking this another way with your goal setting.


You could make your main goal to give $X to a certain cause, or to house 100 families this year. Make it big, and you will be well compensated for achieving your mission.


Remember that achieving these goals will largely be driven by your marketing. Take this time of the year to back out the numbers on how much marketing you need to do to hit your goals. Hire the best help you can, and get ahead of the game.

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7 Tips For Preparing Properties For A Hurricane

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on Thursday, 07 September 2017
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Hurricanes present a serious threat to lives, business, investments, and properties. Much of this risk can be minimized if investors and property owners are properly prepared. It is always better to err on the side of safety.

Check out these seven quick tips for protecting your properties, personal belongings, and yourself and family…

Watch Evacuation Notices

Evacuation notices cannot be taken lightly. Keep tuned in to advice, and consider evacuating even when it is not mandatory. The key is getting out ahead of the storm. You’ll want to secure your properties, pack up, and head out at least a week before if possible. Otherwise plane tickets will be sold out and prices will be jacked up, as in Miami ahead of Irma. Or roads will be no more than parking lots, hundreds of miles long, with no gas or supplies. By staying you not only put yourself at risk, but your family, emergency workers, and anyone else who has to try to come save you.

Trim and Clear Landscaping

A big percentage of damage to properties is done by trees and debris in yards. Trim landscaping, and make sure anything which can be used as a projectile by the wind is secured.

Board or Shutter Windows

With an increasing number of major storms, which only appear to be getting stronger and setting new records in strength and damage, make sure you cover windows. Don’t rely on promises of strong glass alone. Get them secured early while you can, and while supplies and contractors are available.

Get Sandbags

Much of the damage from hurricanes isn’t the wind, but flood waters from the rain and storm surge. Sand bags can be a huge help in keeping the water at bay.

Turn Off Utilities

You may also want to turn off your main electric breaker and water at your property. This may help the power company get you back on faster after the storm, and prevent more damage and danger.

Move Vehicles

Vehicles can easily be flooded and used as projectiles by the wind too. Progressive notes that even moving them a few feet to higher ground can help. Some local parking garages may offer free storage during storms as well.

Document Condition

Be sure to carry all of your documents with you. This includes; homeowners, flood, windstorm and title insurance, title deeds, and the attorney you will use to get your claim from the insurance company. Take photos and video of your properties before the storm to help document damage and file claims.

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