Realtor License Commentary

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If you have been following this personal finance blog, you know that I work in real estate, and hold a realtor license. I had received some feedback from post Realtor License via email that I think would be helpful to the community. In this article I explain my thoughts on why you should consider having a realtor license, regardless of whether you intend to become active in real estate investing or any other realtor activities. This email came in from a person who was thinking about getting his license here in Texas. The following is an excerpt from the email he sent me:

Just read your realtor license post and couldn’t agree more w/ the benefit of holding such a license.  You mentioned that it cost you about $800, did you use take an online or traditional class?  Also do you have any resources that you found really useful while going through the process?  And how long did it take you to obtain the license?  I am in TX and really considering getting my license specially since I might be putting my home on the market soon.

To which I responded with:

Thanks for the contact. I completed my prelicense education online via http://www.dallasrealestateuniversity.com/. It was the cheapest online method I could find. Make sure that the school you choose is listed on the TREC approved list of education providers at http://www.trec.state.tx.us/education/providers_core.asp

The process is pretty simple. TREC provides a 1-2-3 type list here: http://www.trec.state.tx.us/licenses/salesapp.asp. For the education part, I recommend buying a package that gives you all the hours you need. If you have some college, you can follow TREC’s method to send in your transcript, and not have to take the full 210 hours, you’ll just have to take 150 hours. I went with the 150 hour option.

After you complete the TREC steps, then you need to negotiate with a real estate broker to allow you to hang your license with them. Once you have one, it is a simple form to send to TREC saying you will be working for them. That will activate your license and you will be ready to go.

This is just a basic help guide to making sure you have a checklist of exactly what to do to acquire your realtor license here in Texas. Before you go, take a moment to sign up for my RSS feed, and get automatic updates to everything going on here at Personal Finance Resources.


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Budget Tips and Ideas

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For some folks, coming up with a budget is hard enough. But assuming you are following some kind of personal budget guidelines, you may still be unhappy with your results at the end of the month. So today, I want to give you some further budget tips and ideas to save more money, and look to the future.

Reprogramming Your Brain

In today’s world, we see thousands and thousands of advertisements every week. We are constantly pressured to spend what little money we have, on things we do not need. There are only two ways to handle this kind of pressure. One is to ignore it (which is much easier said than done) or to eliminate it. I recommend eliminating it. How? By aiming at the source of most of the advertisements we see. TV! We are living in a society that is absolutely drowned by the television. The best thing to do is just to turn off the television. I mean completely. My wife I do not even have cable TV. We only have a couple of Christian movies and some exercise videos. So if you were to eliminate your cable, you would immediately be saving $30-$200 per month. But beyond the immediate savings, you are not going to hear about the newest gadget, the latest best selling widget, or the latest Ford mustang (I hate the new mustangs, especially because they are made by Ford). And if you aren’t hearing about these things, you will not have the desire to buy them. Don’t think it will work? Try it for a month and leave your comments below. I challenge you.

Thinking Twice Before Acting on Impulse

Impulse buying will absolutely destroy your budget. And usually it isn’t the high dollar item that you impulsively buy, it is the $7 lunch at a fast food restaurant that you eat everyday, and indulging to go out for ice cream, or for guys, going out a buying another $5 fishing lure you will never use. And so on. You must break the habit. The best way to do this is to track these items on your budget for a whole month, and come up with a total number of frivolous buying for that month. You will be shocked and amazed at how much money you wasted. From there, just think about that insanely high number you spent when you think about stopping at McDonald’s for an ice cream.

Commit to do a Little Research

On items that we do actually need, like mortgages, home insurance, vehicles, groceries, communications, etc. make a commitment to look for at least three different offers from competing companies before purchasing. Do a little haggling with each one. What do I mean? Just tell one of them about the better offer you had from their competitor. Many business will honor discounts that are advertised by their competitors. I know it takes a little time to do this, but not really that much time, and the benefits far exceed the extra couple of days to make a decision. Also, having to wait to get pricing from competitors will help you to stop acting on impulse, and act on strong financial planning.

All of these ideas, in a nutshell have to do with a retooling and retraining of your mind, and how you look at life. Don’t be led around by the commercials, and let the peer pressure force you to buying things you don’t need, that are ridiculously priced. Spend a few extra minutes in the morning to make lunch, instead of going out. Scale your house down. Buy cash cars. Buy clothes you intend to wear for years, not for seasons. And find cheap or no cost ways to have entertainment, like going for a walk in a public park, swimming in a public pool, playing basketball in a public area, doing puzzles, playing cards or dominoes, and many, many other ideas to keep the bills down.

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How Does a Contract for Deed Work?

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If you have ever thought about selling your house via an owner financing arrangement, you may have thought about doing a contract for deed.  But just how does a contract for deed work? It may be easy for a realtor to advise you to use a contract for deed when you are making inquiries, but telling you how exactly to do one is another story. Luckily, I have done this type of contract before, so I can give you the details.

The Basics of a Contract for Deed

A contract for deed, in a nutshell, is a cross between a true mortgage, and a rental agreement. In this scenario, the buyer agrees to make a certain number of payments at an agreed priced, while the seller agrees to sign over the deed to the property at the end of all payments. In essence, the seller is giving the buyer a mortgage on the property, but not delivering the title to the property until the mortgage is completely paid off.  It is highly recommended to get a contract like this notarized, because the seller is not going to be filing the agreement for public record. The agreement is strictly between the buyer and seller, and to all other parties attached to the property (e.g. the county clerk’s office, any lien holders, etc.) it is still fully owned by the seller. In most cases, the seller is using the contract for deed as a “wrap-around” for their existing financing.

Contract for Deed Problems and Cautions

If you are the seller, be careful using this method of owner financing. If your existing mortgage has an alienation (or due on sale) clause, then your mortgage company has the right to call the note in full upon the discovery of a new owner. These days, most conventional mortgages contain a clause like this, however FHA financing does not contain this clause, and you can do a contract for deed.

If you are the buyer, request a copy of all current and future mortgage statements from the seller. You want to make sure that the seller isn’t taking your money, and not paying the mortgage. You could, and others have ended up losing their home this way, as the mortgage company forecloses on the property.


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Investing in Certificate of Deposits

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I’m going to try and keep this short today, but if you are thinking of investing in certificate of deposits, think again. Though safe, these investments yield little to nothing in interest. Even if you can get 5% on a certificate of deposit (which is unlikely in today’s market), you will still only be doing slightly better than the current inflation rate. Now some of you may be thinking this:

But Jeffry, not only is a certificate of deposit safe, but I can borrow against it when I need some money.

Problems with Investing in Certificate of Deposits

Hmm…borrow your own money? That sounds like a very smart idea (not). You see, savings and commercial banks use certificate of deposits for one thing - to raise money for use in lending. So they take your money, pay you a low rate of interest, then turn around and lend that money to someone else at much higher rate of interest. Let’s take the example posed above, if you were to get 5% interest on your certificate of deposit, and then took out a personal loan against it, you will probably end up paying somewhere around 6-8%. You will be losing 1-3% on your money. Not a very smart idea from an investment point of view.

Another problem with investing in certificate of deposits is that you agree to tie up your money for a certain period of time. Further, to get a better rate of interest, you have to agree to tie up your money for much longer periods of time. If you break a certificate of deposit early, you will forfeit a substantial amount of your earnings in early termination fees.

When Investing in Certificate of Deposits Make Sense

In the example above, I talked about borrowing from your certificate of deposit. Normally not a good idea, however, if you are trying to build up good credit or restore your credit ratings, then this is a good short term solution for doing so. The loan is easy to get, and if you make your payments on time, you can boost your credit in a relatively short period of time.

If you are in retirement and want to maintain low risk on your money, but can afford to tie it up in a certificate of deposit for a while, then it makes sense.

Another viable use of investing in certificate of deposits is when you need a specific loan like an auto loan. In almost every case, the bank is going to want collateral for issuing the car loan, and a certificate of deposit is an excellent way to fulfill that requirement.

So my overall take is this - if you are looking to really make some money, steer away from certificate of deposits and focus more on better earners, like bond and mutual funds, and real estate investments. But if you are looking to build credit or apply for particular types of loans, then investing in certificate of deposits can be a vehicle to get you there.


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Tips on Buying a Home

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If you have followed this personal finance blog very long, you know that real estate investing is near and dear to me. I am a licensed Texas realtor, and have rental properties of my own as well as managing property for others. But how does that benefit you as a residential home buyer? It means that I can provide you sound advice and tips on buying a home. So what are the key things to look for? And what are some ways to minimize the risk of buying a lemon?

First thing first - Location, Location, Location

The old saying is true, location is the most important factor when buying a home. If you are new in town, I recommend driving the neighborhood and talking to some of the potential neighbors scoping out that next home. Also, make sure and find out about the school zone the property is located in, and what specific school your children will be routed to.

Get a Home Inspection

After finding a great place, you need to know if the home has any problems. Sometimes when folks go through a home, they love it, and gloss over the potential problems. A home inspection will level the playing field between you and the seller, and give you some points to negotiate on. You may think that you don’t want to incur the $100-$200 cost of the inspection, but hey - ask the seller to pay for it! Even if you can’t come to terms with the seller, the seller can use the report to help them fix any issues with the home, and give comfort to the next potential buyer.

Find Out what the Tax Value is, and the Tax Amount

Often these can be found online via a city website, otherwise just look up the phone number for the county clerk’s office and inquire about the home. Be sure to ask if your county uses “100% market value assessments” or some other valuation method. You can then use this information to bargain down the price of the home.

Shop Around for Home Owner’s Insurance, and Use a High Deductible

While most of you know that shopping around for insurance is a good idea, you may not agree with obtaining a high deductible. But let me explain. Don’t buy insurance with the intent to use it - insurance is designed for catastrophes, not everyday use. Look at it this way: Would you rather pay $150/month for a $500 deductible, or $100/month for a $2000? This example is fictitious, however the concept is that you will pay for the $1,500 deductible gap in less than 3 years of premium payments. So again I say, think of insurance as a guard against disaster, not as an everyday crutch.

Negotiate the Purchase of the Home

Duh! Right? Well, often people don’t do a good job of this. Let me put it to you this way, I have been on the seller’s side, and I can almost guarantee that the seller built some negotiation into the price, e.g. they have increased the price in order to be able to come down and make a deal that they are happy with. For sale by owner homes are the best for this, as you can speak directly with the home owner and gauge their reactions. When talking to the owner, try to identify things with the home that would merit a lower price. Butter them up, so to speak, but don’t make a verbal offer. Always submit written offers. If they are expecting a lower offer, when they get it they will be less likely to get angry and throw it away.

If the home is listed with a realtor, you will just have to submit an offer. I recommend starting very low, and just see if you can get a response. Don’t get emotionally attached, or you will spend way too much for the home.

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Checklist for Choosing a Bank

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There is a lot of hype around choosing a bank these days. Lots of promotions and other corporate-like strategies to induce you to give a particular bank your money. But be careful - many of the larger banks that offer free checking, free online bill pay, free this and free that have the worst customer service around. The following is just a simple checklist for choosing a bank; what to do and how to do it.

  • Make Sure the Bank is FDIC Insured
    This almost goes without saying, however it is only prudent to be absolutely sure of it. If someone were to rob the bank, etc. you want to be positive that your money is safe.
  • Get a Comprehensive Rate Sheet
    Most banks will have a leaflet sized sheet that explains all of the fees, etc that are charged by the bank for the particular type of account you are interested in opening. Just go through each one, and ask all of your questions. Even if they claim the account is “free” I guarantee there are fees; fees that could be outrageous like $35-$40 NSF fees, daily charges for a negative balance, etc.
  • Ask For a Line of Credit
    More specifically, ask for a line of credit that automatically covers any overspending you might accidentally do. I have a $5,000 line of credit at my bank directly tied to my personal account, just for such occurrences.
  • Ask About Online Services
    Nothing compares to free online bill pay. The ability to send out checks and online payments from the comfort of your home without any or cost is worth tons. Also, being able to go back and view a check image to find out why you spent that money is great as well.
  • Ask About Interest Bearing Checking Accounts
    It isn’t done all that often, but sometimes you can even get better than a free checking account - an interest bearing free checking account. Enough said.
  • Relationships, Relationships, Relationships
    Find out who the highest ranking employee is at the branch office you will be doing business with. Talk to him/her personally and starting building a relationship. When it comes time to get that loan for business or a house, etc. they will come in very handy. I know the the VP at one of the local banks I do business with, and he has already put me on to a good commercial loan (blanket loan, that I wasn’t able to find elsewhere) for two duplexes specifically for rental income.
  • Stick with a Local Bank
    Don’t go with a national chain. You won’t be able to make connections with decision making employees, and you will be treated like a number. I just got away from a national chain bank and I am relieved beyond words.

Comments? Questions? More ideas? Please leave them at the bottom of the page.


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Investing in Mobile Homes

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Investing in mobile homes? You are probably thinking, yeah, I would never do that. But the honest truth is, you can make a lot of money investing in mobile homes, especially with today’s market. Today, I just want to give you some key points as to why investing in mobile homes is good, and how it can make you money.

  1. Mobile Homes are Cheap
    Duh! I know you already know this, but think about it for a second. If you can rent a mobile home for say, $500, and your total PITI is $250, then that is double the money every month!
  2. Because Mobile Homes are Cheap, You can Rent them Cheap
    People are always looking for cheap places to live. If you work a deal for a trailer in a good area of town, it will only take minimal advertising to get it rented. I have a 1 bedroom 1 bathroom duplex in a good area of town right now, and I get many calls every week!
  3. Your Risk is Low
    This is especially attractive for the investor who is just starting out or who doesn’t have much cash. You can buy these deals cheap, fix them up for little to nothing, and have just a small monthly payment to contend with. Just imagine the difference between the mobile home that sits vacant for two months at $250/month, vs a mid-sized house that sits vacant for two months at $650/month. Big difference.
  4. Often, You will get Cash or a Money Order/Cashier’s Check
    I have a couple of renters right now (one is in a double wide trailer) that often pay with this method. It just ensures that you get your money, and don’t have to hassle with processing a check (which could be a returned check, :( ).

Now for the downside. Many investors would contend that a mobile home depreciates over time, and thus is not a good investment. While this may be true in the long run, any mobile home with land that is in good condition will sell fairly well. But even if it doesn’t, you can always work an owner financing arrangement with a good tenant, and get at or more than market value for the property. Further, don’t buy new mobile homes, go for ones that are a few years old and get them at a significant discount.

Also, some investors would say that mobile home tenants are “trailer trash” or a hassle to work with. My answer to this is simply to screen your tenants before signing a contract. They probably don’t know as much as a middle class renter will know, but you can teach them. Screen them, rent to them, then educate them on what you expect as an owner and the importance of paying on time. Most tenants that pass the screening will do their best to work with you.

So there you have it. Low risk, high margin, maybe a little bit more TLC, but overall, I put my stamp of approval on investing in mobile homes. I have one myself, and I would do it again in a heart beat. My payment is about $350, and I am charging $600 in rent. And this is on a10 year note!


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Buying Rental Property

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No doubt about it, now is the time to make preparations to invest in real estate, especially rental properties. With the mortgage market plummeting and buyers going into foreclosure, there has been a shift in demand. More people are going to be looking to rent, and more houses are going to be coming up for sale. Further, mortgage rates are decreasing. My prediction is that over the next 1-2 years there will be more easy deals than many years past. So the problem is not going to be finding good deals, it is going to be buying into them. But hopefully, these few pointers will get you going in the right direction.

Stopped being Scared and Take Action!

This is the single biggest reason why people don’t ever become more than average. Everyone is afraid of losing money, or being destroyed financially, and just won’t take the risk. You have to just decide that you are going to make a bold move and step out there to make something happen. As I said before, the next year or two is going to be the perfect opportunity to begin buying rental property. Stop over-researching and mulling over the what-ifs and start taking steps to making it happen.

Shoot for 1%

In any deal you are looking at, be sure that however much you put into it initially, that the rent will equal at least 1% of that amount. I don’t just mean the purchase price, I mean all up front fees to purchase, close, and make any repairs to the property. You will find with vacancy, maintenance and hassle it just won’t be worth it to do a deal for any less.

Start Small when Buying Rental Property

Small house always rent easier than large houses. Look for 2/1 houses in good neighborhoods. Small houses plus the right location and price equals rental profits. I own and/or manage several houses, and the small ones are always easier over all. And you tend to make similar money. Maybe not quite as much as the larger houses, but compared to the risk, it is a much better deal.

Buy Rental Properties One by One 

I’m not suggesting that you don’t buy a two property deal if it is really sweet, but don’t use all your time looking for the next deal when you have one in front of you already. This is especially true when you are just starting out. Real estate investing is risky, and you need to take it slow in the beginning, while you are learning the ropes. Often the people you are buying from or renting to will attempt to take advantage of you, and you need to be cautious. Going slow is the best option when you are starting out to learn, and see just what it takes to get a deal off the ground and producing.

Establish Industry Relationships

This one is huge. You really, really need a quality real estate agent and banker for starters. You need them to make sure your property fits the rental model you are looking for, how good the neighborhood is that you are looking to invest in, and securing the best deals. I highly recommend taking these professionals to lunch, to show them you are serious and want to to have a relationship with them, not just get the best deal possible and then go with someone else that shows a slightly better rate or terms. These relationships will pay off with referrals, and deals you didn’t even know were on the market down the road. Also, join the local real estate investor club in your area. You may learn something you didn’t know, but more importantly, you will meet people that can help you down the road.

Establish Tenant Relationships

Doing right by your tenants can get you in position to extend contracts, and even get referrals for new tenants in other properties you may have. I just recently had a call where one of my tenants asked me if I had housing for a friend of theirs. Relationships, relationships, relationships. They pay off in the long run.

Don’t Get Emotional

This can really cause serious damage to your business. If you let angry, grief, or any other emotion sway your decision making, you are in for a long, hard ride to poorville. Sometimes tenants can be so aggravating, but stop and ask yourself, “Will it really do any good for me to get mad and yell at them?” In almost every case, it just makes matters worse. Work with the tenant as much as possible, and if worse comes worse, write the eviction letter. But do your best not to burn bridges.


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New Texas Real Estate License Requirements

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I am irate at the governing bodies as to how licensed individuals are being treated. We are being treated like criminals. Not only does a new licensee have to get 60 hours of SAE training before being allowed to renew their license after the first year, but I just recently found out that I have to provide fingerprints so that the FBI can do a criminal investigation on me! And what’s more, I have to pay additional money for the education, the fingerprints, as well as a renewal fee to TREC! What has our country come to! Even though I have completed my education and paid the TREC renewal fee, I am probably going to miss my renewal date of 2/29/08, and have to pay a late renewal fee in addition to the ridiculous fees I have already paid. But let me just give you a quick rundown (be sure to check TREC’s website for the current requirements) of the new licensing requirements. These requirements apply to anyone renewing or applying for a salesperson or broker’s license after January 1, 2008:

  • Take a least 60 hours of SAE education (I used AbsoluteCE for mine, which was the cheapest I could find, however it still cost me $199)
  • Pay a renewal fee to TREC (I paid $51)
  • Find an IBT location and setup an appointment to get your fingerprints taken (this is the worst one, they are forcing me to give them fingerprints, which is against the constitution as I have committed no crime, nor have I been charged with a crime, as well as charging me $44.20)

One more thing, make sure to get all this done 10 days before your renewal date, or you could risk getting slapped with additional fees. Can you believe it? I can’t, these agencies are absolutely criminals! Our forefathers would be completely ashamed. I go in tomorrow to get my fingerprints done, and my renewal date is tomorrow. We will see if I get slapped with more ridiculous fees. Please leave your feedback at the bottom of the page.


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Wisdom for Those Eager to Get Out of Debt

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I was looking around online today, and found a great article on debt. This article will help you to re-align your thinking so that you can escape the snare of debt. What you have to realize is that getting out of debt is not only hard work, but it also takes a change in your mentality. So check it out and let me know what you think.

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