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21 Surprising Tips To Know Before Buying A House

21 Surprising Tips To Know Before Buying A House

by | Jun 14, 2021 | Investing, Credit & Debt, Mortgages, real estate, Taxes | 0 comments

 

things to know before buying a house

Are you getting ready to buy a home? 

Your first (or even fifth) house purchase is a huge decision. It seems like there are a million things to know before buying a house.

From figuring out how much you can afford to hire the right home inspector, there is a lot to keep in mind.

In order to help you with your home-buying checklist, I interviewed 21 different experts on the top thing they wish they knew before buying their first house. Their answers uncovered a few surprising things even I hadn’t considered!

Read on for the top 21 tips for new home buyers.

1. Hire a Home Inspector

Ryan Luke from Arrest Your Debt says:

A good home inspection will cost you several hundred dollars. When you are already spending so much money, it may be difficult to write another check for a professional to inspect your home.

However, not inspecting the home professionally can have costly consequences. Home inspectors come into the property and take a deep look at everything — the landscaping, wiring, appliances — plumbing, and the roof — before you sign the contract.

Home inspectors can find these problems, and you can either have the seller fix the problems or pull out before you’re stuck with a problem property.

2. Keep the Hidden Costs in Mind

Melanie Allen from Partners in Fire says to think about the hidden costs:

The cost of a home is far more than the purchase price. I wish I would have taken into account how expensive everything else is when budgeting for my first home.

I didn’t think about how much homeowners insurance would add to my monthly bills, or that I would have to furnish my first home from scratch. Remember to consider things like moving expenses, furnishings, closing costs, insurance, taxes, HOAs, and any other hidden expenses of buying a home when first creating your budget.

This will prevent you from getting a nasty surprise that you can’t afford when you should be excited about your new home.

3. Renting Back Isn’t Always at Market Rate

Monica Fish from Planner At Heart warns about lease-back agreements:

In a competitive real estate market, buyers are doing all they can to become “The Chosen One,” including allowing the sellers to stay in the property and rent it back from the buyer for a set amount of time after closing. While you want to make your offer as competitive as possible, keep in mind it’s customary to charge a daily pro-rated portion of your PITI payment (Principal, Interest, Taxes, and Insurance), not the market rate.

So if your PITI is unusually low due to a large down payment or they’ll be renting from you for months, you might want to consider a separate rental agreement based on current rental rates in your neighborhood. We certainly wish we did.

4. Be a Stay at Home Landlord

Brian Thorp from WealthTender wished he had thought about his purchase as an additional income stream:

Mortgage payments can feel intimidating, but especially if you’re buying a house while living alone, it’s easy to offset your mortgage (or even make money each month) by renting a room or your entire house on Airbnb during major events.

I wish I had subscribed to a few real estate blogs before buying my first house as I would have discovered ideas like this one sooner to save money or even pay off my mortgage early.

5. Home Improvement is Expensive

Jeff Cooper from Have Your Dollars Make Sense learned some lessons about home improvement costs:

Many people will buy a fixer-upper when buying a home to save on the initial cost thinking they can simply put money into the home when they can. It is a solid strategy, but many fail to realize how much home improvement can be. Most of us want to fix everything quickly, but fail to realize how much even the smallest of updates can be.

When buying a fixer-upper make sure there isn’t too much to fix!

6. Think About the Future

Derek Carlson from The Money Family suggests thinking about your future plans before buying a home:

Consider your future plans and if this home fits in with them, or if you’re willing to move in 5 – 10 years. If you’re planning on starting a family or changing jobs, will this home fit into those plans? Or will it require you to relocate to another part of town with a different commute, different school district, etc.?

Selling a house and buying a new one is expensive. By planning now for a house you can grow into you can save a significant amount of money down the road.

7. Aggregate Your Paperwork

Sanjana Vig from The Female Professional says:

There are many things to consider when buying a house. While I did all my calculations before taking the leap, I underestimated the amount of paperwork that would be required for the bank.

For example, I had, over time, transferred my down payment into my main checking account. For each transaction, I had to explain where the money came from. In retrospect, I wish I had done the transfers earlier, or in one lump sum so that I could have avoided the headache of phone calls, paperwork, and explanations.

Do yourself a favor and tee up all of your accounts so that you can skip the questions. You’ll save yourself a lot of time and stress!

8. Ask About Warranties

Jessica Bishop from The Budget Savvy Bride wishes she had collected more information on appliance warranties:

Before you buy a home, you’ll want to learn about the history of all the major appliances and if there are any existing warranties. From kitchen items like your refrigerator, oven, and dishwasher, to laundry machines, or even your HVAC unit or water heater, you’ll want to know what’s still within a warranty period and what’s not.

It’s also helpful to know the age of your water heater or air conditioning unit in particular because these costly items generally have to be replaced at regular intervals. If you’re coming close to the 10-year mark on a water heater, you might just find yourself hit with a major emergency plumbing expense right after you move in, so it’s good to be aware of any potential risks ahead of time.

9. Know How Much You Can Offer

Riley Adams from The Young and the Invested offered this advice:

My wife and I recently purchased our first home together, and we, fortunately, decided to contact a lender out of an abundance of caution to understand what our budget would be.

Initially, we thought a larger home with a higher price tag was within reach, however, after learning about the rules for measuring your debt to income ratio, not all of our income would count in that equation. Banks, who tended to be more conservative during the pandemic, only counted certain types of income, making variable income not receive credit in that metric. As a result, we had to lower the range we could afford on a home.

Thankfully, we still found our dream forever home and it didn’t hold us back too much. If anything, it added discipline to our ability to bid. If we had more firepower, we may have opted to use it. We knew buying a house would be one of the best assets to invest in for our part of the country and wanted to find the right one for us to settle down and see appreciation over time.

10. Your House Is Not a Part of Your Retirement Fund

Jesse Cramer from the blog The Best Interest wishes he had considered the impact of his home on his retirement plans:

I was excited to buy my first home because I saw it as a vehicle to build my wealth. And that’s largely true. Real estate is a significant stepping stone in building the average American’s net worth.

But wealth is not the equivalent to your retirement savings, and that’s where I messed up. You cannot both live in your house and sell it as part of your retirement nest egg. Duh! I know, I know, but it’s a mistake I made.

The truth is that you should only count real estate as part of your net worth if it’s not your primary home or if you plan on downsizing prior to retirement. Otherwise, you’re selling yourself a false dream!

11. Consider Furniture in Your Closing Costs

Kevin from Just Start Investing gave the following advice:

Furnishing a home can cost a lot of money, and oftentimes that is an overlooked expense when buying a house. It’s important to consider your furniture budget when looking at your overall housing budget, keeping in mind are needs vs wants.

Remember, you don’t have to fill your entire house right away. Be realistic with your budget and stay within your means.

12. Take Advantage of First-Time Home-buyer Loan Programs

Jonathan from Parent Portfolio added:

Some loan programs allow first-time homebuyers to make a down payment as low as 3% to 5% of the purchase price. Instead of buying a single-family home, consider purchasing a duplex or another multi-unit.

Homeowners can house hack by living in one unit and rent out the other unit(s) to tenants. The rental income can cover the mortgage payment and allow a homeowner to live mortgage-free.

Usually, real estate investors have to pay a 20% to 25% down payment for non-owner-occupied properties. Therefore, a 3% to 5% down payment is a great deal with the benefits of living for free and making extra income.

13. Purchase Price Should be Based on Monthly Affordability

Tawnya from Money Saved is Money Earned advises that the monthly payment is more important than the purchase price:

If you are financing your home, which most are, there are several factors that can drastically affect your monthly payment.

These factors include property taxes, mortgage insurance, homeowners associations fees, and the interest rate you’re able to secure. While your interest rate will likely be the same for each house you consider, the other factors can swing your monthly payment several hundred dollars one way or the other.

Instead of setting a budget at the purchase price of a home, you should instead set a monthly budget when determining the affordability of a house. If you’re pre-approved or working closely with a lender, have them give you a rough estimate of the monthly payment for each home you’re considering to ensure your monthly budget isn’t overstretched.

When I was looking for a home there were several that were within my overall purchase price range that ended up being outside my monthly affordability due to property taxes or one of the other factors discussed.

14. Hidden Fees Add Up

Adam from Wallet Squirrel says to pay attention to the hidden fees:

There are some hidden fees on top of the property taxes and insurance we didn’t know about when we bought our first home.

One example is the sewage and storm-water fee. This isn’t huge because it is only about $250 a year but it is another check to write. I wish I had known to check with the county and city for fees like that.

I would recommend talking to your real estate agent about any county or city fees that might sneak up on you. They should have the resources to help you research.

15. Remember to Budget for Legal Advice

Tim Thomas offers some advice on understanding legal fees in the buying process:

Here in the UK, when it comes to legal advice concerning buying property, the quality of the service you receive and the fees they charge can vary significantly.

In hindsight, we were lucky in finding someone for our first purchase who we used for future purchases, but he wasn’t available on our last house buy. The costs for this last purchase escalated significantly from the initial quote, and it was for things that our preferred lawyer wouldn’t have charged us for.

So get a clear handle on the legal fees you’ll be charged and what is and isn’t included in that price.

16. How to Budget for Maintenance

Josh Hastings from Money Life Wax emphasizes the importance of budgeting for regular maintenance:

Truth be told, when I bought my first home I had no clue that within a few years my A/C unit, washing machine, stove, and dishwasher would all need replacing.

I wish I had budgeted for all of these big-ticket items. After talking to my financial planner, his recommendation was to save 1% of my home value per year for home improvement and maintenance costs. For example, a $300,000 house means you want to set aside $3,000 a year to be safe.

This will help for even bigger projects such as siding, plumbing, or windows.

17. Get Your Finances in Order Before You Buy

Marjolein from Radical FIRE recommends doing a financial check-up before you start looking for a house:

Before you buy your home, you want to make sure that your finances are in order. You can do that by making sure that you’ve paid off your high-interest debts, and you want to have an emergency fund, to name a few examples. Getting your finances in order looks different for everyone, so think about what it means for you and start to take action.

I was in a situation where I wanted to buy a house, and I was in the process of talking to the bank. That’s when I found out that I couldn’t afford the home because of my debt. There are regulations in place in the Netherlands, where your debt influences the amount of mortgage you can get. It didn’t matter that I had a high average net worth in the Netherlands.

If I knew that before, I would’ve started by paying off my debt, and I wouldn’t have wasted my time. Get your finances in order and you’ll be able to buy a home with peace of mind.

18. The Value of Adding Value

Tyler Weaver of Relentless Finances says you should consider ways to add value to get the most bang for your buck:

When buying my first house, I was looking for something of great quality that was ready to go.

As I learned more about real estate, and myself, I realized I prefer to buy a house that needs a little work. On my second house, I took on a much more extensive renovation and was able to capture a lot more equity.

Building equity through renovations is a core principle to the BRRR method which I now do on rental properties.

19. Don’t Overlook Your Wish List

Amanda Kay from My Life, I Guess reminds you not to compromise on your wish list just because of a hot market:

Although I am still a renter, I kind of hate where I live. Not being able to move somewhere better used to really bother me, but as my husband and I are getting closer to buying our first home, I see it as more of a blessing.

I know exactly what I would change about our current home, and my wish list is ready for when we start looking. More importantly, though, is the list of deal-breakers that I have been able to pinpoint and will avoid, so I don’t end up stuck owning a home that I don’t want to live in.

20. Shop Around for Insurance

Robyn from A Dime Saved says:

Insurance costs and needs vary wildly from state to state and area to area. Ask neighbors of the house you want to buy about approximate insurance costs and consult with an insurance agent to find out if you are in a listed flood or zone.

Even if you are not required by the bank holding the mortgage to purchase special supplemental insurance (fire, flood, hurricane, earthquake, etc) you may want to look into purchasing them for your own peace of mind.

Make sure to have enough money in your emergency funds to cover your insurance deductible so you are covered in case of an emergency.

21. Be Aware of Your Own Biases

Linda from The Cents of Money says self-awareness is key in the buying process:

The most reasonable people may become irrational when buying their first home. Biases like the confirmation bias may cause you to be swayed by an eager real estate agent doing their job. As they highlight the best features during the home search, you may overlook negative factors that are more crucial to you, like the tiny kitchen, cracked walls, or low ceilings.

Make sure to revisit the house at different times and honestly appraise what may later become significant problems.

Final Thoughts

There are a lot of things to know before buying a house. By being aware of these tips, I hope it helps you become more prepared for your own home purchase.

Educating yourself before jumping into a big purchase will help you make a better decision, and be more confident in the outcome.

Thank you for reading! What are your best tips for first-time homebuyers? Let me know in the comments!

This article originally appeared on Wealthy Nickel and has been republished with permission.

How To Save For A House: 10 Ways To Make Your Biggest Purchase Ever!

How To Save For A House: 10 Ways To Make Your Biggest Purchase Ever!

by | Jun 9, 2021 | Investing, Mortgages, real estate | 0 comments

Buying a home may be the biggest purchase a person can make. And, with home prices rising, it can also feel intimidating or even impossible, especially for a first-time home. However, there is no need to fret. If you’re wondering how to save for a house, you’re in the right place!

Before you start looking for a real estate agent, take some time to self-reflect on your current financial situation to develop a plan for success. Here are ten ways to help you save for a house and make your biggest purchase ever.

What Are the Costs When Buying a House

According to the National Association of REALTORS, the median existing-home sales price for March 2021 was $329,100. Unless you have hundreds of thousands of dollars to spend, you most likely will work with a bank to finance your home purchase. Thus, the two main costs you need to save up for are down payment and the closing costs.

Down Payment

A down payment is an out-of-pocket expense a homebuyer will pay when financing a purchase. The amount is usually a percentage of the purchase price, which can vary depending on the type of loan.

For example, a 10% down payment for a purchase price of $200,000 is $20,000. Therefore, a homebuyer would need to bring $20,000 when signing closing documents while the bank will finance the remaining balance of $180,000.

Closing Costs

When financing a home purchase, there are several closing costs, such as an appraisal fee, termite inspection, and escrow fee. However, unlike a down payment, a homebuyer won’t know the exact dollar amount due until a few weeks or days before closing on the property.

Therefore, as a safe estimation, the closing cost is usually about 2% to 5% of the loan amount. For instance, homebuyers with a loan amount of $180,000 can estimate to pay about $3,600 to $9,000 in closing costs.

Moving Expenses

Although moving expenses are not as large as a down payment, it is still a cost that buyers should save up for. If you have a small family and only have small items, you can save a lot of money by transporting your family’s personal belongings in your car or a friend’s truck.

However, if you have larger and heavier items, you can rent a moving truck or hire a moving company. According to Moving.com, the average cost of a local move is $1,250 and $4,890 for a long-distance move.

How Much is Down Payment?

The down payment amount is usually a percentage of the purchase price. However, depending on the loan program, the percentage can vary. Determining which loans you qualify for is one of the first steps on how to save for a house. The requirements can change every year. So, be sure to check with a mortgage professional to get the latest details.

FHA Loan

The federal government insures a Federal House Authority (FHA) loan. However, the government doesn’t provide the loan to homebuyers. Instead, this program allows lenders to offer a low down payment requirement. The government will ensure the loan in case the borrower stops paying.

According to U.S. Bank, the minimum required down payment for an FHA loan is only 3.5% of the purchase price. Therefore, a 3.5% down payment for a $200,000 purchase is $7,000.

203k Loan

A 203k loan is a subset of an FHA loan based on section 203(k) of the National Housing Act. This program follows the same rules as an FHA loan and includes rehab expenses as part of the loan. Thus, homebuyers can buy a distressed property in need of significant improvements but at a meager purchase price.

VA Loan

The U.S. Department of Veteran Affairs created the VA loan, which is similar to the FHA loan. This loan’s critical difference is exclusively for U.S. service members, veterans, and eligible surviving spouses.

A VA loan doesn’t require any money down nor private mortgage insurance. Additionally, a VA loan allows a seller to pay 100% of the closing costs, unlike an FHA limiting a seller to 3%. Therefore, a homebuyer who qualifies for a VA loan doesn’t have to save up for a down payment.

USDA Loan

A USDA Loan is short for the “USDA Rural Development Single Family Housing Guaranteed Loan Program.” Like a VA loan, this program also allows a homebuyer to fully finance a home purchase, which means a down payment isn’t required.

The property must be a rural single-family home and low to moderate-income homebuyers based on the county’s median income to qualify for this program. Speak with a mortgage professional within your area to check your eligibility.

Conventional Loan

A conventional loan is a loan that is not part of a specific government program. The down payment ranges from 5% to 15%. Therefore, a 5% down payment for a purchase of $200,000 is $10,000.

Why Do People Want a 20% Down Payment?

Home borrowers that make a down payment of less than 20% are typically required to pay for private mortgage insurance (PMI). This insurance is not the same as home insurance. Instead, the purpose of a PMI is to protect a lender if a borrower defaults on their payment.

Thus, on top of the mortgage payment, property insurance, and property taxes, some homeowners will also have to pay for PMI. However, some homebuyers don’t mind paying the PMI because they prefer a lower down payment.

Some loan programs don’t allow you to remove the PMI. On the other hand, some programs will allow PMI removal when the balance is 80% of the original purchase. Homeowners can make extra payments towards the principal balance to accelerate the debt service payment. Alternatively, homeowners can refinance the property and take advantage of the house’s appreciation.

How Much Can You Afford?

Before you start looking at potential houses to buy, it’s essential to know how much you can afford. The general rule of thumb is that the mortgage payment should be no more than ⅓ of your monthly household net income. For example, a person with a monthly net income of $2,500 should aim to have a mortgage payment of no more than $833 a month.

Although this rule of thumb is a quick and easy way to calculate a rough estimate of how much you can afford. Any homebuyer needs to review their financial situation in detail thoroughly. Mortgage payments can easily vary due to property taxes and home insurance and can quickly increase your monthly expense.

Where to Save Your Money

It’s best to save money in a high-yield savings account, such as a money market account. Your account may not accrue a lot of interest. But, you avoid risking your savings by not putting it in an investment account, such as stocks or REITs.

10 Ways to Save For a Down Payment

1. Track Your Expenses

Before you can start putting away money for your down payment, you first need to identify and track all your expenses. Whether the cost is paying for utilities or entertainment, track it all.

 

With the help of online banking, you can see all your transactions in one place. Reviewing your expenses might even surprise you with some items you were unknowingly paying for. Knowing how much you spend on expenses will give you an accurate idea of how much you will have leftover from your paycheck.

2. Create a Budget

After you track all your expenses, it’s crucial to create a budget. A budget does not mean taking the fun out of your life. Instead, a budget is the best way to make sure you have enough money every month. For example, you budget $100 a month for dining out. If you already have exceeded that amount for the month, you will have to postpone any dining plans until next month.

3. Automate Savings

Creating a budget is a great way to be fiscally responsible. However, it can be tempting to spend your paycheck once it hits your checking account. To help overcome this temptation, you can set up automatic transfers to your savings account.

Talk to your payroll department to have them transfer a certain amount or percentage to your desired account. As another option, you can set up an automatic transfer with your bank. Automating your savings is a simple way to keep you honest with your savings.

4. Reduce Expenses

If you don’t have much money, an easy way to start saving is by reducing your expenses. For example, instead of buying lunch when you’re at the office, consider bringing your lunch.

Also, get rid of unnecessary expenses. That’s fantastic you signed up for a gym membership after the new year. But, if you’re not using it, you’re better off canceling it to keep more money in your pocket.

Consider living stingy and downsize, if possible. You’re not cheap. Instead, you are more intentional with your money. For example, you can trade-in your car for a more affordable vehicle or change your cell phone plan. Or move into an apartment with more affordable rent while you work on building up your down payment.

5. Increase Your Income

Aside from reducing your expenses, another way to save for a house is to increase your income. One way to accomplish this task is by requesting a raise from your employer. However, be sure to back up your request with data to justify a promotion.

If you’re unable to get a substantial raise from your main hustle, consider a side hustle to create a second income stream. Depending on your current career, you can leverage that to your advantage to make money in your spare time.

Additionally, if you have an extra bedroom to spare, you could house hack your current residence and rent out the room for extra income. Be sure to consult with your landlord before advertising for a roommate.

6. Postpone Major Activities

You might call me a killjoy, but another option to save for a house is to postpone significant activities or events, such as a family vacation or concerts. Saving on travel alone can save you hundreds and even thousands of dollars.

Remember, I said “postpone” and not “cancel.” There will always be another opportunity to live that experience. At least once you have your house, you can hang those memories in your new home.

7. Get Rid of Debt

Getting rid of debt is another excellent way to help you buy a house. Not only does it reduce your monthly expense, but it can also make you favorable in the eyes of your lender.

According to Experian, two of the four significant factors mortgage lenders consider are payment history and credit utilization ratio. Lenders want to make sure potential borrowers have a good track record of paying on time. Consider raising your credit score by following these steps.

Also, lenders use the credit utilization ratio to determine how much a borrower’s balance is compared to their credit limit. The lower the ratio, the more favorable a borrower, is to a lender. Therefore, it pays to pay down your student loans and credit card debt.

Additionally, lenders will also check a borrower’s debt-to-income ratio (DTI). This ratio compares how much a person owes to how much they earn a month. The better your DTI, credit utilization ratio, and other factors will help qualify you for a loan program to your advantage.

8. Save Your Windfall Income

There will be moments you’ll unexpectedly receive extra income, such as bonuses, gift money, tax refunds, and stimulus checks. Instead of splurging that surprise money on consumer products, save that extra cash in your separate savings account to help you get closer to your goal.

9. Sell Your Things

Another way to boost your savings is to sell items you no longer use. For example, if you’re no longer planning on having kids, you can sell that Spectra S2 to another mother in need. Not only can you make extra money, but you’ll also be reducing your belongings, which can have a positive effect on moving expenses.

A few options to sell your items are holding a garage sale or listing items for sale on Facebook or Craigslist. Aside from selling your TV or video game console, you can go as far as selling your barely used vehicle.

10. Pause or Reduce Retirement Contribution

It’s essential to make regular contributions to your retirement account, especially when you’re young and have time on your side. However, if you need a little more capital to save up for a down payment, you can temporarily pause or reduce your contribution to your 401k or IRA.

Keep in mind that you’ll lose the tax benefits of not contributing to these retirement accounts. Thus, it’s crucial to weigh the pros and cons of pausing or reducing your contributions. You may find more profitable avenues to save more money or may just need to extend your timeline when you can reach your savings goal.

Final Thoughts

Owning a house is a great way to create generational wealth. So, as early as now, start reaching out to various mortgage professionals. A seasoned mortgage lender can help you navigate the financing process and help identify mortgage loan programs that work well for you. They can also let you know what credit score to work towards to get a better interest rate.

While you work on saving up for your down payment, also practice budgeting for monthly payments. So, once you’re ready to make an offer and buy a home, you’ve already developed a habit.

This article originally appeared on Your Money Geek and has been republished with permission.

Thank you for reading! If you found this article, please visit us at The Cents of Money and subscribe to get freebies and our weekly newsletter!

Timeshare Rentals: Score Epic Travel Deals On 16 Websites You Probably Haven’t Heard Of

Timeshare Rentals: Score Epic Travel Deals On 16 Websites You Probably Haven’t Heard Of

by | Apr 21, 2021 | lifestyle, real estate | 0 comments

Raise your hand if you love a good travel deal! How do condo rentals at Hawaii resorts for as low as a $199 week sound? Or week-long $399 condo vacations in Las Vegas, Branson, Orlando, The Poconos, The Berkshires, or Shenandoah National Park?

Want to save thousands of dollars at premium resorts like Disney Vacation Club, Westin Ka’anapali Ocean Resort Villas, or Marriott’s Aruba Surf Club? I’ll show you the way!

Did you know that you can rent condos at timeshare resorts, just like renting vacation homes? As a happy timeshare owner of 15 years, I’ve learned the ins and outs of this part of the vacation world. I’m not a secret employee of the timeshare industry.

I’m just a frugal Fannie sharing my travel hacks so people can go on more vacations, no matter their budget. And don’t worry, when booking timeshare rentals, you aren’t required to attend a timeshare presentation.

What is a Timeshare?

A timeshare is a type of resort that divides ownership of vacation condos among multiple people. They range from boutique resorts, small chains to household names like Marriott Vacation Club, Hilton Grand Vacations Club, Club Wyndham, and Disney. If you’ve stayed at a resort and your unit was more like a condo, then you’ve probably been at a timeshare.

Timeshare rentals offer the best amenities of a hotel like pools, restaurants, and on-site activities combined with the conveniences of an apartment home. Whether you like having a kitchen on trips or have a large family, timeshare rooms offer space! It’s the same layouts as condos – living rooms, full kitchens, and multiple bedrooms. Some timeshare rentals even have a washer and dryer in the unit. Our family loves the private bedrooms and rooms to spread out in can’t imagine going back to a small hotel room on vacation again! So when looking at timeshare rental websites, you’ll see differently sized units – studios, one-bedroom, two-bedroom, or even three & four-bedroom options.

How Do Timeshare Rentals Work?

When owners aren’t using their timeshare, they can offer it up to others instead of sitting empty. According to Redweek.com, when you rent a timeshare instead of using a hotel or travel booking site, you bypass the industry fees baked into these prices. Did you know that there are often two middlemen in the booking process who each mark-up rates by 12-25%? When you rent from a timeshare owner or a company whose goal is to fill empty rooms, you’ll be vacationing for much less!

16 Places to Rent Timeshares for Epic Vacation Deals

While you can book some timeshare resorts directly on the hotel’s site, Airbnb, VRBO, and well-known travel deal sites, I want to introduce you to 16 new places to book these rooms at a fraction of the cost. Like any big purchase or travel booking, take an extra 20 minutes to price compare and understand the rental terms and conditions.

How to Rent Timeshares from Exchange Companies: 4 Sites Open to Non-Timeshare Owners

Timeshare Exchange Companies are the middlemen facilitating resort trades for owners. Even though I have a timeshare in New York, I can exchange my timeshare week for a vacation at 4,000 other resorts in over 100 countries. I deposit my week with one of these companies and then choose another owner’s week for my vacation. When these resort weeks are still available in the exchange company’s inventory 45 to 90 days out, they make them available to anyone as timeshare rentals with prices that are hard to beat!

Some people think that these available rooms are ones they’d never be interested in at any price. Honestly, some older resorts are offered, but mostly these deals are in destinations with lots of timeshare properties or rooms in resorts with thousands of units. For example, Orlando, Branson, Poconos, Gatlinburg, and Las Vegas are often available as destinations with numerous timeshare properties. Massanutten Resort, The Grandview, and Vacation Village Parkway are regular resorts in these last-minute deals with some of their 2,000 to 4,000 units available.

Let’s take a look at four timeshare exchange companies offering these last-minute rentals to anyone.

1.Platinum Interchange

Serving travelers for over 40 years, Platinum Interchange is an independent timeshare exchange and rental company. Even though they aren’t owned by a large company like Wyndham or Marriott, they have relationships with 1,300 timeshare resorts worldwide. They lower their timeshare rental prices as the date of check grows near, even offering whole weeks for a $199 rental price within 15 days of check-in. That’s not a typo! $199 for an entire week!

A recent search on their site showed timeshare rentals available under $400 a week in popular vacation destinations like Aruba, New York City, and San Diego. At the time of publication, they had a two-bedroom condo at Vacation Village Parkway Williamsburg, with four out of five stars on Google for a weekly rate of $299.

2.Trading Places International

Trading Places International is a former travel agency turned timeshare resort management company that facilitates vacation exchanges for owners. They offer timeshare rentals further out than others, allowing for more vacation planning time. Like Platinum Exchange, they offer “Hot Deals” of timeshare rentals. Make sure to click this button “on” during your search to filter for their lowest prices.

Recently, when browsing their Hot Deal listings, I found a room at a premium Wyndham Resort in Hawaii. Ten weeks out from the check-in date, this one-bedroom condo had a $475 total rental price for the whole week. I did a quick price comparison of the same unit with the same check-in date on travel deal sites, and they had prices over $200 a night! Booking a timeshare rental through this timeshare exchange company saves you almost $1,000!

3.Trading Places Maui

Trading Places Maui is a spin-off of Trading Places International, serving the 100 timeshare resorts with 13,000 total rooms across the Hawaiian Islands. When the average Hawaii hotel room rate is $330 a night, their $199-$399 weekly timeshare rentals in one or two-bedroom condos are a secret everyone should know about! Their recent last-minute deals included the beloved oceanfront Lawai Beach Resort with a Google rating of 4.6 out of 5 and the highly-rated Kona Coast Resort adjacent to a golf course.

4.Expectations Interchange

Expectations Interchange is the only timeshare exchange company on this list that has a small fee to join. You can see all of the timeshare rentals available before deciding whether to purchase a membership for under $50. This European company is fantastic for international travel deals. If you’ve been dreaming of staying at The Crane Barbados or in Snowdonia National Park in the United Kingdom, you can book a timeshare rental for under $500 for the week!

If your family or friends own a timeshare, they can book similar last-minute deals for you at different timeshare exchange companies that require timeshare ownership. They can reserve rooms for nonowners with a guest certificate which costs under $100. Even with the additional cost, it’s a fantastic travel deal for a week’s long resort stay.

7 Timeshare Rental Marketplaces

Even if you’re not the last-minute type, there are still ways to score epic deals with timeshare rentals. If you want to travel during a peak season like school breaks or if you have your eye on premium resorts, renting from a timeshare via these marketplaces saves you tons of money!

1.RedWeek

RedWeek.com is the largest online marketplace for timeshare resales and rentals with an A+ rating from the Better Business Bureau. If you’re looking for more of a full-service experience when booking a timeshare vacation rental, Redweek.com is an excellent option.

They say their prices are up to 75% off the resort price and up to 50% off travel deal sites. So, if Marriott’s Aruba Surf Club seems out of your vacation budget, rent a room from a timeshare owner! The cheapest nightly rate on the hotel site is $500, with the same two-bedroom unit available for $270 a night on Redweek.com. With these savings, it’s not hard to see why this resort is Redweek’s most rented resort!

2.KOALA

KOALA, a new website from timeshare industry veterans, connects people to verified timeshare rental listings. Since owners set their own rental prices, there are fantastic deals available, even at high-end resorts like Marriott’s Newport Coast Villas and the popular Divi Aruba Phoenix Beach Resort. Their homepage also includes a link to rentals under $200 a night, which you can further filter by price.

A recent search showed a $35 night listing in a two-bedroom at Massanutten, an award-winning four-season resort outside Shenandoah National Park. It also had an $85 a night in a three-bedroom at Wyndham’s Bonnet Creek listed for $85 a night. Don’t let the price fool you. This Wyndham resort ranks #4 on Condé Nast’s Readers’ Choice Awards list of Orlando’s Top Resorts.

3.TripBeat

TripBeat is a practically unknown website despite being owned by Wyndham Destinations, a publicly-traded company and the largest timeshare conglomerate in the world. It looks like they are taking inventory from their timeshare owners-only exchange company (RCI) and making it available to the public via this site. Whatever their reason, Tripbeat offers amazing timeshare rentals deals and is worthy of a look during your travel planning. They had this frugal fannie at weekly resort stays from $399!

Tripbeat offers a wide range of rentals in the U.S. and globally. We are planning a shoulder season trip to Greece in September, and I was excited to see lots of resort options on Tripbeat. If you dream of going to Greece too but thought it was outside of your budget, check out the week-long $399 timeshare rentals in Crete and Corfu. If you plan trips to U.S. National Parks or popular American destinations, check out the timeshare rentals available in Smoky Mountains, Shenandoah Valley, or Branson, MO.

TripBeat is free to join for anyone despite their confusing sign-up page. They ask you to pick an affiliation to register, making it feel exclusive. However, if you scroll to the bottom of the options, there is a “You Decide” choice, meaning you don’t need to have an affiliation to set up a Tripbeat account.

4.ExtraHolidays

Also owned by Wyndham Destinations, ExtraHolidays is a marketplace where timeshare owners list their owned weeks for rent. With a tag line of “condo vacations at hotel prices,” you can snag deals at almost 700 worldwide resorts, especially during their sales. Make sure to sign up for their emails, as they have regular promotions, like their Swing into Spring Sale with 35-40% off the rental price of select resorts.

5. Three Disney Vacation Club Marketplaces

Staying “on-property” at Disney or their beach resorts comes with additional perks, amenities, and that Disney Magic. But it comes at a steep price. Did you know that you can rent those same Disney Vacation Club (DVC) rooms from a timeshare owner and save thousands of dollars? While some owners list DVC rooms on the platforms mentioned above, many list theirs on Disney-specific rental sites, like David’s Vacation Club Rentals, DVC Rental Store, and DVC Rental. If you’re looking for some Disney Magic but at a discount, check out these timeshare rentals available for your next vacation and the significant savings you can score.

How to Rent Direct from a Timeshare Owner: 5 Places

When you rent directly from a timeshare owner, there’s no middle man involved. That means the owner doesn’t have to factor a listing fee or site commission fee into their rental price. They are looking to cover their annual expenses, and you’re booking a vacation rental for a lot less than from resort direct. It’s a win-win!

1.Timeshare Users Group

Timeshare Users Group (TUG) is a forum-based site started in 1993 by owners for owners to connect in a world before Facebook. Now they’ve grown into the largest timeshare community with more than $18 million in completed timeshare rentals. They often have 1200+ timeshare rentals available, including a Bargain Basement section for those open to last-minute bookings.

Suppose you know that you want to stay at Marriott’s Ko Olina Beach Club and have searched all the travel deal sites but still can’t make their “best price” of $5,000 a week work. You can rent a two-bedroom condo at this same resort directly from a timeshare owner for $2,650 on TUG!

If you feel nervous booking a timeshare rental this way, keep in mind that all members of TUG are timeshare owners and have provided extensive contact information to join this community. For peace of mind, follow these TUG Rental Tips when renting directly from an owner.

2. Timeshare Owners’ Facebook Groups: 4 Examples

Timeshare Owners at specific resorts or with particular companies like Wyndham have formed Facebook groups to stay connected, rent their weeks out, and rent additional units for family and friends to join them on vacation. Some of these groups have separate forums to post reviews about owners similar to Airbnb or VRBO. You can see what renting from a specific timeshare owner is like.

If you are a fan of staying in Wyndham’s premium Timeshare Resorts, you can join their Owners Facebook group to rent direct. Recently, a timeshare owner posted an unbeatable Spring Break rental at Club Wyndham National Harbour outside Washington D.C. Their timeshare rental listing was $700 for a week in a one-bedroom condo. $100 a night for a condo room in peak season, in an expensive location, is a fantastic deal!

If you’ve found a timeshare resort and you want to inquire about renting directly from an owner, you can search Facebook with “Resort Name Owners” as the search term to locate the group. Holiday Inn Club Vacations Orange Lake Resort, a beloved 12-acre resort right next to Disney’s Animal Kingdom in Orlando, has a Facebook group for owner direct rentals, as does Bluegreen, another popular Timeshare chain of resorts. You can also rent directly from a Disney Vacation Club timeshare owner in the DVC Disney Vacation Club Points Rental group.

Final Thoughts

Whether you’re looking to travel in the most economical way possible, want to take more vacations a year, or thought some destinations were out of your budget, you can take advantage of timeshare rentals deals to turn your travel dreams into reality! It pays to be frugal when traveling.

Thank you for reading!

This article originally appeared on Your Money Geek and has been republished with permission.

How Much Do Real Estate Agents Make And How To Be Successful At It

How Much Do Real Estate Agents Make And How To Be Successful At It

by | Mar 9, 2021 | real estate, career development | 0 comments

If you’re considering starting a new career as a real estate agent, you’re probably wondering, “How much do real estate agents make?”

However, before you begin ordering business cards, you first need to consider a couple of factors.

For instance, being a real estate agent is a commission-based job, which means there is potential to make serious money. On the other hand, your success is a function of your efforts. In other words, you can’t show up and expect to get paid for doing nothing.

This article will explain how much real agents make and what other factors to consider. I’ll also cover the steps needed to become a real estate agent. Furthermore, I’ll share some insights from experienced REALTORS on why some agents fail and what advice they would give to have a successful real estate career.

How Do Real Estate Agents Get Paid?

Real estate agents don’t receive a base salary. Instead, real estate agents earn money when they sell a real estate property, such as a house, and receive a commission for it. The commission is a percentage of the property’s purchase price, which the seller pays for. Thus, the buyer isn’t responsible for paying either the buyer’s agent or the seller’s agent.

On average, a real estate agent commission is five to six percent of the purchase price. However, some agents are willing to negotiate with clients and offer a discount. For example, an agent may represent both the buyer and seller or the agent has received repeated business from the client.

However, it’s essential to understand that the real estate commissions do not entirely go to the seller’s listing agent. Instead, the seller’s and buyer’s brokerages split the commission 50/50—afterward, the agent and broker divide it between themselves.

Those who share the commission:

  • Seller’s broker
  • Seller’s agent
  • Buyer’s broker
  • Buyer’s agent

The split between the agent and the broker varies, such as 50/50, 60/40, or 30/70. The agent’s years of service or production can positively affect how much of the split they receive. Therefore, it’s normal for a real estate agent just starting to receive a smaller cut.

For example, a listing agent helped their client sell their house for $300,000. For a 5% commission, the commission upon a sale is $15,000 ($300,000 x 5%). The seller’s and buyer’s brokerages split the commission between them. Therefore, each brokerage receives $7,500 ($15,000 / 2).

Afterward, the seller’s broker and seller’s agent agree amongst themselves to share their commission 50/50. Thus, each receive $3,750 ($7,500 / 2).

When Do Real Estate Agents Get Paid?

Real estate agents only get paid when a seller transfers their property ownership to the buyer. Real estate professionals refer to this transaction as closing. This closing day usually includes the lender, the title company, and the real estate agent.

Therefore, if the buyer and seller’s purchase agreement contained a contingency, such as a failed home inspection, the buyer has the right to walk away from the deal. In this case, the real estate agent will not get paid for their efforts.

Another example that can prevent closing on a property is when a lender does not approve a buyer for financing. Lenders hire a third-party to perform an independent appraisal of the property.

Lenders won’t finance a property if the purchase price exceeds the appraiser’s valuation. For this reason, sellers prefer accepting full cash offers, especially in bidding wars.

How Much Do Real Estate Agents Make?

The average real estate wage for real estate agents ranges from $42,000 to $49,000 annually, according to the following reports:

  • The U.S. of Labor Statistics shows that the median annual wage for real estate agents is $48,930 (May 2019).
  • Salary.com reported a lower median yearly salary of $42,821 (December 2020).
Real Estate Agent Salaries by Percentile Graph Provided By Salary.com Dec. 28 2020

 

Real Estate Agent Sales Agent by Percentile From Salary.com

However, these figures don’t specify how many years of experience for the real estate agents. According to Salary.com, a real estate agent with more than ten years had a median annual wage of $47,166, which is $4,345 above the median.

Also, the NAR reported that a REALTOR with more than 16 years of experience had a median gross income of $71,000. This increase in gross income for a seasoned real agent can result from various things.

For example, a broker may be more willing to share a larger percentage of commission to reward a real estate agent’s experience. Furthermore, a seasoned agent has also built more relationships and connections over time, allowing them to produce more efficient results.

Below is a table showing the median annual income for different years of experience from Salary.com:

Years of Experience Median Annual Income
Less than two years $42,304
3 to 4 years $42,452
5 to 6 years $42,599
7 to 9 years $43,168
10 to 14 years $47,166
More than 15 years $49,426
Median Annual Income Per Years of Experience From Salary.com

Out-of-Pocket Expenses

Although a real estate agent technically works for a brokerage, they operate like contractors or small business owners. Several expenses can chip away at their commission check. A broker may be willing to help their agent with costs, but ultimately it’s the agent’s responsibility.

A couple of out-of-pocket expenses are the following: brokerage fees, REALTOR membership fees, access to the Multiple Listing Service (MLS), and Error and Omissions Insurance. Additionally, real estate agents have to pay for their marketing, website, and any travel expenses.

Factors That Can Improve A Real Estate Agent’s Income

Real estate agents make money when a property sells. However, certain factors can help increase an agent’s income above the average salary.

Experience

Although a 6% commission rate is the average, some real estate agents charge a higher commission on the listing agreement due to their experience. However, more years of service doesn’t necessarily guarantee someone is the best real estate agent.

Property Type

Agents that expand their clientele outside homeowners can also increase their take-home pay. Real estate agents can make a lot more money selling commercial real estate than residential real estate, mainly because commercial properties have a significantly greater purchase price.

Lead Generation

A real estate sales agent can make more annually by generating more leads and selling more houses. Developing an efficient prospecting system usually comes with time, along with building connections with other agents.

A young real estate agent can achieve success and make good money. They have to hustle and put in the work like any good business owner.

How to Become a Real Estate Agent in 3 Steps

Step 1: Take Pre-Licensing Courses

Each state has different requirements to be a licensed real estate agent. For example, in California, a person must take three real estate classes for 165 hours. On the other hand, New York only requires 75 hours of salesperson qualifying education courses in real estate.

Therefore, it’s essential to research a state’s real estate licensing information. Being licensed in one state doesn’t permit an agent to practice in another.

Courses can be completed on-line or in person. But, make sure the classes are recognized and accepted by the state.

Step 2: Take Real Estate Salesperson Exam

Your course instructor should be your first resource in helping you apply for the real estate salesperson exam. Be sure to follow the application process to avoid delaying the exam.

It’s to your advantage to take the exam sooner rather than later while the information is still fresh in your mind. Most states require a background check, which can take weeks to finish. So, keep on studying!

Step 3: Join a Brokerage

Agents are not allowed to sell houses independently. Instead, agents must join a real estate brokerage, where a broker will oversee all the agent’s transactions.

Interview several brokerages to find the one that works best for you regarding assistance, guidelines, and commission. Real estate is all about relationships. So, it’s essential to have a good one with your broker.

Some agents prefer a brokerage associated with a known real estate brand. They believe that it can help market themselves.

However, the name of a brokerage doesn’t automatically provide success. Other successful and seasoned agents decide to become a real estate broker and start a new brokerage.

How To Be Successful in Real Estate

There is a misconception that being a real estate is an easy career. Although acquiring a real estate license is a straightforward process, new agents quit within five years.

I interviewed two seasoned real estate agents to get their opinion on what it takes to be successful. They have a combined 30+ years of experience in the real estate industry, helping people sell and buy a home.

Heeran Workman, an Associate Broker for eXp Realty, says about real estate agents, “They assume that once they get their license, everyone they know will automatically hire them for the job. Most fail because they don’t prospect for clients.”

Shawn Prouse, a REALTOR with Berkshire Hathaway, adds, “An agent doesn’t run their profession as a legitimate business and cuts corners or isn’t dedicate to the process, not fully committed.”

Furthermore, like any sales job, being a successful real estate agent is all about time management and creating a process to generate more leads. Prouse states, “If you fill [your time] with business generating activities, you will become successful.”

Workman adds, “A successful agent will most likely be a well-rounded person who has a great prospecting system to look for new clients…and continues to keep this funnel moving.”

What Else Can a Real Estate Agent Do With a License?

If you’re having difficulty as a real estate agent finding clients wanting to sell a house, there are other things you can do to leverage your license.

Become a REALTOR

A REALTOR is a licensed real estate agent who is a member of the National Association of REALTORS® (NAR). However, a licensed real estate agent is not necessary a REALTOR. The NAR holds REALTORS to a higher standard by adhering to the Code of Ethics & Standards of Practice.

Many real estate agents decide to become REALTORS. This title can build confidence with potential clients and help agents gain more business.

Start a Property Management Company

A majority of states require that a property manager be licensed. A property manager’s responsibilities include marketing properties for rent, calculate rent affordability for a tenant, and handle repairs.

Running a property management company is an excellent way to supplement their income. A manager’s fee ranges from 6% to 10% of the monthly rental income. A property manager that takes care of multiple rental properties can make a sizable income.

For example, a rental property with a monthly rental of $1,500 and a 10% property management fee would yield $150 a month ($1,500 x 10%). Imagine managing 20 properties with the same monthly rental income; That is $3,000 a month ($150 x 20).

Perform Broker Price Opinion (BPO) Work

A Broker Price Opinion (BPO) is a report created by a licensed real estate agent that estimates a property’s value, similar to an appraisal.

The difference between an appraisal and a BPO is that the appraisal must conform to the Uniform Standards of Professional Appraisal Practice(USPAP). Also, a BPO can be relatively less expensive compared to a formal appraisal.

Final Thoughts

Acquiring a real estate agent license or registering as a REALTOR is a straightforward process. However, what you do after you pass the examinations is ultimately up to you.

A real estate agent’s salary can vary, which shows that the level of effort can directly affect success. You’ll need a good understanding of real estate legal knowledge and personal skills to coordinate a closing. If you have excellent sales ability and market skills, you may fit well for a real estate career.

However, don’t spend your time chasing commission checks. Instead, always put your clients first. A satisfied client can lead to referrals, which can generate more real estate sales.

Real estate is all about relationships. Sellers want to choose a real estate agent that they can trust.

This article originally appeared on Your Money Geek and has been republished with permission.

What Is Real Estate Commission?

What Is Real Estate Commission?

by | Dec 27, 2020 | Generation Z, real estate | 0 comments

If you are in the market to sell your home, a good real estate agent is an invaluable asset.

Agents help their clients navigate the market and find potential buyers, and in return for their time and expertise, they charge commission fees. But what exactly is covered in agent commission fees? And what can homeowners expect to receive in exchange for these costs?

Read on to gain a full understanding of what real estate commission is, how much it costs, who pays for it, and alternative routes sellers can take if they are looking to save money. There are 7 steps to buying a home that you can read about here.

What Is the Average Real Estate Commission?

How much is the commission of a real estate agent? According to a nationwide agent survey by Clever Real Estate, the national average is 5.45% of a home’s final sale price. However, the actual answer to that question really depends on which state you’re in, as realtor rates are highly localized.

For example, in Florida, commission fees average 6%, split between the buyer’s and seller’s agents. In Texas, on the other hand, commission fees average only 5.65%. Moreover, the rates in New York, California, and D.C. are all lower than the national average, at 5.29%, 5.02%, and 4.90%, respectively. Note, though, that home sale prices in New York, California, and D.C. are also higher than the national average, potentially offsetting any cost-savings one might gain from lower commission rates.

Prices vary because agents all charge different rates, and some agents will charge lower rates if you negotiate with them. Moreover, there are also discount brokers such as Clever Real Estate that negotiate with agents on their clients’ behalf for lower rates; but we will cover all of that later in this article.

Who Pays Real Estate Commission Fees?

Typically, it is the seller’s responsibility to pay real estate commission fees. That means sellers pay for both their own agent for listing the property as well as the buyer’s agent.

Agents will usually split the commission between themselves, but the split can vary. Sometimes, more experienced agents will get a larger cut than new agents. If an agent represents both the buyer and the seller, known as a dual agent, the agent will get paid both commissions.

Regardless, both the seller’s and the buyer’s agent fees are determined ahead of time in their respective contracts with their clients.

What Do Real Estate Commission Fees Cover?

Real estate agents charge a commission for their time, services, and expertise. A good real estate agent will make the home-selling process much smoother and should have a large network of potential buyers to show your property.

They know their locality like the back of their hand and can potentially bring in multiple offers, especially in a seller’s market. And multiple offers means you may even start a bidding war, which will give you more leverage during negotiations.

Your agent will also take care of the minutiae of selling a home, such as listing it on the MLS, marketing it via different real estate channels, negotiating with potential buyers, and finalizing the closing process.

Using a knowledgeable and well-connected agent is also more likely to result in a higher sale price. A recent survey by the National Association of Realtors found that the typical FSBO (“for sale by owner”) home sold for $190,000, compared with $249,000 for agent-assisted home sales. This enormous difference in the sales price and the amount owners save is why most people opt to use an agent.

Can I Negotiate Real Estate Commission Fees?

Yes, you can negotiate commission fees, and you should!

In the current seller’s market, agents know that clients can easily look elsewhere if they think their rates are too high. And if you’re in a hot market such as Miami or San Francisco or if you have a desirable home that will sell quickly, then you should definitely try negotiating a lower rate.

Although you can ask your agent for a lower rate, they are not required to oblige your request. According to a 2019 report by the Consumer Federation of America, 73% of agents said they would not lower their standard rate if a client asked. If you’re a glass-half-full kind of person, though, that study also reveals that more than one in four agents will lower their standard rate if a client asks. Therefore, it doesn’t hurt to try negotiating for a better deal.

Are There Ways Around Paying Commission Fees?

To avoid paying commission fees, homeowners can choose to forgo an agent altogether and use a local multiple listing service (MLS), which typically charges a flat fee between $99-$500.

However, the owner will be responsible for all of the responsibilities an agent usually handles, such as marketing their property, negotiating closing costs, home inspections, and more. Selling a home as FSBO (for sale by owner) is not quite a walk in the park, which is probably why only 7% of sellers used this method in 2019.

Another option that owners can turn to if they are looking to reduce commission costs is working with a discount real estate broker such as Clever Real Estate, which charges a flat fee for their services instead of a percentage-based commission. Clever negotiates better rates for their clients with top local real estate agents, offering a full-service sales experience for a flat fee of $3,000 or 1% if your home sells for more than $350,000.

These brokers can charge such competitive rates because they supply agents with a steady stream of revenue, allowing them to make up in volume what they sacrifice in commission.

Which Option Is Best for Me?

When determining whether to use an agent or which type of agent to use, you must consider how much time and effort you personally want to spend selling your home. If you are an experienced real estate professional who understands the market, then listing on a local MLS service might be the best route for you. If you are like most home sellers, though, and aren’t a real estate guru, then using an agent is probably the better option.

If you’re curious about what it would cost to use a traditional agent versus a discount broker versus a flat fee MLS listing service, here is an example to demonstrate what you’d pay in commission for each instance on a home that sells for $211,000:

The Traditional Model

Home price: $211,000

Seller Commission: 3%

Buyer Commission: 3%

 

($211,000 x 0.06) =

$12,660 total commission paid

The Discount Broker Model

Home price: $211,000

Seller Commission: $3,000 flat fee

Buyer Commission: 3%

Service Fees: $0

 

($211,000 x 0.03) + $3000 =

$9,330 total commission paid

The Flat Fee MLS Listing Model

Home price: $211,000

Flat Fee MLS Service Fee: $299

Buyer Commission: 3%

 

($211,000 x 0.03) + $299 =

$6,629 total commission paid

As you can see, the cost savings on using a discount broker versus a traditional agent are significant. That’s why many people opt for discount brokers such as Clever Real Estate. Clever offers its customers a full-service sales experience for a flat-fee of just $3,000 or 1%, and all of Clever’s agents are top-rated in their area.

Visit listwithclever.com to get in touch with thousands of local agents and list your home today.

This article originally appeared on Your Money Geek and has been republished with permission.

House Hacking 2020: Make Money With Less Down And Live For Free

House Hacking 2020: Make Money With Less Down And Live For Free

by | Dec 17, 2020 | Generation Z, Investing, Managing Money, real estate | 0 comments

My first house hacking was my first primary residence. Although I technically became a landlord, I didn’t consider myself a real estate investor.

I sold that property at my first opportunity. However, if I only understood real estate investing strategies, I would have never let that property go!

In 2011, my wife shared that she wanted to own a condo downtown and rent it out. I quickly disagreed with her and told her, “I didn’t want to fix toilets.”

Fast forward, and I now own multiple investment properties in my local real estate market. My journey reminds me of two things 1) I love real estate investing, and 2) my wife is always right!

What is House Hacking?

House hacking is when an owner lives in their property and rents out other parts of the property. Ultimately, the tenants are the ones paying the monthly mortgage payment while the owner lives rent-free.

For example, a person can buy multi-family property (e.g., triplex), live in one of the units, and rent out the other units. Another example is a person who owns a single-family home, lives in one of the rooms, and rents out the other rooms.

My simple house hacking strategy was owning a single-family house and having roommates pay rent. I didn’t do this to start building wealth. Instead, I invited my friends to live with me, primarily for social reasons.

I technically became a landlord. I owned the property, but my roommates were helping pay the mortgage!

Benefits of House Hacking

Looking for your first investment property but unsure of where to begin? House hacking provides multiple benefits, especially to rookie investors.

Live Rent-Free

The first big benefit of house hacking is living rent-free! A mortgage payment is composed of the principal amount, interest payment, and potentially mortgage insurance. However, the tenants are the ones paying back the debt service.

Financing

Lenders offer lower interest rates to people who will occupy their property compared to investors who do not. Lenders offer low-interest rates to people living on their property because they tend to take better care of where they live. Thus, they are less risky.

My rental properties’ interest rate is about three to six percent higher than my primary residence’s interest rate.

Low Down Payment

Owner-occupied properties don’t require as much of a down payment compared to non-owner occupied borrowers.

For example, the Federal Housing Administration (FHA) insures mortgage loans and only requires a down payment of less than five percent of the purchase price.

Non-owner occupied properties require 20 to 25 percent of the purchase price for a down payment. The down payment for owner-occupied borrowers is significantly lower compared to non-owner occupied borrowers.

I won’t bore you with the math. But, this low down payment makes house hacking a steal!

Passive Income

Aside from living rent-free, successful house hacking can generate monthly cash flow, known as the net operating income. You can calculate the net operating income (NOI) by subtracting the monthly operating expenses from the gross rental income.

Net Operating Income = Gross Rental Income – Operating Expenses

Below is a list of monthly operating expenses to consider:

  • Mortgage payment
  • Property Taxes
  • Property Insurance
  • Utilities
  • HOA fees
  • Property Management Company

How To Get Started In House Hacking?

Step 1: Become Creditworthy

The most powerful thing in real estate is leveraging other people’s money. Therefore, for a lender to approve you for real estate financing, you need to be as creditworthy as much as you can.

You can become creditworthy by improving your good credit score, having a stable income source, and reducing your debt-to-income ratio.

Step 2: Build a Relationship With a Local Bank

I always recommend new investors to build a relationship with a local bank or a credit union. A banker at a local bank can sometimes have more influence over your loan than a banker at a “big name” bank.

Communicate with your banker what you’re trying to accomplish with house hacking. A creative banker can develop loan suggestions to help you reach your goals, such as an FHA, 203k loan, or HomeStyle Renovation loan.

My banker works with many investors, and I’m fortunate to have built a great relationship with her. Her motto is, “I don’t invest in houses. I invest in people.” We’re at a point in our relationship where she increased our credit line, allowing us to purchase more properties.

Step 3: Study Your Local Real Estate Market

Study your local real estate market and look for areas with good house hack opportunities: research property values, rental income, and the kind of tenants in your market.

I practiced analyzing multiple properties before I made my first offer on an investment property. I calculated various numbers, such as the cash-on-cash return and the return on investment.

By the time I receive a lead, I know off the top of my head if it’s a potential deal or if I should move on.

Step 4: Create a Process to Find Leads

Finding real estate deals is the hardest part of real estate investing. Hence, you need to create a process that leads to potential deals, such as finding absentee owners.

Below is a list of ways you can generate leads:

  • Driving for dollars
  • Direct mail campaign
  • Signs
  • Online marketing
  • Reviewing property tax records
  • Work with a real estate agent.

Step 5: Make an Offer

There are always other investors looking for great deals. So, once you’ve analyzed the property, it’s time to pull the trigger and make an offer!

But, don’t be discouraged if you don’t get your offer accepted. As you make more offers on multiple properties, you’ll grow to see that you can’t win them all. You need one.

One year, I’ve analyzed over 50 properties, visited 12 of them, and made over five offers. Only one of my offers got accepted, and it was a great deal!

How to Grow Your Real Estate Portfolio

Rental property investing is a great way to generate passive income. However, if you’re looking to replace your income or become financially independent, you’ll need to scale your real estate portfolio.

BRRRR Method

BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. The BRRRR Method is a real estate strategy that allows investors to recoup their initial investment and put it towards another investment property.

I often use this strategy. In less than two years, I acquired three properties. The method can be challenging to grasp at first. Therefore, it’s easier to explain through an example:

BRRRR Method Example

Joe BUYS a $100,000 property. His down payment is $5,000, while a bank lends him $95,000. For the sake of simplicity, I’ll ignore closing costs.

He spends $10,000 on REHAB costs to increase the after-repair-value and RENTS his property for $1,300 after he made improvements. Therefore, his overall initial investment is $15,000.

After a few months, Joe requests a bank to perform a cash-out REFINANCE. The property appraises for $150,000, and a bank creates a loan 75% of the appraisal valuation. Therefore, the principal balance of the loan is $112,500 ($150,000 x 75%).

The new loan of $112,500 replaces the other loan of $95,000, pays Joe back his down payment of $5,000, and the rehab costs of $10,000.

Refinanced Amount – First Loan Balance – Down Payment – Renovation Costs = $112,500 – $95,000 – $5,000 – $10,000 = $2,500

The rental income of $1,300 pays down the $112,5000 mortgage loan. Joe recouped his $15,000 investment along with an additional $2,500 from the cash-out refinance.

Joe can REPEAT the process and use the $17,500 as a down payment toward a new investment property.

The key to this strategy is purchasing an undervalued property and force appreciation through renovations.

1031 Exchange

A 1031 exchange is an Internal Revenue Service tax code that allows an investor to defer paying capital gains tax on their property’s sale. According to the 1031 exchange rules, an investor needs to exchange their current property with one that has a replacement value greater than or equal to its own.

Regarding house hacking, you’ll need to own the property for at least two years before you can take advantage of this tax code.

For example, Nathan purchased a house hacking duplex for $150,000 and made improvements to the property over time. After a couple of years, the property value became $600,000, and the net proceeds of the sale are $500,000.

  • Original Purchase Price: $150k
  • Fair Market Value: $600k
  • Net proceeds: $500k

Nathan can keep the net proceeds. However, the government will heavily tax him.

He can also scale and put it towards a more significant investment property, such as a 24-unit apartment complex or multiple short term rentals!

Besides paying capital gains tax, Nathan has also increased his ability to generate more monthly cash flow, reduce his maintenance costs, and improve tenants’ quality.

He went from a real estate rookie living rent-free to becoming an experienced real estate mogul!

Common House Hacking Mistakes

Treating Investing as a Hobby

Real estate investing is a business and should be treated as one. A common mistake that new investors make is treating it as a hobby. They don’t give their investing the necessary attention required, which can lead to financial ruin.

Not Following The Law

The city can shut down your business if you ignore any rental laws, such as not following local zoning ordinances.

I visited a property for sale because the owner was attempting to do creative house hacking. He illegally created a duplex from a single-family house, and none of his work was up to code.

Thus, the city shut him down. He had to cut his losses and sell.

Not Property Screening Tenants

Screening your tenants and doing a background check is essential!

You might feel desperate to have anyone rent your property to pay the mortgage. However, unfavorable tenants could lead to damages to your property. Those damages could cost thousands of dollars in repair or even force your property into vacancy.

I had potential tenants applying for one of my properties. Unfortunately, they had two large dogs that I don’t accept as part of my policy. Even though it would be nice to take their application, I still had to weigh the risks and move on.

Not Budgeting For Repairs

Another common mistake is that new investors don’t account for potential repairs or vacancies as part of their analysis. Also, they don’t have sufficient cash reserves to pay for these potential expenses.

I strive to maintain at least three months’ worth of rental income for each of my properties in cash reserves.

Final Thoughts

I did my first house hack unknowingly. However, if I had a plan when purchasing my first property, I would do a 1031 exchange and scaled my real estate portfolio.

I purchased that house for $135,000 and rented it out for $1,300 before selling it. Zillow says the estimated rental income for that property is now $1,600, and its market value is over $200,000.

These house hacking strategies are a great introduction to anyone interested in getting into real estate. Like any investment, you need to analyze your local market to make sure it’s a great deal!

This article originally appeared on Your Money Geek and has been republished with permission.