The Basics of Real Estate License
Author: Robert Thatcher
Real estate is an industry that can help people experience great wealth. Many of the worlds richest people have made their money through real estate. It is no surprise that many people are looking into real estate as a career. Getting a real estate license allows you to help people buy and sell real estate. Each state has its own procedure on how to get a real estate license.
A real estate license is required in every state in order to practice as a real estate agent or broker. To get a license a person must be 18 years old or older, graduated high school or have a GED, and pass a written licensing test. Some states require schooling or college course work. The reason for testing and licensing is that real estate can be complicated and the laws can be hard to understand.
There are two levels of licensing in each state. A real estate agent can be a broker or salesperson. A broker can act on behalf of a client and a salesperson can only perform under the supervision of a broker.
The license test is administered by a state agency and the name of the actual test varies form state to state. You should go to the testing agency to determine your states exact licensing procedure. There are many variations on requirements like age, background, and education.
If education is required you should find out the specifics about this requirement. Some states require college course work, while others only require special real estate courses.
The test format can change at any time, so be prepared for any format. Basically, though, most states have a multiple choice test. The test will either be one part or broken into two parts. If in two parts, one part will generally cover key points and the other will get into specifics.
If you are wanting to persue a career in real estate the first step is finding out how to take the licensing test and how to prepare for it. Once you obtain your real estate license you are on your way to an exciting career.
How To Pay For A Wholesale Real Estate Deal
Author: Thomas Bartke
Now that you are on a wholesale investors’ in-house distribution lists, how can you make sure that you can actually get one of the great deals that are coming to your inbox? The answer in two words is “be prepared”. You have to know how you will pay for the deal, and what types of deals can be matched with your method of payment.
Cash
Some wholesale deals are so cheap because the property condition is too bad for conventional financing. You have to pay cash for these deals (or use certain types of “non-conventional” financing - see below). If this is what you’re looking for, it’s a good idea to have a current bank statement or other proof of funds ready to go. You can even put a copy of your proof of funds on file with your wholesale dealer.
He/she will give you preferential treatment knowing that you are a serious buyer. You may get a fax or phone call on their juiciest deals before everyone else.
Non-Conventional Financing
“Non-conventional financing” is “Private Money” or “Hard Money”. When using Private Money you find a private individual to put up the cash for you. This could be a friend, family member, or anyone else you know. Private lenders would do this because they can get a higher interest rate and the investment is secured by real estate with a large amount of equity.
Hard money lenders are in the business of arranging financing for distressed properties. They will let you borrow up to 65 to 75% of the value of the property. These loans are quite expensive, but the cost is offset by the low price of the property. It’s also a good idea to have your approval for financing, or proof of funds from your private lender on file with your wholesale distributor.
Conventional Financing
Some wholesale distributors will work with conventional financing on some of their deals. This applies only to properties that are in fair condition or better, because conventional lenders won’t do the loan on the major fixers. Because of the condition of the home and the extra time you will take to close you can expect these deals to be in the range of 75 to 90% of the fair market value. This is still an excellent bargain deal, considering that you don’t have to any major repairs.
Real Estate Valuation
Author: Steven Gillman
Real estate valuation for single family homes is typically done by using comparable sales. With income properties this just doesn’t work well. Imagine if you are looking at a 24-unit building. It would be difficult to find similar ones nearby that have recently sold.
It’s also not ideal to use replacement costs for income property appraisal. How do you figure replacement cost if there is no land for sale nearby with proper zoning? This is used as a secondary method, though, and can tell you if maybe you should be building instead of buying.
Real Estate Valuation By Cap Rate
Income properties are bought for the income. Income, then, is what is used to determine value. The rate of return investors in a given area expect gives you the capitalization rate, or “cap rate” for the area. This is what you use to accurately appraise an income property. Below is a somewhat simplified explanation.
The process begins with the gross income of a property. You then subtract all expenses, but not loan payments. For example, if a building’s gross income is $82,000 per year, and the expenses $30,000, you have a net (before debt-service) of $52,000. You then apply the capitalization rate to this figure.
Suppose the acceptable cap rate in the area is .10, for example (ask a real estate agent), meaning investors expect a return of 10% on the value of the property. You simply divide the income of $52,000 by .10. $520,000, then, is the indicated value of the building. Suppose the usual rate is .08, meaning investors in the area expect an 8% return. Then the value would be $650,000.
Easy Real Estate Valuation?
Take net income before debt-service, and divide by the “cap rate:” It’s a simple formula. However, the tough part is getting accurate income figures. Did the seller show you ALL the normal expenses? Did he and exagerate the income? Suppose he stopped repairs for a year, and also showed you the “projected” rents. In that case, the income figure could be $15,000 too high. The building would be worth $187,000 less (.08 cap rate) than your appraisal shows.
One thing smart investors do when buying, is to separate out income from vending machines and laundry machines. If these provided $6,000 of the income, that income would add $75,000 to the appraised value (.08 cap rate). Instead, do the appraisal without this income included, then add back the replacement cost of the machines (probably much less than $75,000) to arrive at a valuation.
Of course, you should be careful with any real estate appraisal method. There is no perfect appraisal method, and all are only as good as the figures you plug into them. If used wisely, though, appraisal by capitalization rates is one of the most accurate methods of real estate valuation.