Real Estate Investing Articles

You can put the blame for the concept of restricted land use and zoning laws directly on the Manhattan skyline. Almost a century ago, in 1915, when the Equitable Building’s 42-story shadow cast almost seven acres of land into perpetual gloom, New York City residents started complaining about property devaluation (and haven’t stopped since). A year later, the first zoning laws were enacted, and have since changed numerous times to accommodate an ever burgeoning populace.

The real estate investor who does not know or understand the zoning laws for the area in which the investment or rental property lies does so at his own risk. Laws vary broadly from city to city, even within the same county. The intention of zoning laws is to help property owners and their tenants to peacefully co-exist, with the full backing of the law.

But zoning laws can and do change over time, and an investor should understand that what a tenant may or may not legally do today, may not be the case in the future. In some instances, the misbehavior of your renters, especially if you are the owner of a multi-dwelling complex, can generate complaints to zoning officials, resulting in changes to the existing laws. You, as the property owner, have the obligation to ensure and enforce the applicable zoning laws.

What you can do:

First, be aware of the zoning laws yourself. Contact the local planning board, and get a copy of the statutes, even before you purchase a property for rental usage. Consider how possible changes to the zoning laws might affect you.

Second, clearly understand the demarcation of zones; as urban sprawl continues to spread, you may find that a potential rental property complex is actually in a zone designated for commercial use. That may be a risky investment; if it was brought to the attention of the Planning Board they have every right to deny its continued use as a residential property. While you might think you can apply for a variance after the fact, the big “what if” should be foremost among your considerations.

Third, advise your tenants, in writing, that the property is zoned for residential occupancy, and a home-based business may not comply with the zoning requirements. All tenants should seek permission from you first, and not just assume that because they’re “quiet or won’t bother anyone,” that it wouldn’t be a problem.

Fourth, zoning laws are not written in stone; there are circumstances which may warrant a variance, which is an exception to the existing law, or for an application for zoning change. The approval of a variance to existing zoning laws is generally simpler to obtain, usually requiring only a statutory review of the specified criteria. On the other hand, a zoning change application is a lengthy procedure, since you are suggesting that the highest and best use of the property is other than the one it’s designated for. The appeal for re-designation may test the resources of the property owner, both in terms of time and money. Under either the request for variance or the zoning change, a property owner should be prepared to argue his point in front of a public hearing of the planning board, and be ready to refute any opposition.

Residential zoning laws can be a major obstacle for property owners and investors, but provided that you’re aware, up front, of what you can and can’t do with your property, you won’t be caught in a property zoning nightmare. Property owners must be proactive with respect to the zoning laws, and should bear in mind that what they assume to be the legal permitted use of a particular, potential investment property, may in actuality be an illegal use of the property. That wonderful duplex you visited at an open house, and have your eyes (and hopes) set on, may be zoned for single family dwelling. The onus is on you to verify that information before you buy. “I didn’t know,” won’t carry much any weight, with the local zoning board.

Barb Zigah is a freelance writer covering real estate and business topics.

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Posted by Barb Zigah under due diligence & real estate investing | 1 Comment »

The typical real estate investor may be a “jack of all trades,” but that doesn’t necessarily make him successful, it just makes him tired. The successful investor knows that in order to succeed, he has to surround himself with people who are smarter than he – those individuals very knowledgeable in the business and with a good track record. That’s a proven concept, employed by successful businessmen as well as politicians (though not necessarily “good” politicians, just successfully elected ones).

The key to establishing a great team is to put together players who are successful in their own right or have the potential to succeed. Your real estate investment team can have as few or as many individuals as you need – unlike a sports team where you can’t exist without your pitcher, power forward or wide receiver, you can get along with only a couple of players and still succeed.

First String Team Members

Investment Advisor or Certified Financial Consultant – This individual is going to manage your entire investment portfolio, ensuring that the retirement goal that you’ve set remains in focus at all times, and makes recommendations towards achieving that goal. He should always have your best interests at heart.

Real Estate Attorney – A good attorney is invaluable for reading, drafting and understanding legal contracts, knowing the legality of your property deals, and understanding the laws in the state or community in which you own the property.

Certified Public Accountant – Your number cruncher should be well versed in real estate-related accounting transactions. He’s going to be your go-to guy when tax time comes around, and you’re wondering about your deductions and write-offs. This individual may also be an excellent source of referrals for property acquisition.

Real Estate Agent – Unless you have access to the latest MLS updates, your realtor will be your best asset, alerting you to new properties coming onto the market; a realtor with BPO (broker price opinion) experience, provides even more of a benefit.

Traditional Lender or Mortgage Broker – Face it, you can’t do anything without financing; you need to know where or who to turn to for the amount you need, at a competitive interest rate as soon as you find a property.

Insurance Agent – For an investor with a good number of properties, your agent can help you set up policies, advise you to ensure that you have adequate protection at all times, and help you through the red tape of filing a claim.

Title or Escrow Agent – This individual will make your property closings infinitely smoother and relatively stress-free. A competent agent will ensure that your transactional information is accurately recorded, and that you pay only the appropriate fees. They should be looking out for your best interests.

Second String Team Members

Property Manager – When you can’t be everywhere at once, and find the day-to-day tasks of numerous property ownership overwhelming, a qualified property manager will be the best option to run the operation on your behalf, leaving you time to pursue other opportunities.

Property Handyman – A handyman kept on retainer may be a good alternative to a property manager; however, they should have a basic knowledge of what makes a home tick and be available to fix minor repair needs. Your goal is to hire a Ty Pennington or Bob Vila, not a “Tim ‘the Toolman’ Taylor” from the old television comedy, Home Improvement.

Contractors – If you are beyond the need for basic home repairs, and intend to buy and flip properties that may need some “updating,” you need a reputable contractor to assist you with ongoing and new projects. Finding a contractor that contains costs, works to specs, and finishes within the agreed time, is crucial.

Finally, though not officially part of your team, they are the ones who are your real support: your family, friends and mentor. Without their encouragement, would you really be where you are today?

Putting a successful team together may take some time, and it’s important enough a concept that you don’t rush or “settle” for just anyone. Where do you find your team players? Some you may already know, but see them in a different light – as a member of your community, swim club or religious affiliation. You need to ask around, pass around your business cards, get referrals and then interview your candidates.

It’s important to remember the immortal words of the great philosopher-cum-basketball player, Kareem Abdul-Jabbar, “One man can be a crucial ingredient on a team, but one man cannot make a team.”

Barb Zigah is a freelance writer covering real estate and business topics.

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Posted by Barb Zigah under Real estate investor resources & due diligence & real estate investing | No Comments »

Home Inspections should be a very critical piece of any investors due diligence process. Due diligence is an important concept that anyone interested in real estate investing needs to commit to memory. The most logical example of due diligence would be to compare the sales price of a home to the sale price of similar homes in the surrounding area. If a house’s asking price is $250,000 and similar homes are going for $180,000 then a number of questions need to be asked regarding the true value of a home. This type of due diligence is very common and often not overlooked. Home inspections, on the other hand, are often considered as optional for some investors… at their own peril!

Home inspections should be undertaken on each and every property, lest an investor finds his or her plans for the property will built on shaky ground. Costs for necessary improvements to the property should always be considered by investors before deciding to purchase a property and at what price. Home inspections are primarily for the purpose of sniffing out some of these potential problems. For example, the home could be infested with termites, have a leaky roof or need to have its malfunctioning siding replaced. Had you purchased the home without discovering these defects, you would have overpaid relative to your cost/benefit analysis.

These problems can be avoided up front by paying for a home inspection. Home inspectors will examine the property, note the flaws and provide advice on steps that can be taken to correct the flaws. Good home inspectors should even be able to give you ballpark estimations for replacing and repair costs. Clearly, no one would want to make an investment without full understanding and disclosure of what the investment entails. So, the question remains why would anyone enter into a real estate investment undertaking a home inspection?

Finding a reliable home inspector is not as difficult as some would assume. There are a number of professional home inspectors who work in cities all over the United States. It is best to select one who is properly licensed and has significant experience in the field. This is not to say that someone with limited experience can’t do a good job. There are many builders or contractors turned home inspector that are able to translate their prior work experience directly to the art of home inspection. Since most home inspectors cost about the same amount, you would do well to find one with lots of experience and excellent referrals.

It will be critical to make sure the home inspector has complete and total access to the home and is given a reasonable amount of time to inspect the home without distractions. Keep in mind, the home inspector is basically safeguarding your potential investment and you want to make sure they do a proper job without interference.

The ultimate purpose of home inspection for an investor is to ascertain the true value of a home, including any necessary improvements. If it’s true that you make your money when you buy a home, then a home inspection should be mandatory.

A.M. Caro is a freelance writer from Southern California.

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Posted by A.M. Caro under due diligence | No Comments »